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Madrid
Barcelona
Valencia
Strategic management
www.esic.edu
Sevilla
Zaragoza
Málaga
Galicia
Pamplona
Bilbao
Granada
D. Fernando Flores Bas Pozuelo de Alarcón. AA: 2019-2020
Fernando Flores – professional background
● Companies
– CIONE – Grupo de Ópticas
– Gestair
– Endesa
– The Gillette Co.
– Sheraton
– International Paper Co.
– Loewe
● Areas of responsibility
– CEO
– General Management
– Finance Management
● Other references
– Professor of ESIC, EAE and Villanueva University (Complutense)
– Member of IESE Association
2
Cione
Classes objectives
● Provide a clear understanding of the dynamics of the strategy, the tools of the strategy analysis
and the business and corporate strategies for the quest and development of competitive
advantages
● Learning approach
– Global mindset in the development of the strategy
– Innovation as a source of competitive advantage
– Corporate social responsibility integrated within the strategy
– Individuals with exemplary values and ethical behaviour
4
Classes objectives
– Understand the basic concepts of the strategy, its components and the importance of managing and leading the
development of a strategic plan of a firm
– Identify how digitalisation is impacting the main fields of strategy and is changing existing business models
– Determine, evaluate and assess characteristics, strengths and weaknesses of different strategies
– Manage different tools and techniques to evaluate and propose alternative strategic business models and/or solutions
– Evaluate and assess different organisation models in the accomplishment of the strategic objectives
– Identify and be familiar with the roles and responsibilities of the board of directors in relationship with the strategy and
the coordination with top management
5
Classes outline
5. Strategy formulation
7. Strategy implementation
6
Master in International Trade Business
Madrid
Barcelona
Valencia
Strategic management
www.esic.edu
Sevilla
Zaragoza
Málaga
Galicia
Pamplona
Bilbao
Granada
Profes. Fernando Flores Bas Pozuelo de Alarcón. AA: 2019-2020
Classes outline
5. Strategy formulation
7. Strategy implementation
8
Definition of strategy
9
Definition of strategy
10
Definition of strategy
– Kind of company it is or is to be
– Competitive advantage
– Allocation of resources
11
What is a competitive advantage?
12
What is a competitive advantage?
13
What is a competitive advantage?
• Best products/services
• Similar/superior prices
than competitors
• Similar products/services
• Lower prices than
competitors
14
What is a competitive advantage?
● Superior performance than competitors or much better than the average of the industry
– Higher profit margin, greater return on assets (ROA), unique technology in producing a product, etc.
● Can emerge due to changes in external environment or can be created inside the company
● When a competitive advantage remains over a long period of time it becomes a sustained
competitive advantage
15
Describing Coca – Cola strategy
16
What means a strategic planning process?
The process and methodology through which managers create and
implement a strategy that can lead to a sustainable competitive advantage
Participants
– CEO
– Board of directors
– Directors
– Managers
– Consultancy firm?
17
Key points of a strategic planning process?
18
Strategic planning process
Initial assessment
T
H
E Environment analysis
P
R
Strategy formulation
O
C
E
S Strategy implementation
S
19
Strategic planning process
Initial assessment
P
R
Strategy formulation
O Where are we going?
C
E
S Strategy implementation How are we getting there?
S
20
Classes outline
5. Strategy formulation
7. Strategy implementation
21
Managing strategic tools
Initial assessment
T
H • Vision Strategic
E Environment analysis
• Mission purpose
P • Values definition
R
Strategy formulation
O
C
E
S Strategy implementation
S
▪ Leadership style
Monitoring and results
evaluation When setting up the vision,
▪ Culture
mission & values managers
▪ Size
should take into account
▪ Stakeholders
22
Vision statement
● It concentrates on the future and is a source of inspiration for all employees within
the organisation
23
Vision statement
A few examples
24
Vision statement
A few examples
25
Mission statement
Why do we exist?
● Is a description of what an organisation actually does, what its business is and why it does it
– Serves as a filter to separate what is important from what is not
– States which markets will be served and how
– Communicates a sense of intended direction to the entire organisation
● Reviewed according to the frequency of major changes made within the business or the
organisation
26
Mission statement
A few examples
Inspire and nurture the human spirit – one person, one cup and one
neighborhood at a time
Spread ideas
27
Mission statement
A few examples
28
Values
29
Values
Company Personal
values values
30
Values
31
P&G vision, mission & values
Vision
“Be, and be recognised as, the best consumer products and services company in the world”
Mission
“We will provide branded products and services of superior quality and value that improve the lives of the world's
consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit
and value creation, allowing our people, our shareholders and the communities in which we live and work to
prosper”
Values
“Integrity, Leadership, Ownership, Passion for winning, Trust”
32
Hitachi vision, mission & values
Vision
“Hitachi delivers innovations that answer society's challenges. With our talented team and proven experience in
global markets, we can inspire the world”
Mission
“Contribute to society through the development of superior, original technology and products”
Values
“Harmony (Wa) – The willingness to respect the opinions of others and discuss matters in a manner that is
thorough and frank, but fair and impartial……
Sincerity (Makoto) – To approach issues openly and honestly…. Is the spirit that inspires the confidence that
society has placed in us
Pioneering Spirit (Kaitakusha-seishin) – A purposeful approach to one's work based on individual initiative…….
Is a keen desire to be at the forefront of technology……. These objectives are achieved by promoting the limitless
potential of each individual member of Hitachi”
33
vision mission
reliability of products and services, within a products and services, in response to the
responsible and sustainable social environment needs and expectations of our stakeholders
values
34
Managing strategic tools
Initial assessment
T
H
• External analysis
E Environment analysis • Internal analysis
P
• Critical success factors
R • Unique selling proposition
Strategy formulation
O
C
E
S Strategy implementation
S Tools
• PESTEL analysis
Monitoring and results
evaluation • CAGE model
• Porter´s 5 forces model
• Competitor analysis
• SWOT analysis
• VRIO
• Value chain
• Business canvas model
35
PESTEL analysis
Tool aimed to explore the external macro environmental
factors that might be affecting the position of a business
P
E
Political
S
T
Legal Economic P
+
E
E
L Industry Industry
Firm
=
S
P Environ- Socio-
Industry
mental cultural
E
T
S
T
Technolo-
E gical
L
36
PESTEL analysis
What changes do we exactly look for in
politics, economy, society and technology?
S
Social factors Technological factors
• Population growth rate • R&D activities and investment
• Population health and education • Technology incentives T
• Age distribution & expectancy rates • Legislation
• Sex distribution • Basic infrastructure
• Lifestyles • Communication infrastructure
• Buying habits • Internet infrastructure & penetration
• Religion and beliefs • Access to newest technology
• Attitudes towards savings, product • Rate of technological change
quality, customer service, leisure..
37
PESTEL analysis
What changes do we exactly look for in
politics, economy, society and technology?
Environmental factors
• Weather
• Climate change
Environmental • Environment legislation
• Pollution
(ecological) • Waste and recycling policies and
management P
Political Economic • Attitude towards ecological products
and support for renewable energy
E
factors factors
S
Social Technological
+ Legal factors
• Anti-trust law
T
E
factors factors
• Discrimination law
L
• Copyright, patents, intellectual
Legal property law
• Employment law
• Health and safety law
• Education law
• Data protection
39
PESTEL analysis
● Political
– Relatively low initial investment in terms of capital expenditure
– Information Technology Act, 2000 approved by the parliament aims to punish people who send offensive
messages online, but is often used to target dissident posts on social media. In the past, ambiguity related to
the definition of offensive content has been open to personal interpretation
– Indian Copyright Act, 1957. To date, this law has failed to check the exchange of pirated content, making it
harder for SVoD companies to be able to add value for their customers
● Economic
– India is a price – conscious market and the value versus price debate is useless
– Payments means in India are mainly through debit card more than credit card and Paypal
– Urban and rural areas with different internet penetration. High in urban areas but 70% of the population lives
in rural India with low internet penetration
– Purchasing power is very low; $ 1,582 as of 2015 despite expectations for 2020 are of $ 3,000
40
PESTEL analysis
● Social
– Despite a remarkable shift among Indian consumers from traditional to digital media, a major part of the
Indian populations still prefers the traditional media (TV and cinema) which may be a limitation factor
– Vast array of cultures, religions and languages (15)
– Preferences, behaviours and beliefs of Indian consumers vary in each region
● Technological
– Broadband infrastructure and payment modes are major challenges that still needs to be fixed
– Payment systems are critical to the over the top (OTT) ecosystem and hold great importance for paid
services. Billing through the Indian Reserve Bank authentication process might be difficult for multinationals
41
PESTEL analysis
● Environment
– Due to the nature of the industry there is no relevant issues on this part that should be considered
● Legal
– Interpretation of censorship law is not easy to handle… very strict
– The constitution of India (article 19) guarantees freedom of speech and expression but no the right to offend
on topics of morality, decency and public order. However the Indian Penal Code allows for cramping free
speech on the grounds of outranging religious feelings or making statements creating or promoting enmity,
hatred or ill – will between classes on grounds of religion, caste, language or race
42
PESTEL analysis
Economic factors
Political factors
• India is a price – conscious market
• Information Technology Act, 2000
• Payments in India through debit cards
✓ Ambiguity in the application: punish
• Urban and rural areas with different
people sending offensive messages
online but often used to target
internet penetration; high in urban but Social factors
70% lives in rural areas
dissident post on social media • Most of the Indian consumers are
• Purchasing power is very low; $1,582
• Indian Copyright Act, 1957 traditional and prefers TV and cinema
per capita instead of digital media
✓ This law has failed to check the
exchange of pirate content • Vast array of cultures, religions and
languages
• Preferences, behaviours and beliefs
of Indian consumers vary in each
PESTEL region
analysis
Legal factors
• Interpretation of censorship law is
not easy to handle…. very strict
Technological factors
• The Indian Constitution (art. 19th) • Broadband infrastructure and payment
guarantees freedom of speech and Environmental factors modes are a major challenge that still
expression but the Indian Penal • Due to the nature of the industry there needs to be fixed
Code allows for cramping free is no relevant issues to be considered • Billing through the Indian Reserve
speech under certain (unclear) apart from the impact of the climate Bank authentication is an issue
circumstances change in agriculture, energy, floods
and potential exacerbation of
inequality
43
PESTEL analysis
Economic factors
Political factors
• India is a price – conscious market
• Information Technology Act, 2000
• Payments in India through debit cards
✓ Ambiguity in the application: punish
• Urban and rural areas with different
people sending offensive messages
online but often used to target
internet penetration; high in urban but Social factors
70% lives in rural areas
dissident post on social media • Most of the Indian consumers are
• Purchasing power is very low; $1,582
• Indian Copyright Act, 1957 traditional and prefers TV and cinema
per capita instead of digital media
✓ This law has failed to check the
exchange of pirate content • Vast array of cultures, religions and
languages
• Preferences, behaviours and beliefs
of Indian consumers vary in each
PESTEL region
analysis
Legal factors
• Interpretation of censorship law is
not easy to handle…. very strict
Technological factors
• The Indian Constitution (art. 19th) • Broadband infrastructure and payment
guarantees freedom of speech and Environmental factors modes are a major challenge that still
expression but the Indian Penal • Due to the nature of the industry there needs to be fixed
Code allows for cramping free is no relevant issues to be considered • Billing through the Indian Reserve
speech under certain (unclear) apart from the impact of the climate Bank authentication is an issue
circumstances change in agriculture, energy, floods
and potential exacerbation of
inequality
44
CAGE model
45
Five forces model
● Captures the main idea of Porter´s theory of competitive advantage
● Determine industry profitability and attractiveness; some sectors are more profitable
than other
● Highlights what is important and directs managers towards those aspects most important
to generate a long term advantage
46
Five forces model
● Industry attractiveness
– Value of the product to customers
– Intensity of competition
Homogeneous
Product differentiation Potential for product differentiation
(commodity)
No impediments for
Information availability Imperfect availability of information
information flow
47
Five forces model
New
entrants
Threat of…
Bargaining Bargaining
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry
Threat of…
Substitutes
48
Five forces model
New
entrants
Threat of…
Bargaining Bargaining
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry
49
Five forces model
Substitute products
● Substitute products are those that the customer views as alternatives; i.e. those that
give the consumers the same or similar benefits
– Contact lenses vs. eyeglasses vs. surgery
– Artificial sweeteners vs. sugar
– Plastic containers vs. glass vs. tin vs. aluminium
50
Five forces model
Substitute products
51
Five forces model
Degree of difficulty to enter in an industry;
profitable markets with high profits will
New
attract firms
entrants
Entry barriers:
Threat of…
Capabilities to impede the entry of new compe-
titors. Determined by:
- Competitive advantages
Bargaining Bargaining - Resources of firms competing
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry
Threat of…
Substitutes
52
Five forces model
Threat of new entrants
● Type of barriers
– Advertising; companies can seek to make it difficult for new competitors by spending heavily on advertising that
new firms would find more difficult to afford. This is known as the market power theory of advertising
– Cost advantages, independent of scale; proprietary technology, know-how, favourable access to raw materials,
favourable geographic locations, learning curve, etc.
– Customer loyalty; large companies may have existing loyal customers to established products. The presence of
established strong brands within a market can be a barrier to entry in this case
– Distributor agreements; exclusive agreements with key distributors or retailers can make it difficult for other
manufacturers to enter the industry
– Economies of scale; large experienced firms generally produce goods at lower costs than small inexperienced firms
– Globalisation; entry of global players into local market make entry of local players into the market difficult
– Government regulations; it may make entry more difficult or even impossible. Government may make competition
illegal and establish a statutory monopoly. Requirements for licenses and permits may raise the investment needed
to enter a market, creating an effective barrier to entry
– Inelastic demand; strategy of selling at a lower price in order to penetrate markets. This might be ineffective with
price – insensitive consumers
53
Five forces model
Threat of new entrants
● Type of barriers
– Intellectual property; potential entrant requires access to equally efficient production technology in order to freely
enter a market. Patents give a firm the legal right to stop other firms producing a product for a given period, and so
restrict entry into a market
– Investment; need of high level of investments. This is the case in industries with economies of scale and/or natural
monopolies
– Network effect; when a good or service has a value that depends on the number of existing customers then
competing players may have difficulties in entering a market where an established company has already captured a
significant user base
– Predatory pricing; the practice of a dominant firm selling at a loss to make competition more difficult for new firms
– Restrictive practices; such as air transport agreements that make it difficult for new airlines to obtain landing slots
at some airports
– Research and development; some products require a large upfront investment in technology which will deter
potential entrants
– Supplier agreements; exclusive agreements with key links in the supply chain can make it difficult for other
manufacturers to enter
54
Five forces model
New
entrants
Threat of…
Bargaining Bargaining
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry
55
Five forces model
Bargaining power of buyers
● Determinants
– Bargaining leverage
○ Size and buyer concentration, buyer volume
○ Buyer information availability about supplier´s product, prices and costs
○ Threat of backward integration
○ Availability of existing substitute products
– Price sensitive
○ Buyer price sensitivity; importance of an item as a part of total cost
○ Product differentiation; brand identity
○ Impact on quality, performance or service level to the buyer
○ Buyers intensity of competition (profitability)
○ Decision makers´ incentives
56
Five forces model
New
entrants
Threat of…
Bargaining Bargaining
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry
Threat of…
57
Five forces model
Bargaining power of suppliers
● Determinants
– Concentration of suppliers
– Suppliers branding
– Profitability of suppliers
– Threat of forward integration by suppliers relative to the threat of backward integration by customers
58
Five forces model
New
entrants
Rivals can compete aggressively in:
• Price Threat of…
• Non–price related items; innovation,
marketing, etc.
Bargaining Bargaining
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry
Threat of…
Substitutes
59
Five forces model
The intensity of competitive rivalry
● Determinants
– Industry concentration – number of competitors
– Industry growth – market growth
– Fixed cost allocation – economies of scale
– Product differences – product differentiation
– Industry overcapacity – storage cost
– Exit barriers
– Switching cost – switching from one product to another
– Diversity of competitors – culture, philosophy, history, etc.
– Brand identity – level of advertising expenses
– Corporate commitments
– Industry shakeouts
60
Five forces model
New
entrants
Threat of…
Bargaining Bargaining
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry
Threat of…
Substitutes
61
Five forces model
New
entrants
Threat of…
Bargaining Bargaining
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry
The suppliers of
complements create value
Threat of… for the industry and can
exercise bargaining power
Complements
Substitutes
A missing force in
the Porter model?
62
Five forces model
63
Five forces model template
YES M NO
1. Threat of new entrants Remarks
(+) (=) (-)
Do large firms have a cost or performance advantage in your segment of
industry?
Does the newcomer have any problems in obtaining the necessary skilled
people, materials or suppliers?
Does your product or service have any proprietary features that give you lower
cost?
Are there any licenses, insurances or qualifications that are difficult to obtain?
64
Five forces model template
65
Five forces model template
Is there anything which prevents your customer from taking your function in-
house?
66
Five forces model template
YES M NO
4. Bargaining power of suppliers Remarks
(+) (=) (-)
My inputs (material, labour, supplies, services, etc.) are standard rather than
unique or differentiated
67
Five forces model template
YES M NO
5. Determinants of rivalry among existing competitors Remarks
(+) (=) (-)
The fixed cost of the business are a relatively low portion of total cost
There are significant product differences and brand identities between the
competitors
It would not be hard to get out of this business because there are no
specialised skills and facilities or long-term contract commitments, etc
68
Five forces model template
2. Threat of substitutes
TOTAL
69
Netflix in India: the way ahead
70
Five forces model
● Threat of substitutes
– Large variety of entertainment options
o Home entertainment: TV, video, cd´s, video games (Nintendo, Play Station, Wii, etc.) other games…
o Sports: football, basketball, hockey, tennis, etc.
o Live performance: theatre plays, musicals, concerts, opera, ballet, etc.
o Others: cinema, zoo, reading, etc.
71
Five forces model
72
Five forces model
● Rivalry among competitors
– Although SVoD is new in India, it has gained popularity with the launch of websites and applications such as
Hotstar and Eros Now
– Competitors with huge content libraries with Western titles and Indian shows and live sporting events
– Free services (as a consequence of consumer pressure) threatening the demand for any new competitor
– However India is still in the developing phase of watching non – linear video. Traditional TV broadcasters
and producers are launching online video platforms and “everywhere” apps. Global players such as Apple´s
iTunes store and Google play store also have their presence in India and offer content through electronic
sell-through
– At the same time, YouTube continues to take the largest share of online video viewing in India accounting for
more than 50% of all online videos watched
73
Five forces model
Entry barriers (Medium)
New
• Low level of capital expenditure
entrants
• High production (content) cost
Suppliers (High)
• Long term exclusive content
• Licensor full control of the
licences
content (production companies, Threat of…
videos, movies, shows, etc.)
Competitive rivalry
Bargaining (High) Bargaining
power of… power of…
• Many powerful rivals:
Suppliers Hotstar, Eros Now, Buyers
Google Play, YouTube,
iTunes
• Competitors with huge
content libraries
Buyers (High)
• No real differentiation
Substitutes (High) Threat of… • No brand loyalty
• Large variety of entertainment • SVoD services for free
options (TV, videos, console
games, sports, cinema, theatre, Substitutes
musicals…)
74
Five forces model
Entry barriers (Medium)
New
• Low level of capital expenditure
entrants
• High production (content) cost
Suppliers (High)
• Long term exclusive content
• Licensor full control of the
licences
content (production companies, Threat of…
videos, movies, shows, etc.)
Competitive rivalry
Bargaining (High) Bargaining
power of… power of…
• Many powerful rivals:
Suppliers Hotstar, Eros Now, Buyers
Google Play, YouTube,
iTunes
• Competitors with huge
content libraries
Buyers (High)
• No real differentiation
Substitutes (High) Threat of… • No brand loyalty
• Large variety of entertainment • SVoD services for free
options (TV, videos, console
games, sports, cinema, theatre, Substitutes
musicals…)
75
Five forces model
New
entrants
Threat of…
Bargaining Bargaining
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry
Predictions
What assumptions does the competitor hold
Assumptions
about the industry and itself?
What strategy changes
will the competitor
initiate?
How will the competitor
What are the competitors strengths and Resources and respond to our initiatives?
weaknesses? capabilities
77
Industry segmentation
%
Industry profit pool
25
Leasing
20
Operating Margin
Service
Warranty
15 & repair
New car
5 dealers
Used car dealers
World
Broad GLOBAL BROAD-LINE
Automobile
PRODUCERS
industry GM, Ford, Toyota, Honda,
VW, Renault, Nissan, Fiat
Chrysler
Product Range
NATIONAL PRODUCERS
GLOBAL PRODUCERS
OF INTERMEDIATE
OF A LIMITED RANGE
RANGE OF MODELS
Tofas (Turkey), Proton (Malasya),
OF MODELS
BMW, Subaru, Isuzu, Suzuki
Tata Motors (India), Geely
(China), AvtoVAZ (Russia)
NATIONALY FOCUSED
SPECIALIST PRODUCERS PERFORMANCE
Bristol (U.K.), Tesla (U.S.), Classic CAR PRODUCER
Roadster (U.S.), Morgan (U.K.), Saab, Aston Martin,
Spyker Cars (Neth.) Ferrari, Rolls Royce
Narrow
79
SWOT analysis
Analysis of an organisation strengths and weaknesses and
opportunities and threatens present in the external environment
Positive Negative
To achieving the objective To achieving the objective
Organisation related
Internal origin
External origin
Market related
S
Strengths
W
Weaknesses
O
Opportunities
T
Threats
80
SWOT analysis
● Benchmarking
● VRIO (value, rare, inimitable and organisation) Difficulties to satisfy
the market
What could you
Resources and skills that Positive Negative improve or at least,
contributes to reach the To achieving the objective To achieving the objective reach the same level of
opportunities
your competitors?
What do you do better or
Organisation related
Internal origin
have more value than your
S W
competitors?
Strengths Weaknesses
External origin
Market related
O
Opportunities
T
Threats
81
SWOT analysis
● PEST or PESTLE analysis
● Competition (as a source of information)
● Market changes (as a source of inspiration)
Positive Negative
To achieving the objective To achieving the objective
Organisation related
Risks originated by
Internal origin
W
the market
S
External situations that
can be transformed into a Its importance
competitive advantage Strengths Weaknesses depends on the level
Business opportunities of impact and its
based on better strengths possibilities of
than competitors External origin concurrence
Market related
O
Opportunities
T
Threats
82
Netflix in India: the way ahead
83
SWOT analysis
AREAS OF GROWTH AREAS OF OPPORTUNITIES
Strengths Opportunities
• Brand recognition even prior to its entry into • New original in-house content. Indian
India due to its original series consumers are waiting for new production
series. Based on its success Netflix should
• Accessibility in almost any internet-enabled position itself as a one-stop shop for
devices entertainment
• Original content; Netflix has award-winning • Expand beyond movies like large-scale sporting
External Analysis
Internal Analysis
original content... House of cards.. events (cricket) of high interest for Indian
consumers
Weaknesses Threatens
• Cost of hosting and creating content to Indian • Competition:
consumers will be high (cultural and regional • Online market for SVoD services is constantly
backgrounds) changing driven by technological
advancements
• High subscription prices for a price-sensitive • Eros Now and Hotstar have gained market
Indian market. Might be a major barrier for share due to earlier market entrance
potential suscriptors • Piracy; people download content for free..
• Interpretation of censorship law might be a
threaten to stream uncensored content
84
Edition: 2018
Opportunities – SWOT analysis Review: 4
Date: 20-06-2018
Rating guidelines
3 Ideal – Could not be better – Excellent – Exceeding expectations
-1 At initial stage
86
VRIO model
Is the tool used to analyse firm’s internal resources and capabilities to
find out if they can be a source of sustained competitive advantage
87
VRIO model
● Valuable
– A resource adds value by enabling a firm to exploit opportunities or defend against threats. Resources are also
valuable if they help organisations to increase the perceived customer value
● Rare
– Resources that can only be acquired by one or very few companies are considered rare. On the other hand, the
situation when more than few companies have the same resource or uses the capability in the similar way, leads to
competitive parity
● Difficult to imitate
– A resource is costly to imitate if other organisations that doesn’t have it can’t imitate, buy or substitute it at a
reasonable price. Three reasons why resources can be hard to imitate:
o Historical conditions; resources that were developed due to historical events or over a long period usually are costly to
imitate
o Causal ambiguity; firms cannot identify the particular resources that are the cause of competitive advantage
o Social complexity; the resources and capabilities that are based on company’s culture or interpersonal relationships
● Organised to capture value
– The resources itself do not confer any advantage for a company if it’s not organised to capture the value from them
– A firm must organize its management systems, processes, policies, organisational structure and culture to be able to
fully realise the potential of its valuable, rare and costly to imitate resources and capabilities
88
Netflix in India: the way ahead
89
VRIO framework for Netflix in India (*)
Capabilities V R I O
Valuable Rare Difficult to imitate Support organisation
Brand name
(One of the most recognised brands in the industry + can leverage its brand equity and gain Yes Yes Yes Yes
penetration in different markets)
High quality streaming
(Unlimited high quality streaming in TV shows, movies, comedy specials and original Yes No Yes Yes
productions)
Convenience
(Access entertainment as per customer choice, anywhere + streaming accessible on every Yes Yes Yes Yes
device)
Business model
(Provides commercial-free platform, unlikely most of its competitors, therefore adding to Yes Yes Yes Yes
customers´ convenience)
Customer service
(Rating guides to make selections, episode synopsis to assess suitability of content + highly Yes Yes Yes Yes
interactive website offering high quality service to customers)
(*) Jane Barney and Patricia Gorman, “ A valuable chain: real world strategies for analysing the value chain, Applying the VRIO framework and recognizing core competences”
in What I didn´t learn in business schools: how strategies works in the real world (October 2010) 1 - 18
90
Classes outline
5. Strategy formulation
7. Strategy implementation
91
Value chain analysis
● Value Chain: represents the internal activities develop by a firm when transforming inputs into outputs
● Value Chain analysis: a process to identify a firm´s primary and support activities that add value to a
final product. The analysis of the activities helps to identify the competitive advantages or
disadvantages of a firm
Warehouse and
ACTIVITIES
Procurement,
PRIMARY
93
Key partners Key activities Value proposition Customer relationship Customer segments
CUSTOMER NEGOTIATION
FOCUS WITH
SUPPLIERS
OWN LABEL
MANUFACTURERS
Business model canvas
TRADEMARKS
PERSONAL PROXIMITY INDEPENDIENT
RELATIONSHIP CLOSENESS OPTICIANS
AND DISTRIBUTION LICENSORS PRODUCT AND AFTER- OWN LABEL PRODUCT AND
SERVICE “OWNERS” AND TRUST (ASSOCIATES)
AGREEMENETS SALES
IQMS EXCLUSIVE DISTRIBUTION
DEVELOPMENT SERVICE (SPAIN)
SUPPLERS AGREEMENTS
(FRAMES, OPHTALMIC
● Several companies are good examples of how their strategy has been (almost
exclusively) based on the strengths of their internal resources; on what the firm
is capable to do
– Honda – design experience and engine development (motorbikes, cars, jets, hydraulic
pumps, lawnmowers)
– 3M – adhesive technology and film technology (sandpaper, adhesive tapes, audio an video
tapes, road signs, medical and household products)
95
Basing the strategy on resources and capabilities
Interface between strategy and the firm
However, firms that bases their strategy on internal resources must permanently look
after the market environment in order to understand external opportunities and threatens
THE INDUSTRY
THE FIRM STRATEGY
ENVIRONMENT
Firm-strategy Environment-strategy
interface interface
96
Resources, capabilities and competitive advantage
ORGANISATIONAL CAPABILITIES
RESOURCES
Organisation capabilities: firm´s capacity to deploy resources for a desired end result
97
Resources, capabilities and competitive advantage
Organisation capabilities
Systems for financial control, motivation and coordination of corporate General Electric, Shell, Google,
Corporate management and business units, strategic innovation, corporate Unilever, Bco. Santander,
Management leadership ability, corporate social responsibility Exxon, Luxottica, J&J, Danone
Research and Capabilities for basic research, ability to develop innovative products, Apple, Samsung, 3M, Merck,
development speed in the development of new products Inditex, Canon
High volume manufacturing efficiency, continuous improvement UPS, Toyota, Harley Davidson, Four
Operations Seasons Hotels, McDonald´s
capacity in production processes, flexibility and speed of response
Brand management, building reputation for quality, responding to P&G, LVMH, L´Oreal, Coca–Cola,
Marketing consumer requirements Amazon
Sales and Market trend response and sensibility, effective sales promotion and
PepsiCo, Pfizer, Dell, Amazon,
distribution execution, efficient, fast order processing, speed of distribution Telefónica
98
Appraising the importance of resources and capabilities
Durability
SUSTAINABILITY
Once established, competitive advantage tends to
OF THE erode; three characteristics of resources and
Transferability capabilities determine the sustainability of the
COMPETITIVE
ADVANTAGE competitive advantage. i.e. branding, organisation
management system, superior inflight services
Replicability
Property rights
Ownership of resources and capabilities is key in
Bargaining
generating superior returns. But ownership may not be
APPROPRIABILTY power a clear cut. i.e. who is the owner of organisational
capabilities? Bargaining power of a football player…. or
an investment bank star…
Embeddedness
99
Core competences and competitive advantage
RESOURCES
Core competences: organisation capabilities that make a disproportionate contribution to add customer
value or provide efficiency to the value delivered
100
Industry key success factors
● Limited number of characteristics, variables or points (areas) in which is key the
accomplishment of satisfactory results to ensure a competitive business organisation
● Are those activities that must be performed at the highest possible level of
excellence to achieve and maintain the established objectives
101
Industry key success factors
Pre-requisites for success
How to arrive
Analysis of demand Analysis of competition to key success
– Who are our customers? – What drives competition?
factors?
– What do they want? – What are the main dimensions
of competition?
– How intense is competition?
– How can we obtain a superior
competitive position?
Key success
factors
102
Industry key success factors
103
Industry key success factors
Pre-requisites for success
Supermarkets
● Low prices
● Convenient location ● Intensity competition depends on number and
proximity of competitors
● Wide product range adapted to local preferences ● Bargaining power is a key determinant of cost of
● Fresh/quality produce, good service, easy of parking, bought-in goods
pleasant ambience
104
Industry key success factors
105
Core competences and competitive advantage
RESOURCES
Core competences: organisation capabilities that make a disproportionate contribution to add customer
value or provide efficiency to the value delivered
106
Resources, organisation capabilities and core competences
An industry……
Indicators Status
Growth Negative
Profitability Declining
107
Resources, organisation capabilities and core competences
The industry of the circus
Indicators Status
Growth Negative
Profitability Declining
108
Cirque du Soleil
111
Cirque du Soleil
Cirque du Soleil tangible resources
● Cirque du Soleil has competitive advantages that are valuable, rare and very difficult to
imitate, practically in each part of the value chain, that provides an enviable strong position
● Tangible resources
– 75,000 sq. Metres in infrastructure in Montreal
– Sophisticated training facilities (“the studio”)
– Key infrastructure were costumes are designed and produced (“the shops”)
– Centralised facilities (training and costume workshop) provides cost efficiencies and allows a consistent level
of quality
– Permanent locations in tourism places (Las Vegas, Orlando)
● Human resources
– Talented choreographers and composers
– Established base of experienced and well trained performers
112
Cirque du Soleil
Cirque du Soleil intangible resources and capabilities
● Intangible resources
– Brand recognition; word of mouth and media noise… has meant very little marketing expenditure
– Corporate culture placing artist merits over and above profits
– Worldwide reputation capable of attracting talent
● Capabilities
– Ability to combine talented artists, musicians and lavish costumes into creative and successful
performances
– Ability to hire athletes and acrobats to transform them into stage performers
– Ability in setting up and moving travelling shows around the world (more than 100 cities have been
visited worldwide since its inception)
– Human resource management ability to recruit, train, retain and motivate people from 40 countries
speaking 25 different languages, spread across the globe
113
Cirque du Soleil
Cirque du Soleil intangible core competences
● Core competences
– Offer to consumers an extraordinary performance in a circus tent
– Convey emotions and feelings connecting with consumers in an environment that provides them
unforgettable moments
– Motivate consumers to repeat the experience
● Challenges
– Market saturation of the existing format
– High dependency from its founder Guy Laliberté; on the top of the organisation and without an apparent
orderly succession
– IPO (stock market launch), capital risk investment or incorporation of an investment fund to ensure
expansion and other permanent location infrastructure in other continents
114
Appraising strengths of a firm´s resources and capabilities
Edward Jones has built
Retail branch networks
a successful contrarian
of the banks is less
strategy based on its
relevant nowadays….
network of local offices
Key areas
to focus on
Low High
Strategic importance
115
Appraising strengths of a firm´s resources and capabilities
Resources and capabilities of Ducati Motor
10
• Design • Brand
• Location
• New product
• Engineering development
• Proprietary
technology
0 10
Strategic importance
116
Summing up… how does competitive advantage emerge
How does competitive
advantage emerge?
117
Classes outline
5. Strategy formulation
7. Strategy implementation
118
What digital transformation means?
● Digital transformation
– Requires an integrated or global view of business and therefore must be linked and aligned with the strategy
of a firm; it is not about technology; it is about strategy
– Digital transformation is a customer – driven strategic business transformation that requires cross-cutting
organisational change as well as the implementation of digital technologies
119
Digital transformation definition
Digital transformation is the integration of digital technology into all areas of a business, fundamentally
changing how a firm operates and deliver value to customers. It's also a cultural change that requires
organisations to continually challenge the status quo, experiment, and get comfortable with failure
120
What things digital technologies are changing in the business?
121
What things digital technologies are changing in the business?
● Force firms to think differently on how they understand and create value for the customers
– What customers value can change very quickly and competitors are always approaching our customers
with new proposals so complacency is not an option
122
What digitalisation is changing as an strategic stand point?
– Across these areas digital technologies are redefining many of the basic principles and changing the rules
by which firms must operate to succeed
Customers
Value Competitors
Innovation Data
123
What digitalisation is changing as an strategic stand point?
1. Customers
From To
• Customers as a mass market • Customers as dynamic network
124
What digitalisation is changing as an strategic stand point?
1. Customers
Area Core strategic theme Key concepts
Customer
Customer
Comments Blogs
Customer
Customer
Customer
Firm Firm
Forums
Yellow
pages
Craigslist Customer
Portals
Path to purchase
Preference Social networks, YouTube,
Product test comparison
local search
Group discounts,
In – store purchase Action purchase,
online/in – store/ mobile
“Friendind”
Reward point Loyalty (Faceook, Twitter, mail)
Customised up – selling
126
What digitalisation is changing as an strategic stand point?
1. Customers
Five customer network behaviours
Behaviours Tactics
Seek to access digital data content and interactions as Be faster, be easier, be
Access quickly, easily and flexible as possible (i.e.; searchers,
everywhere, be always on
ecommerce, instant messaging apps)
Seek to connect with one another by sharing experiences, Become a part of your
Connect ideas and opinions via text, images and social links (i.e.;
customers´ conversation
blogs, social networks, communities)
A day made of glass Thank you mom! Offer more than technology
127
What digitalisation is changing as an strategic stand point?
1. Customers
Five customer network behaviours
Behaviours Tactics Examples
Tesco posters in the underground station with a QR code to
Be faster, be easier, be
Access buy grocery; Starwoods with room doors that clients can
everywhere, be always on unlock with a swipe of their smartphones
Become a part of your GoPro asking customers to share their videos; Starbucks
Connect customers´ conversation
with IdeaStorm platfom to gather suggestions or P&G with
beingGirl.com for feminine hygiene products
Invite your customers to help Waze Navigation which is a collaborative tool; Wikipedia as
Collaborate a content digital collaboration; NGO´s crowdfunding
build your firm
initiatives; InnoCentive for R&D
128
What digitalisation is changing as an strategic stand point?
2. Competition
● The biggest challengers may be firms from other industries offering competing value to
our customers
● Need of cooperation with a direct rival due to interdependent business models
● Empowering of platform business models which allow one business to create and
capture value by facilitating interactions between other business or customers
From To
• Competition within defined industries • Competition across fluid industries
• Clear distinctions between partners and rivals • Confused distinctions between partners and rivals
• Key assets are held inside the firm • Key assets are in outside networks
• Products with unique features and benefits • Platform with partners who exchange value
• A few dominant competitors per category • Winner takes all due to network effects
129
What digitalisation is changing as an strategic stand point?
2. Competition
Area Core strategic theme Key concepts
● Airbnb is a an example of a platform; a business that rethought which competitive assets were
needed to be own by a firm and which ones could be managed through new types of relationship
A platform is a business that creates value by facilitating direct interactions between two or more distinct types
of customer (*)
● Distinct types of customers: to be a platform the business model must serve to two or more distinct type of
customers
– Is Skype a platform?
● Direct interaction: platforms must enable these two or more sides to interact directly
– Is a supermarket.com a platform?
● Facilitating: despite interactions are not dictated by the platform, those must take place through it and be
facilitated by it
– Is a franchise a platform?
(*) Andrew Hagiu and Julian Wright; Multisided Platforms; working paper HBS, March, 16th 2015
131
What digitalisation is changing as an strategic stand point?
2. Competition
Host
Airbnb
Renters
Freelance drivers
Uber
Riders Forbes.com?
Search users
Google search Website creators
Search advertisers
Software users
Salesforce.com App developers creating
additional services
132
What digitalisation is changing as an strategic stand point?
2. Competition
Type of platforms
133
What digitalisation is changing as an strategic stand point?
2. Competition
134
What digitalisation is changing as an strategic stand point?
2. Competition
Light in assets
Scaling fast
(increase revenue with slow employee growth)
Economic efficiency
(phenomenon of mislabelled “sharing economy”)
135
What digitalisation is changing as an strategic stand point?
2. Competition
Users
social interaction,
social interaction,
$ for apps, audience $
content, apps
share for apps, data
(networking tools)
Advertisers
Publishers (primary
(sweetener) payer)
Platform
Content $ for audience
(user stickiness)
App
developers
(payers)
137
What digitalisation is changing as an strategic stand point?
3. Data
From To
• Challenge is storing and managing data • Challenge is turning data into valuable info
• Firms make use only structured data • Unstructured data is increasingly usable and
valuable
• Data is a tool for optimizing processes • Data is key intangible asset for value creation
138
What digitalisation is changing as an strategic stand point?
3. Data
Area Core strategic theme Key concepts
● Data is an intangible asset and most of platform firm´s market capitalisation is based on the
information collected from users and its ability to exploit the data
139
What digitalisation is changing as an strategic stand point?
3. Data
Type of data
• Purchases
• Behaviour and interaction Provide a complete picture of the
Customer data • Comments and reviews customer and allow for more relevant
• Demographics and valuable interactions
• Survey responses
Once we treat data as an asset, every business needs to develop a data strategy in its organisation
140
What digitalisation is changing as an strategic stand point?
3. Data
141
What digitalisation is changing as an strategic stand point?
3. Data
142
What digitalisation is changing as an strategic stand point?
4. Innovation
● Digital technologies can enable a different approach to innovation based on continuous learning
through rapid experimentation
● Market feedback can be gained at the beginning of the innovation process, during the process up
to the launch and even afterwards
● Innovation assumptions are repeatedly tested and design decisions are based on validation by real
customers
● Products are developed iteratively, saving time and costs of failure
From To
• Decisions made based on intuition and seniority • Decisions made based on testing and validating
• Testing ideas is expensive, slow and difficult • Testing ideas is cheap, fast and easy
• Challenge of innovation is to find the right solution • Challenge of innovation is to solve the right problem
• Failure is avoided at all cost • Failures are learned from early and cheaply
• Focus is on finished products • Focus is on minimum viable prototypes and iteration after launch
143
What digitalisation is changing as an strategic stand point?
4. Innovation
Area Core strategic theme Key concepts
• Divergent experimentation
Innovate by fast experimentation
• Convergent experimentation
Innovation
● Innovation can be define as any change to a business product, service or process that adds value to a
customer
– For Google, innovation may be.. Gmail or Google maps, but also for Google innovation includes... the continuous
process of refining, adding and eliminating features and evolving the user interface and experience
● In the digital age firms need to innovate in a radical different way based on fast experimentation and
continuous learning; in fact experimentation is a process of learning of what does work and what does
not work
144
What digitalisation is changing as an strategic stand point?
Type of experiment
● Convergent experiments are best for learning that eliminate options and converges on a specific answer
to a defined question; i.e. which of these three designs is preferred by the customer?
● Divergent experiments are best for learning that explore options, generate insights, ask multiple questions
and at the same time and when done right, generate new questions to explore next iterative stage; i.e.
putting a prototype in the hands of customers
Principles of experimentation
● Learn early
● Be fast and iterative
● Fall in love with the problem, not the solution
● Get credible feedback
● Measure what matters
● Test your assumptions
● Fail smart
146
What digitalisation is changing as an strategic stand point?
4. Innovation
Exercise
Think about the two types of experiments and prepare three examples for each
• •
• •
• •
147
What digitalisation is changing as an strategic stand point?
5. Value
● Value proposition is permanently changing to avoid disruption by new competitors
● Businesses need to focus on exploring emerging opportunities, divesting from declining
sources of advantage and adapting early to stay ahead of the curve of change
● Firms have to be in permanent evolution, looking to every technology as a way to extend and
improve the value proposition to customers
From To
• Value proposition defined by industry • Value proposition defined by changing customer needs
• Execute your current value proposition • Uncover the next opportunity for customer value
• Optimise your business model as long as possible • Change before you must, to stay ahead of the curve
• Evaluate change by how it impacts your current business • Evaluate change by how it could create your next business
• Market success allows for complacency • Permanent evolution of the customers´ value proposition
148
What digitalisation is changing as an strategic stand point?
5. Value
● Every firm should focus on how each new technology might help in creating a new business model
rather than evaluating the impact in the existing business model
● Every firm should explore permanently the core value your business offers to customers
– Why does my business exist?
– What needs does it serve?
– Are they still relevant?
– What business am I really in?
149
What digitalisation is changing as an strategic stand point?
5. Value
What to do in a stagnant or declining market
Both
New
Value proposition
Same New
Customers/use case
150
What digitalisation is changing as an strategic stand point?
5. Value
Both
Value proposition
New
https://www.shutterfly.com/
https://www.moo.com/us/
Same
Same New
Customers/use case
151
What digitalisation is changing as an strategic stand point?
5. Value
Encyclopaedias or Both
Value proposition
New
newspapers New value (new value and
https://www.nytimes.com/ new customers)
https://www.britannica.com/
Same
Current position New customers
Same New
Customers/use case
152
What digitalisation is changing as an strategic stand point?
5. Value
Same New
Customers/use case
153
What digitalisation is changing as an strategic stand point?
5. Value
154
Organisation challenges
Area The journey…
158
AccorHotels´ digital transformation: a strategic
response to hospitality disruptor Airbnb
159
Questions
1. What do you expect from an accommodation provider, as a leisure guest and as a business traveller? (Use
following five categories: search and booking process, actual accommodation, additional services, emotional
factors/experience)
2. How different are AccorHotels´ and Airbnb´s value proposition? What are the strengths and weaknesses of
their respective business models?
3. What are Airbnb main factors for being so successful? How sustainable are those factors?
Before answering the questions please watch the following videos from Sebastian Bazin, Chairman and CEO of AccorHotels
https://www.youtube.com/watch?v=rJSjDQ4Rwo0
https://www.youtube.com/watch?v=ispZEhs9g3o
160
1.What do you expect from an accommodation provider, as a leisure guest and as a
business traveller? (Use following five categories: search and booking process, actual accommodation,
additional services, emotional factors/experience)
• Concierge
• Transportation; transfer
Additional services • Daily room cleaning
• Dry cleaning
• Additional information on destination
161
2. How different are AccorHotels´ and Airbnb´s value proposition? What are the strengths
and weaknesses of their respective business models?
Strengths
AccorHotels Airbnb
• Direct daily contact with consumers • Flexible offer – supply can be expanded
fast
• Expected experience (consumers knows
what to expect) • Low marginal cost
• Higher trust rate (70% users do not trust • More intense loyalty (due to its sharing
renting a room in someone else´s house and economy mind set and verification system,
52% do not trust renting a holiday property 73% of Airbnb users are “at least very
from someone else) satisfied”)
162
2. How different are AccorHotels´ and Airbnb´s value proposition? What are the strengths
and weaknesses of their respective business models?
Weaknesses
AccorHotels Airbnb
• Slow with little flexibility • Consumer isolation (no interaction nor social
contact in common areas)
• High fixed costs (HR, maintenance)
Bazin: “when you rent a private
apartment, the reality is that you are in
• Significant marginal cost (for expanding their
your own place and you do not really get
operations and room supply)
that sense of community”
• Branding (no well-defined image; fragmented
• Restrictions (legal an political) in many
offer)
cities (central districts) all over the world
163
2. How different are AccorHotels´ and Airbnb´s value proposition? What are the strengths
and weaknesses of their respective business models?
Learning points
● Airbnb has the typical strength of digital companies: asset – light, flexible, agile, innovation
– driven and the ability to move fast
● AccorHotels on the other hand, as an industry incumbent is asset – heavy, rather slow and
inflexible with a traditional top – down structure
● AccorHotels can build on its experience, strong resources, a wide range of available
services and large customer base
● AccorHotels has the opportunity to exploit some Airbnb´s key weaknesses like services,
product offering particularly for luxury and business travellers and potential restrictions
164
3. What are Airbnb main factors for being so successful? How sustainable are those factors?
Superior benefits to customers, compared to hotels: Limited (competition can adapt its
• Better value offer; in particular lowering prices)
• Larger accommodations
• Improved experience
High (Airbnb experience is unique
Strong emotional benefit: and difficult for hotels to replicate)
• Offers an authentic unique experience of living like a local
High (consumer trend expected to
• Millennials (today´s new travellers) want to go off the traditional tourist
grow)
track and connect with local communities
165
3. What are Airbnb main factors for being so successful? How sustainable are those factors?
Learning points
166
What is business disruption?
– Some examples
o A drug against cancer (once it is discovered) will be a society disruption but is not a business disruption
o Self – driving cars is a technology incorporation that for sure will have a major impact in driving and drivers, but probably will not
disrupt the business of car manufacturers
167
Why these companies disrupted industries?
● Apple
● Google
● Facebook
● Airbnb
● eBay
● Amazon
● Netflix
● Hawkers
168
The two diferential of business model disruption
– A difference in value proposition that dramatically transfers the value provided by the
incumbent/s at least for some customers
169
The two diferential of business model disruption
Value proposition Network proposition
differential differential
● Price ● Customers
● Free or “freemium” offer ● Channels
● Access ● Partners
● Simplicity/frictionless ● Complementary
products or services
● Personalisation
● Brand
● Aggregation/disaggregation
● Revenue model
● Integration
● Cost structure
● Social/sharing
● Skills and processes
● Physical assets
● Intellectual properties
assets
● Data assets
170
Classes outline
5. Strategy formulation
7. Strategy implementation
171
Managing strategic tools
Initial assessment
T
H
E Environment analysis • Business &
corporate
P strategies
R
Strategy formulation
O
C
E
S Strategy implementation
S Tools
• BCG matrix
Monitoring and results
evaluation • GE – Mckinsey matrix
• Internal – External matrix
• Porter´s generic strategies
• Ansoff matrix
• Corporate type of strategies
• Evaluation strategy test
172
Strategy formulation
Competing in the present, preparing for the future…
173
Strategy formulation definition
● Method to design the firm strategy, both at corporate level and for each single
type of business
– Business unit strategy: how the firm competes within a particular industry or market. Is
concerned with establishing competitive advantage and the source of the competitive
advantage/s in a business
– Strategy at corporate level: where a firm competes; decisions over the scope of the firm´s
activities, including product scope, geographical scope, decisions regarding diversification,
acquisitions, new ventures, etc. and allocation of resources among them
174
BCG matrix
● Used to evaluate the strategic position of a firm´s brand portfolio, SBUs, business lines or
customers and determine its potential
● The general purpose of the analysis is to help understand, which brands the firm should invest
in and which ones should be divested
High
MARKET
GROWTH Medium
RATE
Low
Low Medium High
MARKET SHARE RATE
175
BCG matrix
High
MARKET
GROWTH Medium
RATE
Low
176
BCG matrix
Cash flow generation
High
177
BCG matrix
Dilemma
– High growth market but low market share
High – Consume large amount of cash and do not
generate much cash
– No consolidation has been achieved in a very
competitive, but growing market
MARKET – Potential to gain market share and become a
star for a later move to cash - cow
GROWTH Medium
– Because of the high growth environment they
RATE can be seen as a “cash sink”
Low
178
BCG matrix
High
Star
– High market share in a fast-growing market
MARKET – Require high investments to maintain
competitiveness and leadership
GROWTH Medium
– Re-invest profits to gain consumers (cash
RATE generators and cash users)
– Marginally profitable but as they reach a
mature status, returns becomes more
attractive
– Expected to become cash-cows and
Low positive cash flows
generate
179
BCG matrix
Cash cow
– High market share in a slow-growing
industry
– Generates cash in excess of the amount of
cash needed to maintain business
High
– As the market matures, the need for
investment reduces
– Loyal customers and low distribution cost
MARKET
GROWTH Medium
RATE
Low
180
BCG matrix
Dog
– Low market share in slow growth market
High – May well have been cash cows
– In general, they are not worth investing in
because they generate low or negative cash
– Often they enjoy misguided loyalty from
management, although some dogs can be
MARKET revitalised
GROWTH Medium – Profits are, at best, marginal
RATE
Low
181
BCG matrix highlights
Weak
MARKET GROWTH Growth
Declining Fast expansion Fast expansion
Invest for
Invest (to Invest (if
Liquidation or growth (will
STRATEGIC OBJECTIVES maintain current
divestment
potential) or
replace cash
level) or harvest divestment
cows)
182
BCG matrix; advantages and disadvantages
● Advantages
– Simple variables and fast analysis
– Businesses, products, channels, brands or clients can be graphically represented
– Provides priorities despite the enormous amount of information
– Good starting point for a further detailed analysis
● Disadvantages
– Centred in a coupled of variables and the use of “high” and “low” to form four categories is too simplistic
– Assumes that market share and profitability are directly related
– Considers every business as independent: ignores interdependence and synergies
– Many businesses are positioned in the middle of the matrix
– Considers the product or business in relation to the largest player only; ignores the impact of small
competitors whose market share is rising fast
183
BCG matrix exercise
184
BCG matrix exercise
0 0.5 1
High
4 3
MARKET GROWTH RATE
Medium
1
Low
High
MARKET
High market share (22,0%)
GROWTH Medium and market leader. Negative
market forecast for demand
RATE and negative growth potential
in the tablet segment of 2/3%
Low
Low market share (7,1%) as
compared with market leader
(Lenovo – 21,0%) and
Low Medium High
negative market forecast
calling for a decline of 2% MARKET SHARE RATE
18
6 186
GE/Mckinsey matrix
● Maps the business units on a grid of the industry and its strategic position in that industry
A 4 3 2 1
T
T High
Invest and
Invest and grow Hold and maintain
I R grow
(Strong) (Opportunistic)
(Selective)
N A
D C 3
U T Invest and grow
Hold and
Medium maintain Harvest or divest
S I (Selective)
(Selective)
T V 2
R E
Y N Hold and
Harvest or
maintain Harvest or divest
E (Protection)
divest
S Low 1
S Strong Average Weak
COMPETITIVENESS POSITION
187
GE/Mckinsey matrix
● Used to establish three main recommendations
– Growth, maintain or harvest
A 4 3 2 1
T
T High
Invest and
Invest and grow Hold and maintain
I R grow
(Strong) (Opportunistic)
(Selective)
N A
D C 3
U T Invest and grow
Hold and
Medium maintain Harvest or divest
S I (Selective)
(Selective)
T V 2
R E
Y N Hold and
Harvest or
maintain Harvest or divest
E (Protection)
divest
S Low 1
S Strong Average Weak
COMPETITIVENESS POSITION
188
GE/Mckinsey matrix; attractiveness assessment
● Select the elements or components to compare: business units, products, brands, etc.
● Define key industry factors – criteria – that are relevant to determine the industry
attractiveness
A 4 3 2 1
T
T High
Invest and
Invest and grow Hold and maintain
I R grow
(Strong) (Opportunistic)
(Selective)
N A
D C 3
U T Invest and grow
Hold and
Medium maintain Harvest or divest
S I (Selective)
(Selective)
T V 2
R E
Y N Hold and
Harvest or
maintain Harvest or divest
E (Protection)
divest
S Low 1
S Strong Average Weak
COMPETITIVENESS POSITION
189
GE/Mckinsey matrix; attractiveness assessment
Possible key factors for industry attractiveness
Environment GO 4 -
Legal GO 4 -
Human 0.05 4 0.2
TOTAL 1 3.4
191
GE/Mckinsey matrix; competitiveness assessment
● Define key success factors that are relevant to determine the (strength) competitive
position of a firm within a market
A 4 3 2 1
T
T High
Invest and
Invest and grow Hold and maintain
I R grow
(Strong) (Opportunistic)
(Selective)
N A
D C 3
U T Invest and grow
Hold and
Medium maintain Harvest or divest
S I (Selective)
(Selective)
T V 2
R E
Y N Hold and
Harvest or
maintain Harvest or divest
E (Protection)
divest
S Low 1
S Strong Average Weak
COMPETITIVENESS POSITION
192
GE/Mckinsey matrix; competitiveness assessment
Possible key success factors for the firm competitive positioning
– …………….. – ………………
Market share 0.10 5 0.50 b. Weigh each success factor in terms of its relative
importance to profitability or achieving corporate
SBU growth rate 0.10 3 0.30 objectives (0 – 1.0 and total will be equal to 1.0)
Sales distribution effectiveness 0.20 4 0.60
Key account advantages - 4 - c. Rate the SBU / product strength competitive
positioning on each factor
Price competitiveness - 3 -
a. 1 = very weak competitiveness
Advertising & promotion b. 5 = very strong competitiveness
0.10 4 0.40
effectiveness
Facilities location 0.05 4 0.20 d. Calculate weighted score
Capacity and productivity - 3 -
Experience curve effect 0.15 4 0.60 (*) For any particular industry, there will be some factors
that, while important in general, will have little or no
Raw materials cost 0.05 4 0.20 effect on the relative competitive position of firms within
that industry. It is better to drop such factors from the
Relative product quality 0.15 5 0.75 analysis than to assign them very low weights
TOTAL 1 4.0
194
GE/Mckinsey matrix
4 3 2 1
COMPETITIVENESS POSITION
195
IFE/EFE matrix
● IFE matrix (internal factors evaluation) is an strategic tool to evaluate how a company is
performing in regards to identified internal strengths and weaknesses
● Steps
‒ List internal factors; strengths and weaknesses (10 factors max.)
‒ Assign weights according to the relative importance of the factor to being successful in the firm´s
industry. Weights are industry based
‒ Rate factors on the scale from 1 to 4. Rating captures whether the factor represents a major weakness
(rating = 1), minor weakness (rating = 2), minor strength (rating = 3) and major strength (rating = 4)
‒ Weighted score; adding the weighted scores for each factor to construct the IFE matrix
● A real understanding of individual factors included in the IFE matrix is still more important
than the actual numbers
196
IFE matrix
WEIGHTED
Key internal factors WEIGHT RATING 1 – 4
SCORE
Strengths
iTunes platform is a good revenue stream 0.10 4 0.40
Customer loyalty that makes the customer price insensitive 0.10 3 0.30
No debts means Apple capacity of investing in other
0.15 4 0.60
sectors
Existing products are of high quality while compared to
0.10 3 0.30
competing products in the markets
Strong brand that is quite popular among customers 0.15 4 0.60
Apple products are hard to imitate 0.15 3 0.45
Weakness
Apple is too much dependent on product launches 0.15 2 0.30
Poor relations with other key players like Microsoft 0.05 1 0.05
Strong presence only limited to few countries 0.05 1 0.05
TOTAL 1 3.05
197
IFE/EFE matrix
● EFE matrix (external factors evaluation) is an strategic tool to visualise and prioritise the
opportunities and threats that the industry is facing
● Steps
– List external factors; opportunities and threats (10 max.)
– Assign weights according to the relative importance of the factor to being successful in the firm´s
industry. Weights are industry based
– Rate factors on the scale form 1 to 4. Rating indicates how effective the firm´s current strategies respond
to the factor. Respond is poor (rating = 1), respond is below average (rating = 2), respond is above
average (rating = 3) and respond is superior (rating = 4)
– Weighted score; adding the weighted scores for each factor to construct the EFE matrix
● Factors to be included should be those coming from political, economic, social, technological,
environmental and legal variables
198
EFE matrix
WEIGHTED
Key external factors WEIGHT RATING 1 – 4
SCORE
Opportunities
Increase presence in other countries 0.10 3 0.30
New product development 0.20 2 0.40
Increase virus and worn attack protection 0.10 3 0.30
Government crackdown on illegal downloading sites 0.10 3 0.30
Threats
Various existing illegal file sharing websites 0.05 3 0.15
Economic downturn 0.10 2 0.20
Competition from established competitors 0.15 2 0.30
Perception that Apple´s product are not compatible 0.10 2 0.20
Very few suppliers 0.10 3 0.30
TOTAL 1 2.45
199
IE/EFE matrix
4 3 2 1
High
WINNER
WINNER QUESTION MARK
Invest and
Invest and Grow Hold and maintain
Grow
(Selective) (Opportunistic)
(Strong)
E
F 3
E
WINNER AVERAGE
LOSER
Medium Invest and Grow Hold and maintain
S (Selective) (Selective)
Harvest or divest
C
O 2
R
E PROFIT
PRODUCER LOSER LOSER
Hold and maintain Harvest or divest Harvest or divest
(Protection)
Low
1
Strong Average Weak
IFE SCORE
200
IE/EFE matrix strategies
4 3 2 1
High Market penetration, market
development and product development
Grow and build
Backward integration, forward
E integration, horizontal integration
F 3
E
Market penetration and
S Medium Hold and maintain
product development
C
O 2
R
E Revitalise business or
Harvest or exit
aggressive cost management
Low
1
Strong Average Weak
IFE SCORE
201
Strategy formulation definition
● Method to design the firm strategy, both at corporate level and for each single
type of business
– Business unit strategy: how the firm competes within a particular industry or market. Is
concerned with establishing competitive advantage and the source of the competitive
advantage/s in a business
– Strategy at corporate level: where a firm competes; decisions over the scope of the firm´s
activities, including product scope, geographical scope, decisions regarding diversification,
acquisitions, new ventures, etc. and allocation of resources among them
202
Types of competitive strategies
Competitive advantage
M. Porter model
Low cost Uniqueness
203
Types of competitive strategies
● Differentiation leadership: involves the creation of products or services that are perceived
by customers (and even suppliers) as unique
– Lexus, Bang & Olufsen, TAG Heuer, Mckinsey & Co., Miele, BMW, etc.
204
Types of competitive strategies
● Cost leadership: product or services cheaper than those offered by competitors
– Wal-Mart, Ryanair, Southwest Airlines, Tata Motors, etc
● Characteristics
– Product with a weak consumer implication
– Massive distribution
– High inventory turnover
– High purchasing volume
– Efficient manufacturing: economies of scale, standardisation and production technology, capacity of
utilisation, learning curve, etc.
– Tight cost control and low level of general expenses
– Part of the economies of scales are transferred to the customers or consumers
– Manufacturing plants located in countries with low purchasing power
205
Types of competitive strategies
Using value chain in cost analysis
Approach to perform a value chain analysis depending on the
competitive advantage a company wants to create
Step 2 – Establish the relative importance of each Step 2 – Evaluate the differentiation strategies
activity in the total cost of the product for improving customer value
206
Types of competitive strategies
Automobile manufacturing company that competes on cost advantage
Infrastructure: corporate strategy, planning, finance, information systems, legal services
Using value chain in cost analysis
Technology, research and development
Purchasing Assembly
Design and Sales and Distribution and
materials testing and
Step 1 engineering marketing dealer support
& components quality control
Advertising
AVG
expenditure ratio Number of dealers
Step 3 Sales per model purchases per Capacity utilisation
versus sales or sales per dealer
supplier
volume
1. High quality assembling process reduces testing and control activities; 2. Locating plants near suppliers
Step 4 or dealers reduces purchasing or distribution costs; 3. Fewer model designs reduce assembling costs; 4.
Higher order size increase warehousing cost
1. Create just one model design for different regions to cut cost in design and engineering, to increase
Step 5 order sizes, simplify assembling and quality control and to lower marketing costs;
2. Manufacture components inside facilities to eliminate transaction costs of buying them in the market
and to optimise plant utilisation
207
Types of competitive strategies
● Differentiation leadership: involves the creation of products or services that are perceived
by customers (and even suppliers) as unique
– Lexus, Bang & Olufsen, TAG Heuer, Mckinsey & Co., Miele, BMW, etc.
● Characteristics
– Product with high consumer implication
– Selective distribution
– Intensity of marketing activities
– Design and technology
– Quality, product/service guarantee, brand image, complementary services, etc.
– Skills and experience of employees
– High level of investment in the development of new products, new features for current products and
services, location (retail stores)
208
Types of competitive strategies
Using value change to identify differentiation
Advantages: Advantages:
● Barriers to entry with economies of scale and ● Differentiation acts as a barrier entry
experience ● Creates customer loyalty
● Strong positioning in front of competitors and also ● High prices and margins
customers and suppliers
● Bargaining power with customers and suppliers
Disadvantages: Disadvantages:
● Product and processes obsolescence in case of lack ● Usually, difficulties to obtained high market share
of investments ● Attracts imitators – followers
● Substitute products developed by competitors ● Very sensible to consumer preferences
● Technology changes could have substantial impact ● Price and differentiation could be imbalanced
in economies of scale and experience
● Changes on costs might be sensible to profitability
210
Business strategy growth
Ansof Matrix
MARKET PRODUCT
M Current
A PENETRATION DEVELOPMENT
R
K
E
T MARKET
DIVERSIFICATION
S New DEVELOPMENT
Current New
PRODUCTS
211
Business strategy growth
Current New
● Attract new users: margarine consumers to butter, wine consumers to
beer, banking products
PRODUCTS
Market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a
growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if
competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another
strategy must be followed if the firm is to continue to grow
212
Business strategy growth
● New market segments: Coffee, water, sport drinks, milk, cars, etc.
M MARKET PRODUCT ● Geographical expansion: regional, national, international
A Current
R
PENETRATION DEVELOPMENT ● New distribution channels: a strategy between market penetration and
market development
K
E
MARKET
‒ Pharma “traditional” products (cosmetic products, oral care)
T through hypermarkets, supermarkets and convenient stores
New DIVERSIFICATION
S DEVELOPMENT
‒ Books through new-stands, airports, , etc.
‒ Sandwiches, drinks, chocolates in vending machines, convenient
Current New
stores or petrol stations
PRODUCTS
‒ Internet, eCommerce
Market development options include the pursuit of additional market segments or geographical regions. The development of new
markets for the product may be a good strategy if the firm's core competences are related more to the specific product than to its
experience with a specific market segment. A market development strategy typically has more risk than a market penetration strategy
213
Business strategy growth
Develop new products for current markets:
Product development
● Additional features: ABS, Airbag, hybrid...
● Enlarge product range: Gillette – female depilation range of products; Coca –
MARKET PRODUCT
M Cola with the launch of “Zero”, Mars confectionary, Mars ice – cream, Mars
A Current drinks, etc.
PENETRATION DEVELOPMENT
R
K ● Improve quality: courtesy car when the vehicle is under repair, all inclusive
E price of some cars – i.e. Lexus, car pick – up and/or delivery when checking is
MARKET
T needed
New DIVERSIFICATION
S DEVELOPMENT
● New flankers or product refreshment: new packaging for beers, ice –
creams, etc.
Current New ● New products: tablets, smart – phone, voice service devices, etc.
PRODUCTS
● New services: private houses for tourists, freelance drivers… under a market
place model
Product development strategy may be appropriate if the firm's strengths are related to its specific customers rather than to the specific
product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the
case of new market development, new product development carries more risk than simply attempting to increase market share
214
Business strategy growth
Ansof Matrix
Market penetration
Current New
PRODUCTS
215
Business strategy growth
Diversification is the most risky of the four growth strategies since it requires both product and market development. Going into an
unknown market with an unfamiliar product offering..., lack of experience in the new skills and techniques required…., significant expanding
of human and financial resources, which may detracts focus, commitment and sustained investments in the core business….. Diversification
may be a reasonable choice if the high risk is compensated by the chance of a high rate of return
216
Mergers and acquisitions
● Diversification occurs also when a firm looks outside of its current operations and buys
access to new products or markets
– Mergers: two or more firms combine operations to form one corporation, perhaps with a new
name. This requires the agreement by the shareholders of the two companies. These firms are
usually of similar size. One goal of a merger is to achieve management synergy by creating a
stronger management team
217
Competitive advantage from diversification
● Economies of scope
– Efficiencies when using a resource across multiple activities; uses less of that resource than
when the activities are carried out independently
● Economies of scale
– Economies of scope are cost economies from increasing the output of multiple products
– Economies of scale are related to cost economies from increasing output of a single product
218
When diversification will truly create shareholder value
Porter´s test
3. The better–off test: the new business must obtain a competitive advantage that do not exit at
corporate level
The new business must either gain competitive advantage from its link with the corporation or vice-versa.
How will the acquisition provide advantage to either the acquirer or the acquired?
219
Strategy formulation definition
● Method to design the firm strategy, both at corporate level and for each single
type of business
– Business unit strategy: how the firm competes within a particular industry or market. Is
concerned with establishing competitive advantage and the source of the competitive
advantage/s in a business
– Strategy at corporate level: where a firm competes; decisions over the scope of the firm´s
activities, including product scope, geographical scope, decisions regarding diversification,
acquisitions, new ventures, etc. and allocation of resources among them
220
Types of corporate strategy
● Comprises all businesses that belongs to the firm, markets and industries in
which business is developed with appropriate distribution of resources
221
Types of corporate strategy
Ansoff Matrix
Products Technologically Technologically
related non related
Customers
M MARKET PRODUCT N
A Current PENETRATION DEVELOPMENT E
R W Same type Horizontal Diversification
K
E
T MARKET M
Same type
S New DIVERSIFICATION
A Supplier – Customer
Vertical Diversification
DEVELOPMENT
R
K
New Similar type Concentric Diversification
Current E
PRODUCTS
T
S
Concentric Conglomerate
Different type
Diversification Diversification
NEW PRODUCTS
222
Types of corporate strategy
● Concentration strategy – most of the turnover comes from a primary line of business
– McDonald's – centred in fast food - burgers
– Boeing – centred on aviation manufacturing activities
● In a concentration strategy a firm directs all or most of its resources to a single market
(business), to a single product or a single technology
● In this strategy, a company chooses to pursue a large share of one or a few markets
(businesses)
● An inherent risk for this kind of strategy occurs when the demand in the market
suddenly drops or if a strong competitor enters the same market
223
Types of corporate strategy
● Vertical integration strategy – the degree to which a firm owns its upstream suppliers
and its downstream buyers
– Expansion of activities downstream is known as forward integration and expansion upstream is
known as backward integration
Raw materials
Intermediate goods
Manufacturing
After-sales services
224
Types of corporate strategy
● Vertical integration strategy – the degree to which a firm owns its upstream suppliers
and its downstream buyers
– Expansion of activities downstream is known as forward integration and expansion upstream is
known as backward integration
Level of integration
Industry
None Partial Full
value chain
Raw materials
Intermediate goods
Manufacturing
After-sales services
225
Types of corporate strategy
● Vertical integration strategy – the degree to which a firm owns its upstream
suppliers and its downstream buyers
– Expansion of activities downstream is known as forward integration and expansion upstream
is known as backward integration
● Avon – its primary line of business has been the selling of cosmetics door–to–door. Avon achieved a
backward form of vertical integration by entering into the production of its cosmetics
● ESPN is a key element of Disney’s operations within the television business. Rather than depend on
outside production companies to provide talk shows and movies centered on sports, ESPN created its
own production company achieving a backward integration
● Levi Strauss & Co – traditionally a manufacturer of clothing, has diversified forward by opening retail
stores to market its textile products rather than producing them and selling them to another firm to retail
● Apple ownership of its own branded stores. Apple stores are popular in part because store employees
are experts about Apple products. The opening of Apple stores in relevant cities all over the world is a
forward integration
226
Types of corporate strategy
Benefits of vertical integration
● Technical economies from the
physical integration of processes
Vertical integration is effective when:
Value chain for steel cans – Few distributors/suppliers are available in the industry
– Suppliers/distributors or retailers have high profit margins
Iron ore
mining Market
– Suppliers/distributors are unable to meet firm´s needs
Steel
contracts
– Industry is expected to grow significantly
production Vertical – Pricing instability
integration
Steel trip – There are benefits of stable production and distribution
production
Market
contracts
– The firm has enough resources and capabilities to manage the
Can making integration
Vertical
integration &
market
Canning of contracts
food, drinks,
oil, etc.
228
Types of corporate strategy
Smartphones Industry Automotive Industry
Software Components
Apple, Google, RIM, Denso, Bosch, Aisin,
Microsoft & others Seiki, Continental,
Hyundai, Magna
Value chain
Manufacturing integration...
Flextronic, Foxconn, HTC, Assembly
LG, Samsung & others Ford, GM, Hyundai,
Nisan, Toyota, VW
After-sales services
Verizon, Telefónica, China Marketing & Sales
AT&T, Mobile, Vivo, Ford, GM, Hyundai,
Vodafone, etc. Nisan, Toyota, VW
229
Types of corporate strategy
Informal
Low supplier/ Vertical
customer Integration
relationships
Supplier/
customer
partnerships
Formalisation
230
Types of corporate strategy
● Horizontal integration strategy – the acquisition of additional business activities at
the same level of the value chain
– Horizontal growth can be achieved by internal expansion or by external expansion through
mergers and acquisitions of firms offering similar products and services
● Disney-Pixar: Mickey and Nemo, Pinocchio and “Toy Story”, “Cinderella” and “Cars”… The
merger of legendary Walt Disney and Pixar was a match made in cartoon heaven. Disney
had released all of Pixar’s movies before, but with their contract about to run out after the
release of “Cars,” the merger made perfect sense. With the merger, the two companies could
collaborate freely and easily
231
Types of corporate strategy
● Horizontal integration strategy can be effective when:
– Organisation competes in growing industry
– Competitors lack of some capabilities, competencies, skills or resources
– Economies of scale with significant impact
– High industry concentration is allowed by governments
– Organisation with enough resources to manage M&A
232
Types of corporate strategy
● Concentric diversification strategy – expansion through the set – up or acquisition of
new businesses related with the core business
– Microsoft – operating system, soft. tools, security, antivirus, media, web, etc.
– AT&T acquisition of cable companies to control communication distribution
● Technological similarity between the industries which means that the firm is able to leverage
its technical know-how to gain some advantage
– A manufacturer of an industrial adhesives might decide to diversify into adhesives to be sold via
retailers. The technology would be the same, but marketing effort will have to change; i.e. 3M
233
Types of corporate strategy
● Conglomerate diversification occurs when a firm diversifies into areas that are unrelated
to its current line of business managing a portfolio of businesses not related to each other
– Mitsubishi – banks, chemical, automobile, electronic, air conditioned, industrial automation, industrial
visual information systems, elevators, hotels, aluminium...
– Union Pacific – railway industry, gas and oil, mining, optic fibre, etc.
● The firm operates in the market with products and/or services that have no technological or
commercial synergies between them, but which may appeal to new groups of customers
– Even if this strategy is very risky, it could if successful, provide increased growth and profitability
234
Types of corporate strategy
● Alliance: a collaborative agreement between two or more firms, that decide to act
together in order to obtain future common benefits
● Why an alliance?
– Fast and frequent technological changes
– Share know – how: R&D, customers, market knowledge, distribution channels, etc.
– Creation of a network of inter-firms relationships (Zara, Toyota, Benetton)
– Risks in product development (In petroleum most upstream projects are joint ventures)
– Access to new markets
– Share financial support and costs
● Examples
– Star Alliance, Oneworld
– Nissan, Daimler – Benz and Renault
– Google and NASA developing Google Earth
– Starbucks JV with Tata Beverages to break into the Indian retail market
– Nike with Apple to offer real biometric data to an iPhone
– Bulgari Hotels and Resorts; a JV between Marriot and Bulgari
235
Types of corporate strategy
PEUGEOT
and 7% ownership
Joint development
AVTOVAZ
SAAB
40% investment
IBC Vehicles
Ltd. (UK)
SAIC
(Makes vans in UK)
236
Types of corporate strategy
STRATEGIC ALLIANCES
Strategic alliances (capital investment) ● Joint venture (50/50, minority, management control)
237
Types of corporate strategy
Fast
1. Market development
Market development Grand
1. Market penetration
M 2. Market penetration Strategy
A 2. Product development
3. Product development
3. Forward integration Matrix
R 4. Horizontal integration
K 4. Backward integration
5. Divestment
E 5. Horizontal integration
6. Liquidation
T 6. Concentric diversification
Medium
1 2 3 4
2. External coherence – respond to key success factors as an answer to the market environment
3. Internal coherence – between strategic design and operating design; between execution of activities
and the mission
4. Organisation structure – resources, control and follow – up of objectives and action plan
239
Evaluation strategy test
● Best formulated strategies have no value if an implementation plan is not effectively put in
place – evaluation strategy test
6. Management leadership – their words and personal example do have significant influence on the
behaviours, thoughts and feelings of those working with them
240
Lenovo: building a global brand
241
Corporate strategy
1. Why did IBM want to sell its PC business?
– IBM was loosing money on its PC business
– Market share was declining and its cost structure was unfavourable
– Strategy shifting towards problem – solving consulting
– Absent of significant product innovation since a few years ago
242
Corporate strategy
2. What explains Lenovo´s success prior to the acquisition?
– PC market share leader in China with 21.5% but with strong track record in innovation that was put in place
in the Chinese market
– Modelled on IBM, with an emphasis on technical innovation, strong government support and leadership,
Lenovo had a long standing ambitions to become a global player. But achieving scale was imperative to
survive
– Another factor prompting the company to think global was China´s imminent entry into the World Trade
Organisation. This promised to reduce tariff and other trade barrier and open Chinese market to more direct
competition from the likes of HP and Dell
– In 2004 Lenovo made two important moves on its path to globalisation: First, it changed its name from
Legend to Lenovo. The name Lenovo implied innovation versus Legend emphasizing on past
achievements. Lenovo easily understandable and easy to pronounce in multiple languages
– A Chinese brand sponsoring the Olympics both the winter games in Turin and the summer games in Beijin
in 2008! Lenovo become the exclusive PC sponsor and provider of the Olympics in return for $80 million
243
Corporate strategy
• Lenovo´s culture emphasized speed and entrepreneurship wile the IBM culture was more formal and
bureaucratic
• Risk of moving too slowly over the IBM culture, showing too much respect and not establishing control
promptly. With M. Dell opinion..., sceptical customers about Lenovo´s ability to deliver innovation, product
quality and service support
• Regarding employees should be motivated; the best would be re – inspired by the acquisition. Lenovo should
do its best to retain salespeople and marketers to secure the customers
244
Corporate strategy
4. How should Lenovo handle the brand management challenges associated with the
acquisition?
• From a business perspective the Lenovo and IBM brands are complementary rather than duplicative. The
brand essence of IBM and Lenovo are dissimilar
– Lenovo is strong in desktops, IBM in notebooks
– Lenovo is a value brand, IBM is a premium brand with long standing relationships with large multinational customers
– Lenovo is a Chinese brand and IBM is a global brand
• Therefore it is not so obvious that IBM PC customers will migrate to Lenovo if the IBM name disappears.
Additionally the Think brand is closely associated with IBM and 20 million PC´s...
So, what principles might be usefully guide to Lenovo management´s decision – making
regarding the brand transition.......?
245
Corporate strategy
Lenovo positioning:
efficiency plus innovation
Commodity Innovation
A few Sony/Apple
246
Corporate strategy
4. What four brand options did Lenovo had to choose? Which one was chosen by Lenovo
management?
– Master brand; Lenovo would be the master brand. Think would become a sub-brand of Lenovo
– House of brands; equal resources behind the Lenovo and Think brands. The Think brand would not appear on
Lenovo products or vice-versa
– Hybrid; Think would be a hero sub-brand to Lenovo, analogous to Sony Playstation and Apple iPad or iPhone.
Overtime, the strong sub-brand (in this case Think) would hopefully transfer some of its equity (premiumness,
innovativeness) to elevate the Lenovo master brand
– Lexus/Toyota solution; Lenovo would be positioned as a mass market brand (as Toyota) and Think would be
positioned as a premium brand (as Lexus)
Management elected to pursue the hybrid solution. This would require Lenovo to invest in product innovations
for both its own brand and the Think brand; i.e. X41 tablet series, Think Pad Z60, 3000 Family
247
Corporate strategy
5. What four brand options did Lenovo had to choose? Which one was chosen by Lenovo
management?
Management elected to pursue the hybrid solution. This would require Lenovo to invest in product innovations
for both its own brand and the Think brand; i.e. X41 tablet series, Think Pad Z60, 3000 Family
Two Lenovos?
248
Corporate strategy
6. In trying to become a global brand, does Lenovo have a problem coming from China?
– China is currently associated with low cost production of easy – to – manufacture products, not with
100% reliable manufactured high end brands like Think. As happened with Japan and Korea, this
image will improve quickly..
– China has a poor image in the global business community. Chinese business is viewed as state –
influenced. Lenovo is still partially owned by Chinese government entities
– As the first global brand to come out of China, Lenovo is breaking new ground
– Because of China´s size and power, Asian consumers are especially wary of supporting Chinese
brands
249
Classes outline
5. Strategy formulation
7. Strategy implementation
250
Cirque du Soleil: a blue ocean strategy
251
Blue ocean versus red ocean strategy
252
Blue ocean versus red ocean strategy
253
Blue ocean versus red ocean strategy
Productions
254
Blue ocean versus red ocean strategy
255
Blue ocean versus red ocean strategy
Make competitors
Strategy Beat competitors
irrelevant
256
Blue ocean versus red ocean strategy
257
Blue ocean versus red ocean strategy
258
Blue ocean versus red ocean strategy
259
Blue ocean versus red ocean strategy
260
Blue ocean versus red ocean strategy
261
Blue ocean versus red ocean strategy
262
Blue ocean versus red ocean strategy
263
Blue ocean versus red ocean strategy
264
Blue ocean strategy; shifting the focus
265
Blue ocean strategy; where to look for inspiration
• Divergence
266
Blue ocean strategy; innovation tools
267
Blue ocean strategy; innovation tools
Four actions framework tool (ERRC grip)
ELIMINATE RAISE
• •
• •
REDUCE CREATE
269
Blue ocean strategy; innovation tools
Four actions framework tool (ERRC grip)
ELIMINATE RAISE
• Animals
• Circus for adults and corporate
• Stars performers
• Price
• Conductor
• Potential customers (firms)
• Spoken language
• Unique venue
• Multiple arenas
• Artist injuries
• Sale on tiers and halls
REDUCE CREATE
273
Blue ocean strategy; innovation tools
Strategic canvas tool
High
Low
• When the curve of value converges with competitors curve, we are in the middle of a red ocean
• If the curve shows a high positioning among all factors, that implies high level of investments and
therefore we should ask ourselves if a high return for the investment is reflected
• A zigzag curve should rise some question marks about the coherence of the strategy or the
existence of contradictions (high levels in some of the factors and the ignorance of other factors)
274
Blue ocean strategy; innovation tools
Strategic canvas tool
National Circus
Differentiation
High Cirque
du Soleil
Innovation
Low
276
Blue ocean strategy; innovation tools
Strategic canvas tool
Musical as a
substitute
product?
High Cirque
du Soleil
Innovation
Low
277
Blue ocean strategy; differentiation and low cost?
278
Blue ocean strategy; differentiation and low cost?
● Revenue generation
– Accessing to a new and more profitable pool of customers (adults, corporate, events) willing to pay a higher price
– Scalability, the opportunity to offer a new product to satisfied customers that wants to enjoy a totally new
production
– Strong brand integrating different parts of the value chain that usually in the entertainment industry are managed
separately: (1) authors and creators; (2) organisation and training of a performance team (3) the management and
provision of the performing venue
● Cost reduction
– Elimination of animals: logistics, trainers, maintenance and care, security, infrastructure (one elephant costs
5,000€ per week), renting cost, animal rights defenders
– Star performers another significant cost factor eliminated. The salary cost and fringe benefits of a star could reach
1 mill. €. Cirque du Soleil acrobats are anonymous and their cost is significantly lower (40,000 to 200,000 €)
279
Jugaad innovation
● Jugaad
– Is a colloquial Hindi word meaning “an innovative fix; an improvise solution born from ingenuity and cleverness”
280
Jugaad innovation
● Mitticool
https://www.youtube.com/watch?time_continue=131&v=xDFsIe6bTYs
● Embrace Innovation
https://www.youtube.com/watch?v=-PyY94ssSww
281
Jugaad innovation
How the West lost its jugaad
282
Jugaad innovation
How the West lost its jugaad
● The old belief that only a few smart scientist or engineers could invent new things is over
– In a consumer driven economy is more important to commercialise technology, skills that scientist and engineers
might not have
– Innovation is not an invention; is converting a new idea into a consumer satisfaction. Otherwise is not innovation
– The power has shifted from the professional class to the masses
283
The six principles of jugaad innovation
Six practices of highly effective innovators in complex settings like emerging economies
4. Keep it simple
284
The six principles of jugaad innovation
1. Seek opportunitie in adversity
Jugaad entrepreneurs perceive constrains as an invitation to innovate; they transforms adversity into
opportunities adapting to changing circumstances by improvising solutions along the way
285
The six principles of jugaad innovation
1. Seek opportunitie in adversity
https://www.youtube.com/watch?v=i0dBWaen3aQ
● Hapinoy (Philippines)
https://www.weforum.org/agenda/2015/12/everyone-a-microentrepreneur/
287
The six principles of jugaad innovation
2. Do more with less
3. Leverage existing networks for distribution to solve the “last mile” problem
‒ Colgate Palmolive “micro-stores on wheels” to sell oral-care products
4. Help customers to get more value; it is not about reducing costs but also passing
value to consumers
‒ Embrace Innovation
288
The six principles of jugaad innovation
3. Think and act flexibly
An attempt to negotiate street traffic in India is the best way to explain how instinctively you
have to think and act flexibly; jugaad innovators adapt to survive and accept unpredictability
https://www.youtube.com/watch?v=HGTO2Nm5lng
https://www.youtube.com/watch?v=ZaacsKYTg5E&pbjreload=10
https://www.youtube.com/watch?v=RavLjmWdMK4
289
The six principles of jugaad innovation
3. Think and act flexibly
A few ways for firms to learn think and act flexibly to adapt their business models in
changing circumstances
1. Break the rules and change values when necessary
‒ IBM
Jugaad innovators are at the forefront of a low – tech revolutions devoted to finding “good enough”
solutions; offer products that are easy to use and maintain and solve customers´ fundamental needs
https://www.youtube.com/watch?v=z02ngSto-sk
https://vimeo.com/255812747
https://vimeo.com/209485585
291
The six principles of jugaad innovation
4. Keep it simple
292
The six principles of jugaad innovation
5. Include the margin
https://www.forbes.com/global/2006/0724/034.html#34aeaff5acfa
https://www.suse.com/media/success-story/neusoft_wuhan.pdf
293
The six principles of jugaad innovation
5. Include the margin
How firms could make business including the margin..
1. Social inclusion with a business mindset
‒ Florida Ice&Farm
2. Serve low – income Western consumer base
‒ Renault; Dacia, Logan
3. Create an inclusive work culture
‒ Flattening organisations for instance and fostering commitment at all levels
4. Marginal segments are not marginal minds
‒ Yourencore.com innovation community launched by P&G, Lilly and Boeing
Jugaad entrepreneurs do not rely on focus groups or formal market research to decide
what products to make. They follow their hearts; use intuition, empathy and passion
● Diane Geng and Sara Lam cofounders of Rural China Education Foundation (RCEF)
https://inspirationalwomenseries.org/2017/09/12/inspirational-woman-interview-diane-geng/
https://www.youtube.com/watch?time_continue=264&v=s5eC45_PiJU
https://www.youtube.com/watch?v=LV6bpdmzEkc
https://www.youtube.com/watch?v=P00Q4opJ-0A
295
The six principles of jugaad innovation
6. Follow your heart
1. Connect R&D with the customers real world and emotionally connect marketing with
customers
296
Integrating jugaad into your organisation
● Jugaad is not a substitute for the traditional structured approaches used in Western
economies; is a useful complement
Peter Drucker
297
When jugaad work best?
Jugaad innovation delivers the most relevant benefits when it is practiced in
complex and volatile environments with some characteristics
● Rapid changes
‒ Short product lifecycle, changes in demographics patterns, competition is heating or coming from
everywhere, government policies and regulations are constantly changing
● Industry immaturity
‒ Emerging sectors where industry standards are not established; i.e., clean tech, biotech
● Exploding interconnectivity
‒ Industries undergoing a technology revolution and where social media tools and cell phones are making
collaboration easier and communication cheaper; i.e., unbanked people
298
When jugaad work best?
Jugaad innovation delivers the most relevant benefits when it is practiced in
complex and volatile environments with some characteristics
● How should companies with an stablished structured approach to innovation can deal
with jugaad innovation?
‒ Abandon the structured approach or integrate jugaad approach into it?
‒ If the latter, how should both approaches be integrated?
299
When jugaad work best?
Benefits of the hammer – traditional innovation approach
● Efficiency
‒ Six Sigma can help firms execute innovation projects more efficiently within an stable environment
300
When jugaad work best?
Benefits of the screwdriver – jugaad innovation approach
● Flexibility
‒ Managers need to think how to overcome unexpected challenges
‒ Jugaad mindset can help in developing robust solutions in a tough environment with limited resources and
constrains
301
Getting started with jugaad
Jugaad is like a booster, expanding the abilities of a firm to cope with volatility and do more
with less in constrained environments. Firms need to give themselves the freedom to swing to
both approaches and manage the creative tension between jugaad and structured approach
● For each principle you choose to follow target first the quick wins
‒ Handle them in manageable stages
‒ Siemens, Philips or GM´s
302
Siemens CerberusEco in China: introducing low-frills products in a high – quality company
303
Jugaad innovation
1. What general options does Siemens have to fight emerging low-cost rivals for fire
detection products in China?
304
1. What general options does Siemens have to fight emerging low-cost rivals
for fire detection products in China?
305
2. How would you assess Castern Liesener´s plan for China?
a) What are the critical issues for the proposal?
‒ Business model
‒ Sales/salesforce approach
‒ Cost accounting
‒ Human resources
‒ Brand
306
2. How would you assess Castern Liesener´s plan for China?
a) What are the critical issues for the proposal?
307
2. How would you assess Castern Liesener´s plan for China?
b) How would you improve the proposal?
• Use HQ resources will generate important costs Use resources compliant with standards
Human Resources Use Siemens HQ resources
(English, equipment to salesforce, cars, etc.) (basic/plain) but avoid European standard
308
Classes outline
5. Strategy formulation
7. Strategy implementation
309
Managing strategic tools
Initial assessment
T
H
E Environment analysis
● Annual objectives
P ● Policies
R
O
Strategy formulation ● Resource allocation
C ● Organisation chart
E ● Performance and rewards
S Strategy implementation
S
310
Cione
311
Strategic plan
components
● Vision, mission and values
● Industry analysis
● SWOT analysis
● Strategic map
● Strategic objectives
● Projects
Environment
analysis Trends
Vision, Business (internal and (industry, Strategic
mission model external) and economics, options
and values analysis industry cultural..) evaluation
asessment
Financial Business
plan and Strategic Strategic Strategic model
resources projects initiatives objectives assessment
and change
313
External analysis
status of the industry
● Product accessible through multiple channels; opticians stores, pharma stores, department stores,
hypermarkets, fashion stores, sport stores, internet, etc.
314
External analysis
Industry trends
● Science progress
– Surgery and other potential medical breakthroughs might be a serious threaten
315
Strategic objectives
In four years
316
Scope
Customers and product range
● Our customers (associates and members of the cooperative) are optician stores of
medium and small size to which we offer products and services:
– Own label products and exclusive distribution agreements with an excellent quality/price
relationship
– Complementary value added services to help opticians to improve the sales of their stores
and enhance their management and marketing capabilities
– Commercial conditions with different manufacturers thus guaranteeing their prices and
discounts to counterbalance the power of major multinationals
317
Scope
Competitive advantage
Criteria • Competitors (*) • Cione
Quality/price relationship
Product range
Ample offer of products and services
Speed of service
with a high quality/price relationship to
Commercial relationships
a close network of opticians (members
Commercial conditions of a cooperative) and based in
Associate training
318
Business model To be…
Key partners Key activities Value proposition Customer relationship Customer segments
319
Value map
Where is the change?
TODAY TOMORROW
PIONEER
VALUE PROPOSITION Future
offering of
products
and services
MIGRATIORS
Current
SETTLERS
offering of
products and
services
320
Value map
Where is the change?
TODAY TOMORROW
PIONEER
VALUE PROPOSITION
Assessment
Excellence
Personalisation
Training
MIGRATIORS
eCommerce
Current
SETTLERS
offering of
products and
services
321
Strategic projects
● Associate network
● Cione University
● eCommerce
322
From the business canvas model
to individual objectives
Business
canvas model
Strategy and
business plan
Strategic
objectives
Strategic
projects
KPI´s and
organisation
objectives
323
From the business canvas model
KPI´s
186
181
173
324
Managing strategic tools
Initial assessment
T
H
E Environment analysis
325
Managing the implementation plan
1. Establish a formal planning process…… but using the opportunistic plan when
appropriate
326
Managing the implementation plan
1. Establish a formal planning process…… but using the opportunistic plan when
appropriate
● Determine objectives
– Profitability: sales and profit
– Quality: service level
– Marketing: market growth and market share
– Innovation: patents or sales of new products
327
Managing the implementation plan
2. Invest time and effort for a satisfactory planning
● Management commitment from different organisation levels
● Combine qualitative and quantitative methods
● Flexible, in order to be adaptive to changes
● Avoid excess of planning – paralysis for the analysis
● Focused on the main areas and activities
328
Managing strategy; management styles
Characteristics Strategic planning Financial control
Controlling • Primarily strategic goals with medium to long term • Financial budgets set annual targets with monthly
performance horizon and quarterly monitoring
• Loss of divisional autonomy and initiative • Short – term focus discourages innovation and
long term development
Disadvantages • Conducive to unitary strategy view
• Limited sharing of resources and capabilities
• Tendency to persist with failing strategy among businesses
Based on M. Goold and A. Campbell; Strategies and styles (Oxford: Blackwell Publishing, 1987)
330
Managing strategy; trends
New environment of business…
● Competition
– Sluggish economic growth
● Technology
– The potential to undermine established positions of competitive advantages
331
Managing strategy; trends
Requires new directions in strategic thinking….
3. Managing options
– During turbulent times, growth options, abandonment and flexibility options become important sources of
value. Exploration of different options on corporate finance, industry analysis, potential of internal
resources/capabilities, etc.
5. Redesigning organisation
– Organisational conditions conducting to innovation
– Making organisations informal, self – organising and permeable
332
Managing strategy; some recommendations
● Strategy direction; innovation and customer responsiveness with operational efficiencies
● Structure; matrix organisation with hierarchical reporting; flat organisation; project teams;
additional focus on informal style of relationships
● Controls; combination of short (annual budget) and long term (strategic plan)
● Incentives; individual targets with a combination of financial and non financial objectives.
Compensation plan for the whole organisation
● Communication; vertical (for reporting and delegation process) but promoting strong participation
and involvement in strategic projects of people from different parts of the organisation. Strategic
project groups responsible for the execution of the projects with a leader for each project
333
Thank you very much
for your attention
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