Corporate and Business

Management
London College
Emily Fan
L4
Learning objectives:
Types of strategy
Factors affecting strategic choices
Strategic Analysis
◦ Porter’s five forces model
◦ Value chain analysis
◦ PEST
Types of Strategy
Types of Strategy
Competitive Advantage – something which
gives the organisation some advantage over its
rivals
Types of Strategy

Cost advantage – A strategy to seek out

and secure a cost advantage
of some kind - lower average costs, lower
labour costs, etc.
Types of Strategy
Market Dominance:
 Achieved through:
◦ Internal growth
◦ Acquisitions – mergers and takeovers
Types of Strategy
New product development: to keep
ahead of rivals and set the pace
Types of Strategy
Contraction/Expansion – focus on what
you are good at (core competencies) or
seek to expand into a range of markets?
Types of Strategy
Price Leadership – through dominating the
industry – others follow your price lead
Types of Strategy
Global – seeking to expand
global operations
Types of Strategy
Reengineering – thinking outside the box
– looking at news ways of doing things to
leverage the organisation’s performance
Types of Strategy
◦ Internal business level strategies –
Downsizing – selling off unwanted parts of the
business – similar
to contraction
Types of Strategy
Delayering – flattening the management
structure, removing bureaucracy, speed up
decision making
Types of Strategy
Restructuring – complete re-think
of the way the business is organised
Factors influencing organisational purpose

Corporate Stakeholder
governance views

Organisational
purpose

Business Cultural
ethics context
 Porter's Five Forces
Porter’s five forces is a framework for the
industry analysis and business strategy
development formed by Michael E.
Porter of Harvard Business School in 1979.
It draws upon Industrial Organization (IO)
economics to derive five forces that
determine the competitive intensity and
therefore attractiveness of a market.
What’s attractiveness of a market?
Attractiveness in this context refers to the
overall industry profitability.
An "unattractive" industry is one in which
the combination of these five forces acts
to drive down overall profitability.
A very unattractive industry would be one
approaching "pure competition", in which
available profits for all firms are driven
down to zero.
Porter's five forces include:
Threeforces from 'horizontal'
competition:
◦ threat of substitute products
◦ the threat of established rivals
◦ the threat of new entrants

Two forces from 'vertical' competition:

◦ the bargaining power of suppliers
◦ the bargaining power of customers
 Porter's Five Forces Model

Industry competitors

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 Porter's Five Forces Model

Industry competitors

Rivalry among
existing firms

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 intensity of competitive rivalry
For most industries, the intensity of competitive
rivalry is the major determinant of the
competitiveness of the industry.
◦ Sustainable competitive
advantage through innovation
◦ Competition between online and offline companies
◦ Level of advertising expense
◦ Powerful competitive strategy
◦ The visibility of proprietary items on the Web used by
a company which can intensify competitive pressures
on their rivals.
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Industry competitors

Rivalry among
existing firms

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 The threat of the entry of new
competitors
 Profitable markets that yield high returns will attract new firms.
This results in many new entrants, which eventually will decrease
profitability for all firms in the industry.
 Unless the entry of new firms can be blocked by incumbents, the
abnormal profit rate will fall towards zero (perfect competition).
 The existence of barriers to entry (patents, rights, etc.)
◦ The most attractive segment is one in which entry barriers are high and
exit barriers are low. Few new firms can enter and non-performing
firms can exit easily.
◦ Economies of product differences
◦ Brand equity
◦ Switching costs
◦ Capital requirements
◦ Access to distribution
◦ Customer loyalty to established brands
◦ Absolute cost* Industry profitability; the more profitable the industry
the more attractive it will be to new competitors
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Industry competitors

Rivalry among
existing firms

Threat of
substitutes

Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
substitute products or services
The existence of products outside of the realm of the
common product boundaries increases
the propensity of customers to switch to alternatives:
◦ Buyer propensity to substitute
◦ Relative price performance of substitute
◦ Buyer switching costs
◦ Perceived level of product differentiation
◦ Number of substitute products available in the market
◦ Ease of substitution. Information-based products are
more prone to substitution, as online product can easily
replace material product.
◦ Substandard product
◦ Quality depreciation
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Bargaining power Industry competitors

of suppliers
Suppliers
Rivalry among
existing firms

Threat of
substitutes

Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
  bargaining power of suppliers
 The bargaining power of suppliers is also described as the market of inputs.
Suppliers of raw materials, components, labor, and services (such as expertise)
to the firm can be a source of power over the firm, when there are few
substitutes.
 Suppliers may refuse to work with the firm, or, e.g., charge excessively high
prices for unique resources.
◦ Supplier switching costs relative to firm switching costs
◦ Degree of differentiation of inputs
◦ Impact of inputs on cost or differentiation
◦ Presence of substitute inputs
◦ Strength of distribution channel
◦ Supplier concentration to firm concentration ratio
◦ Employee solidarity (e.g. labor unions)
◦ Supplier competition - ability to forward vertically integrate and cut out the
buyer
 Ex. If you are making biscuits and there is only one person who sells flour, you
have no alternative but to buy it from him.
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Bargaining power Industry competitors Bargaining power

of suppliers of buyers
Suppliers Buyers
Rivalry among
existing firms

Threat of
substitutes

Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 bargaining power of customers
(buyers)
 Thebargaining power of customers is also described as the market
of outputs: the ability of customers to put the firm under pressure,
which also affects the customer's sensitivity to price changes.
◦ Buyer concentration to firm concentration ratio
◦ Degree of dependency upon existing channels of distribution
◦ Bargaining leverage, particularly in industries with high fixed costs
◦ Buyer volume
◦ Buyer switching costs relative to firm switching costs
◦ Buyer information availability
◦ Ability to backward integrate
◦ Availability of existing substitute products
◦ Buyer price sensitivity
◦ Differential advantage (uniqueness) of industry products
◦ RFM Analysis
Porter's five forces model
(SUMMARY)
Factors affecting each of the forces
◦ the bargaining power of suppliers

◦ the bargaining power of buyers

◦ the threat of potential new entrants

◦ the threat of substitutes

◦ the extent of competitive rivalry

The Value Chain
 The value chain
The value chain is a systematic approach to
examining the development of competitive advantage.
It was created by M. E. Porter in his book,
Competitive Advantage (1980).
The chain consists of a series of activities that create
and build value.
They culminate in the total value delivered by an
organisation.
The 'margin' depicted in the diagram is the same as
added value. The organisation is split into 'primary
activities' and 'support activities.
 Value chain analysis
Nature of value chain analysis
◦ sustainable competitive advantage
The value chain
◦ primary activities
 inbound logistics
 operations
 outbound logistics
 marketing and sales
 service
◦ Support (secondary) activities
 procurement
 technological development
 human resources management
 firm infrastructure
Primary activities
inbound logistics
operations
outbound logistics
marketing and sales
service
Inbound Logistics
Here goods are received from a
company's suppliers.
They are stored until they are needed on
the production/assembly line.
Goods are moved around the
organisation.
Operations
This is where goods are manufactured or
assembled.
Individual operations could include room
service in an hotel, packing of
books/videos/games by an online retailer,
or the final tune for a new car's engine.
Outbound Logistics
The goods are now finished, and they
need to be sent along the supply chain to
wholesalers, retailers or the final
consumer.
Marketing and Sales
In true customer orientated fashion, at this
stage the organisation prepares the
offering to meet the needs of targeted
customers.
This area focuses strongly upon
marketing communications and the
promotions mix.
Service
This includes all areas of service such as
installation, after-sales service, complaints
handling, training and so on.
Support Activities
procurement
technological development
human resources management
firm infrastructure
Procurement
This function is responsible for all
purchasing of goods, services and materials.
The aim is to secure the lowest possible price
for purchases of the highest possible quality.
They will be responsible for outsourcing
(components or operations that would
normally be done in-house are done by other
organisations), and ePurchasing (using IT
and web-based technologies to achieve
procurement aims).
Technology Development
Technology is an important source of
competitive advantage.
Companies need to innovate to reduce
costs and to protect and sustain
competitive advantage.
This could include production technology,
Internet marketing activities, lean
manufacturing, Customer Relationship
Management (CRM), and many other
technological developments.
Human Resource Management
(HRM)
Employees are an expensive and vital
resource.
An organisation would manage
recruitment and s election, training and
development, and rewards and
remuneration.
The mission and objectives of the
organisation would be driving force
behind the HRM strategy.
Firm Infrastructure
This activity includes and is driven by
corporate or strategic planning.
It includes the Management Information
System (MIS), and other mechanisms for
planning and control such as the
accounting department.
Business strategy
Corporate Culture
 Corporate Culture
The beliefs and values shared by people who work
in an organisation
◦ How people behave with each other
◦ How people behave with customers/clients
◦ How people view their relationship with stakeholders
◦ People’s responses to energy use, community
involvement, absence, work ethic, etc.
◦ How the organisation behaves to its employees –
training, professional development, etc.
 Corporate Culture

May be driven by:

Vision – where the organisation wants to
go in the future
Mission Statement – summary
of the beliefs of the organisation and where
it is now
Corporate Culture
May be reflected in:
◦ Attitude and behaviour of the leadership
◦ Attitude to the role of individuals in the workplace –
open plan offices, team based working, etc.
◦ Logo of the organisation
◦ The image it presents to the outside world
◦ Its attitude to change
Corporate Culture
What corporate culture do
you think the following
businesses have managed
to develop?

Virgin
The
McDonalds
NikeBody
Group
Shop
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Strategic Planning
Analysis
SWOT
Strengths – identifying existing organisational
strengths
Weaknesses – identifying existing organisational
weaknesses
Opportunities – what market opportunities might
there be
for the organisation to exploit?
Threats – where might the threats
to the future success come from?
PEST
Itis very important that an organization
considers its environment before
beginning the marketing process.
In fact, environmental analysis should be
continuous and feed all aspects of
planning.
PEST factors
The organization's marketing environment is
made up of:
The internal environment e.g. staff (or
internal customers), office technology, wages
and finance, etc.
The micro-environment e.g. our external
customers, agents and distributors, suppliers,
our competitors, etc.
The macro-environment e.g. Political (and
legal) forces, Economic forces, Sociocultural
forces, and Technological forces.
PEST
 Political:local, national and international political
developments – how will they affect the organisation and
in what way/s?
 Economic: what are the main economic issues – both
nationally and internationally – that might affect the
organisation?
 Social: what are the developing social trends that may
impact on how the organisation operates and what will
they mean for future planning?
 Technological: changing technology can impact on
competitive advantage very quickly!
 Political Factors
 The political arena has a huge influence upon the
regulation of businesses, and the spending power of
consumers and other businesses. You must consider
issues such as:
 How stable is the political environment?
 Will government policy influence laws that regulate or
tax your business?
 What is the government's position on marketing ethics?
 What is the government's policy on the economy?
 Does the government have a view on culture and
religion?
 Is the government involved in trading agreements such as
EU, NAFTA, ASEAN, or others?
Economic Factors
Marketers need to consider the state of a
trading economy in the short and long-terms.
This is especially true when planning for
international marketing. You need to look at:
◦ Interest rates.
◦ The level of inflation Employment level per
capita.
◦ Long-term prospects for the economy Gross
Domestic Product (GDP) per capita, and so on.
Sociocultural Factors
The social and cultural influences on business
vary from country to country. It is very important
that such factors are considered. Factors include:
◦ What is the dominant religion?
◦ What are attitudes to foreign products and services?
◦ Does language impact upon the diffusion of products
onto markets?
◦ How much time do consumers have for leisure?
◦ What are the roles of men and women within society?
◦ How long are the population living? Are the older
generations wealthy?
◦ Do the population have a strong/weak opinion on
green issues?
Technological Factors
Technology is vital for competitive advantage,
and is a major driver of globalization. Consider
the following points:
◦ Does technology allow for products and services to be
made more cheaply and to a better standard of
quality?
◦ Do the technologies offer consumers and businesses
more innovative products and services such as
Internet banking, new generation mobile telephones,
etc?
◦ How is distribution changed by new technologies e.g.
books via the Internet, flight tickets, auctions, etc?
◦ Does technology offer companies a new way to
communicate with consumers e.g. banners, Customer
Relationship Management (CRM), etc?
 Examples of PEST
Growth of China and India as manufacturing
centres
Concern over treatment of workers and the
environment in less developed countries who may
be suppliers
The future direction of the interest rate, consumer
spending, etc.
The changing age structure of the population
The popularity of ‘fads’ like the Atkins Diet
The move towards greater political regulation of
business
The effect of more bureaucracy in the labour market
Evaluation