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Session 1 What is Strategy & Why it is Important What is Strategy About?

? Strategy is all about how How to outcompete rivals. How to respond to economic and market conditions and growth opportunities. How to manage functional pieces of the business. How to improve the firms financial and market performance. A Firm Does Strategy: To improve its financial performance. To strengthen its competitive position. To gain a sustainable competitive advantage over its market rivals. A Creative, Distinctive Strategy: Can yield above average profits. !akes competition difficult for rivals. Strategy is about competing differently rom riva!s: "oing what they dont do or doing it better. "oing what they cant do. "oing what which sets the firm apart and attracts customers. "oing what we should or should not do to produce a competitive edge.

Competitive A"vantage # meeting customer needs more effectively$ with products or services that customers value more highly$ or more effciently$ at lower cost. Sustainab!e Competitive A"vantage # giving buyers lasting reasons to prefer a firms products or services over those of its competitors. Strategic Competitiveness # achieved when a firm successfully formulates and implements a value creating strategy.

Strategy # an integrated and coordinated set of commitments and actions designed to e%ploit core competencies and gain a competitive advantage. Competitive A"vantage # when a firm implements a strategy that creates superior value for customers& competitors are unable to duplicate it or find it too costly to imitate it. #o$ to Create a Sustainab!e Competitive A"vantage: "evelop valuable e%pertise and competitive capabilities over the long term that rivals cannot readily copy$ match$ or best. 'ut the constant (uest for sustainable competitive advantage at center stage in crafting your strategy. %anagers %o"i y Strategy in &esponse 'o: Changing market conditions. )dvancing technology. *resh moves of competitors. Shifting buyers needs. +merging market opportunities. ,ew ideas for improving the strategy. Company Strategy is a (!en" o )roactive Initiatives an" &eactive A"*ustments

A Company+s (usiness %o"e!: ,#o$ the (usiness Wi!! %a-e %oney. -. .y providing customers with value /the firms customer value proposition0 1. .y generating revenues sufficient to cover costs and produce attractive profits /the firms profit formula0 23t takes a proven business model # one that yields appealing profitability # to demonstrate viability of a firms strategy2 &e!ationship (et$een a Firm+s Strategy an" Its (usiness %o"e!:

Customer /a!ue )roposition # satisfying buyer wants and needs at a price customers will consider a good value. - The greater the value provided /40 and the lower the price /'0$ the more attractive the value proposition is to customers. )ro it Formu!a # creating a cost structure that allows for acceptable profits$ given that pricing is tied to the customer value proposition. - 45 value provide to customers - '5 price charged to customers - C5 the firms costs - The lower the costs /C0 for a given customer value proposition /4 '0$ the greater the ability of the business model to be a moneymaker. Is 0ur Strategy a Winner? It must pass 1 tests:

Strategic Fit 'est # does it e%hibit dynamic fit with the e%ternal and internal aspects of the firms overall situation6 Competitive A"vantage 'est # can it help the firm achieve a significant and sustainable competitive advantage6 'erformance Test # can it produce good performance as measured by the firms profitability$ financial and competitive strengths$ and market standing6 Why Cra ting & 23ecuting Strategy Are Important: Strategy )rovi"es: ) prescription for doing business. ) road map to competitive advantage. ) game plan for pleasing customers. ) formula for attaining long term standout marketplace performance. 7ood Strategy 8 7ood Strategy +%ecution 9 7ood !anagement

Session 4 Charting a Company+s Direction: /ision & %ission, 0b*ectives an" Strategy What Does Strategy5%a-ing & Strategy523ecuting )rocess 2ntai!? 1. "eveloping a strategic vision$ a mission$ and a set of values. 2. Setting ob:ectives for measuring performance and progress. 3. Crafting a strategy to achieve those ob:ectives. 4. +%ecuting the chosen strategy efficiently and effectively. 5. !onitoring strategic developments$ evaluating e%ecution$ and making ad:ustments in the vision and mission$ ob:ectives$ strategy$ or e%ecution as necessary.

'he Strategy5%a-ing, Strategy523ecuting )rocess:

S'A62 1 Deve!oping a Strategic /ision:

"elineates managements future aspirations for the business to its stakeholders. 'rovides direction;where we are going. Sets out the compelling rationale /strategic soundness0 for the firms direction. <ses distinctive and specific language to set the firm apart from its rivals.

Wor"ing a /ision Statement:

7raphic$ *ocused$ *le%ible$ !akes 7ood .usiness Sense =ooking "esirable

=ong$ ,ot *orward .land$ Hard to Communicate

Why Communicate the /ision: *osters employee commitment to the firms chosen strategic direction. +nsures understanding of its importance. !otivates$ informs$ and inspires internal and e%ternal stakeholders. "emonstrates top management support for the firms future strategic direction and competitive efforts. )utting Strategic /ision in )!ace: 'ut the vision in writing and distribute it. Hold meetings to personally e%plain the vision and its rationale. Create a memorable slogan that captures the essence of the vision. +mphasi>e the positive payoffs for making the vision happen. Cra ting a %ission Statement: <ses specific language to give the firm its own uni(ue identity.

"escribes the firms current business and purpose;who we are$ what we do$
and why we are here. Should focus on describing the companys business$ not on making a profit earning a profit is an ob:ective not a mission /6660 I"ea! %ission Statement: 3dentifies the firms product or services. Specifies the buyer needs it seeks to satisfy. 3dentifies the customer groups or markets it is endeavoring to serve. Specifies its approach to pleasing customers. Sets the firm apart from its rivals. Clarifies the firms business to stakeholders. 2The probability of forming an effective mission increases when employees have a strong sense of the ethical standards that guide their behaviours2

Core /a!ues:

)re the beliefs$ traits$ and behavioral norms that employees are e%pected to
display in conducting the firms business and in pursuing its strategic vision and mission. .ecome an integral part of the firms culture and what makes it tick when strongly espoused and supported by top management. !atched with the firms vision$ mission$ and strategy contribute to the firms business success. S'A62 4 Setting 0b*ectives )urposes o Setting 0b*ectives: To convert the vision and mission into specific$ measurable$ timely performance targets. To focus efforts and align actions throughout the organi>ation. To serve as yardsticks for tracking a firms performance and progress. To provide motivation and inspire employees to greater levels of effort. 4 2ssentia! 0b*ectives to Set: Financia! 0b*ectives Communicate top managements targets for financial performance. )re focused internally on the firms operations and activities.

Strategic 0b*ectives )re related to a firms marketing standing and competitive validity. )re focused e%ternally on competition vis ? vis the firms rivals.

6oo" Financia! )er ormance Isn+t 2nough: Current financial results are lagging indicators of past decisions and actions which does not translate into a stronger competitive capability for delivering better financial results in the future.

Setting and achieving stretch strategic objectives signals a firms growth in both
competitiveness and strength in the marketplace. 7ood strategic performance is a leading indicator of a firms increasing capability to deliver improved future financial performance. 2mp!oying a (a!ance" Scorecar": A (a!ance" Scorecar" %easures a Firm+ 0ptima! )er ormance (y: 'lacing a balanced emphasis on achieving both financial and strategic ob:ectives. )voiding tracking only financial performance and overlooking the importance of measuring whether a firm is strengthening its competitiveness and market position.

'he (ene its o Setting Stretch 0b*ectives: 'ush a firm to be more inventive. 3ncrease the urgency for improving financial performance and competitive position. Cause the firm to be more intentional and focused in its actions. )ct to prevent complacent coasting and easy achievement of ho hum performance outcomes 7ee" or Short & 8ong 'erm 0b*ectives: Short Term # focus attention on (uarterly and annual performance improvements to satisfy near term shareholder e%pectations. =ong Term # force consideration of what to do ,@A to achieve optimal long term performance& and stand as a barrier to an undue focus on short term results. 7ee" or 0b*ectives At A!! 0rgani9ationa! 8eve!s: .reaks down performance targets for each of the organi>ations separate units. *osters setting performance targets that support achievement of firm wide strategic and financial ob:ectives. +%tends the top down ob:ective setting process to all organi>ational levels. S'A62 1 Cra ting a Strategy Strategy %a-ing: )ddresses a series of strategic hows. Be(uires choosing among strategic alternatives. 'romotes actions to do things differently from competitors rather than running with the herd. 3s a collaborative team effort that involves managers in various positions at all organi>ational levels.

Who+s Invo!ve" in Strategy %a-ing: -. C+@ # has ultimate responsibility for leading the strategy making process as strategic visionary and as chief architect of strategy. 1. Senior +%e # fashions the ma:or strategy components involving areas of their responsibility. C. !anagers of subsidiaries$ divisions$ geographic regions$ plants$ and other operating units. Strategy %a-ing #ierarchy:

What is a Strategic )!an?

S'A62 : 23ecuting the Strategy Converting Strategic )!ans into Actions &e;uires: "irecting organi>ational action. !otivating people. .uilding and strengthening the firms competencies and competitive capabilities. Creating and nurturing a strategy supportive work climate. !eeting or beating performance targets. 2.SC /.alanced Scorecard0 to D'3 /Dey 'erformance 3ndicators0 for Strategy +%ecution2 Stage < %onitoring Deve!opments, 2va!uating )er ormance, an" Initiating Corrective A"*ustments

2va!uating )er ormance # deciding whether the enterprise is passing the C tests of a winning strategy # good fit$ competitive advantage$ and strong performance. Initiating Corrective A"*ustments # deciding whether to continue or change the firms visionEmission$ ob:ectives$ strategy$ andEor strategy e%ecution methods. 0b!igation o the (oar" o Directors in Corporate 6overnance: Critically appraise the firms direction$ strategy$ and business approaches. +valuate the caliber of senior e%ecutives strategic leadership skills. 3nstitute a compensation plan that rewards top e%ecutives for actions and results that serve stakeholder interests;especially shareholders. @versee the firms financial accounting and reporting practices compliance with the legislation. Session C # +valuating a Companys +%ternal +nvironment

1 !odels of Strategic "ecision !aking5 *irms use two models to help develop their visionEmission and then choose one or more strategies in pursuit of strategic competitiveness and above average returns.

3E@ !odel of )bove )verage Beturns Has F <nderlying )ssumptions5 -. the e%ternal environment is assumed to impose pressures and constraints that determine the strategies that would result in above average returns. 1. most firms competing within an industry or within a segment of that industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources. C. resources used to implement strategies are assumed to be highly mobile across firms$ so any resource differences that might develop between firms will be short lived. F. organi>ational decision makers are assumed to be rational and committed to acting in the firms best interests$ as shown by their profit ma%imi>ing behaviour.

Components of a Companys +nvironment5

7eneral +nvironment is 7rouped into G +nvironmental Segments5 -. demographic 1. +conomic C. 'oliticalElegal F. Sociocultural H.Technological I. 7lobal G. 'hysical 2To deal with e%ternal enviro uncertainty and achieve strategic competitiveness$ firms must be aware of these segments.2 '+ST+= )nalysis # 'olitical$ +conomic$ Social$ Technological$ +nvironmental$ =egal 3ndustry # a group of firms that produce similar products. Compared with the general environment$ the industry environment has a more direct effect on the firms5 strategic competitiveness ability to earn above average returns Thinking Strategically )bout a Companys 3ndustry and Competitive +nvironment5 1. "oes the industry offer attractive opportunities for growth6 2. Ahat kinds of competitive forces are industry members facing$ and how strong is each force6 3. Ahat factors are driving changes in the industry$ and what impact will these changes have on competitive intensity and industry profitability6 4. Ahat market positions do industry rivals occupy;who is strongly positioned and who is not6 5. Ahat strategic moves are rivals likely to make ne%t6 6. Ahat are the key factors for competitive success in the industry6 7. "oes the industry offer good prospects for attractive profits6 J<+ST3@, 1#Ahat Dinds of Competitive *orces )re 3ndustry !embers *acing$ and How Strong are They6 H Competitive *orces5 -. Competition from rival sellers.

1. Competition from potential new entrants. C. Competition from substitute producers. F. Supplier bargaining power. H. Customer bargaining power. 2)n industrys profit potential is a function of the five forces of competition2 H *orces !odel of Competition5

<sing the H *orces !odel5 Step - # *or each of the five forces$ identify the different parties involved$ and the specific factors that bring about competitive pressures. Step 1 # +valuate how strong the pressures stemming from each of the five forces are /strong$ moderate to normal$ or weak0. Step C # "etermine whether the strength of the five competitive forces$ overall$ is conducive to earning attractive profits in the industry. Competitive 'ressures That )ct to 3ncrease the Bivalry )mong Competing Sellers5 .uyer demand is growing slowly or declining. 3t is becoming less costly for buyers to switch brands. 3ndustry products are becoming more alike. There is unused production capacity$ andKor products have high fi%ed costs or high storage costs. The number of competitors is increasing andKor they are becoming more e(ual in si>e and competitive strength. The diversity of competitors is increasing. High e%it barriers stop firms from e%iting the industry. Common Aeapons for Competing with Bivals5

Types of Bivalry5 Cutthroat

*ierce

!oderate

Aeak

+ntry Threat Considerations5 Strength of barriers to entry +%pected reaction of incumbent firms )ttractiveness of a particular markets growth in demand and profit potential Capabilities and resources of potential entrants +ntry of e%isting competitors into market segments in which they have no current presence !arket +ntry .arriers *acing ,ew +ntrants5 +conomies of scale in production$ distribution$ advertising$ or other areas of operation +%perience and learning curve effects <ni(ue cost advantages of industry incumbents Strong brand preferences and customer loyalty Strong network effects in customer demand High capital re(uirements .uilding a network of distributors or dealers and securing ade(uate space on retailers shelves Bestrictive government policies Substitute 'roduct Considerations5 Beady availability of substitutes 'ricing$ (uality$ performance$ and other relevant attributes of substitutes Switching costs that buyers incur 3ndicators of Substitutes Competitive Strength5 3ncreasing rate of growth in sales of substitutes Substitute producers adding output capacity 3ncreasing profitability of substitute producers Supplier .argaining 'ower Considerations5 Beady availability of supplier products Criticality of supplier products as industry inputs ,umber of suppliers of standardKcommodity items .uyers costs for switching among suppliers )vailability of substitutes for suppliers products

*raction of supplier sales due to industry demand Batio of suppliers relative to industry buyers .ackward integration into suppliers industry
.uyer .argaining 'ower Considerations5 .uyer costs for switching to competing sellers "egree to which industry products are commoditi>ed ,umber and si>e of buyers relative to sellers Strength of buyer demand for sellers products .uyer knowledge of products$ costs and pricing .ackward integration of buyers into sellers industry .uyer discretion in delaying purchases .uyer price sensitivity due to low profits$ si>e of purchase$ and conse(uences of purchase

!atching Strategy to Competitive Conditions5 1. 'ursuing avenues that shield the firm from as many competitive pressures as possible. 2. 3nitiating actions calculated to shift competitive forces in the firms favor by altering underlying factors driving the five forces. 3. Spotting attractive arenas for e%pansion$ where competitive pressures in the industry are somewhat weaker. J<+ST3@, C # Ahat *actors )re "riving 3ndustry Change$ and Ahat 3mpacts Aill They Have6 Strategic )nalysis of 3ndustry "ynamics5 1. 3dentifying the drivers of change. 2. )ssessing whether the drivers of change are$ individually or collectively$ acting to make the industry more or less attractive. 3. "etermining what strategy changes are needed to prepare for the impacts of the anticipated change. Common "rivers of 3ndustry Change5

)ssessing the 3mpact of *actors "riving 3ndustry Change5 1. @verall$ are the factors driving change causing demand for the industrys product to increase or decrease6 2. 3s the collective impact of the drivers of change making competition more or less intense6

3. Aill the combined impacts of the change drivers lead to higher or lower industry
profitability6 J<+ST3@, F # How are 3ndustry Bivals 'ositioned # Aho is Strongly 'ositioned and Aho is ,ot6 ) Strategic 7roup # a cluster of industry rivals that have similar competitive approaches and market positions. Have comparable product line breadth Sell in the same priceE(uality range +mphasi>e the same distribution channels <se the same product attributes to buyers "epend on identical technological approaches @ffer similar services and technical assistance

Strategic 7roup !ap # Comparative !arket 'ositions5

Constructing a Strategic 7roup !ap5 3dentify the competitive characteristics that differentiate firms in the industry. 'lot the firms on a two variable map using pairs of differentiating competitive characteristics. )ssign firms occupying about the same map location to the same strategic group. "raw circles around each strategic group$ making the circles proportional to the si>e of the groups share of total industry revenues. Typical 4ariables "ifferentiating the !arket 'ositions of Dey Competitors on 7roup !aps5 'riceE(uality range /high$ medium$ low0 7eographic coverage /local$ regional$ national$ global0 'roduct line breadth /wide$ narrow0 "egree of service offered /no frills$ limited$ full0 "istribution channels /retail$ wholesale$ 3nternet$ multiple0 "egree of vertical integration /none$ partial$ full0 "egree of diversification into other industries /none$ some$ considerable0.

4ariables Selected as !ap )%es5 !ust not be highly correlated. !ust reflect key approaches to customer value and e%pose si>able differences in the marketplace positions of rivals. !ay be (uantitative$ continuous$ discrete andKor defined in terms of distinct classes and combinations. 2!aps are useful for identifying which industry members are close rivals and which are distant rivals2 J<+ST3@, H # Ahat Strategic !oves are Bivals =ikely to !ake ,e%t6 Competitive 3ntelligence # information about rivals that is useful in anticipating their ne%t strategic moves. Signals of the =ikelihood of Strategic !oves5 Bivals under pressure to improve financial performance Bivals seeking to increase market standing 'ublic statements of rivals intentions 'rofiles developed by competitive intelligence units <seful Juestions to Help 'redict the =ikely )ctions of 3mportant Bivals5 Ahich competitors strategies are achieving good results6 Ahich competitors are losing in the marketplace or badly need to increase their unit sales and market share6 Ahich rivals are likely make ma:or moves to enter new geographic markets or to increase sales and market share in a particular geographic region6 Ahich rivals can e%pand product offerings to enter new product segments where they do not have a presence6 Ahich rivals can be ac(uired6 Ahich rivals are financially able and looking to make an ac(uisition6 J<+ST3@, I # Ahat are the Dey *actors for *uture Competitive Success6 Dey Success *actors5 )re the strategy elements$ product and service attributes$ operational approaches$ resources$ and competitive capabilities that are necessary for competitive success by any and all firms in an industry. 4ary from industry to industry$ and over time within the same industry$ as drivers of change and competitive conditions change. 3dentification of Dey Success *actors5 1. Ahat product attributes and service features buyers strongly affect buyers when choosing between the competing brands of sellers6 2. Ahat resources and competitive capabilities are re(uired for a firm to e%ecute a successful strategy in the marketplace6 3. Ahat shortcomings will put a firm at a significant competitive disadvantage6 J<+ST3@, G # "oes the 3ndustry @ffer 7ood 'rospects for )ttractive 'rofits6 3ndustry 'rofitability Considerations5 The industrys overall growth potential +ffects of strong competitive forces +ffects of prevailing drivers of change in the industry Competitive strength of the firm5 its market position relative to its rivals$ its capability to withstand competitive forces$ and whether its position will change in the course of competitive interactions The success of the firms strategy in delivering on the industrys key success factors

Session F # +valuating a Companys Besources$ Capabilities$ and Competitiveness

2.y studying the e%ternal environment$ firms identify what they !37HT CH@@S+ T@ "@. 2.y studying the internal environment$ firms identify what they C), "@.

Strategic Competitiveness and )bove )verage Beturns Besult Ahen5

+valuating a *irms 3nternal Situation5 1. #o$ $e!! is the irm+s present strategy $or-ing? 2. What are the irm+s competitive!y important resources an" capabi!ities? 3. Is the irm ab!e to ta-e a"vantage o mar-et opportunities an" overcome e3terna! threats to its e3terna! $e!!5being? 4. Are the irm+s prices an" costs competitive $ith those o -ey riva!s, an" "oes it have an appea!ing customer va!ue proposition? 5. Is the irm competitive!y stronger or $ea-er than -ey riva!s? 6. What strategic issues an" prob!ems merit ront5burner manageria! attention? J<+ST3@, - # How Aell is the *irms 'resent Strategy Aorking6 .est indicators of a well conceived$ well e%ecuted strategy5 The company is achieving its stated financial and strategic ob:ectives. The company is an above average industry performer.

Cash Conversion Cycle /CCC0 L days between disbursing cash and collecting cash in connection with undertaking a discrete unit of operations J<+ST3@, 1 # Ahat )re The Companys Competitively 3mportant Besources and Capabilities6 Competitive )ssets )re the firms resources and capabilities. )re the determinants of its competitiveness )re what a firms strategy depends on to develop sustainable competitive advantage over its rivals. Besource # a productive input that is owned or controlled by a company. Capability # the capacity of a firm to perform some activity proficiently /e.g. superior skills in marketing0 2+%amples of Capabilities # distribution$ human resources$ marketing$ !3S$ management$ manufacturing$ research and development. Types of Company Besources5 Tangible # physical$ financial$ technological$ and organi>ational resources. 3ntangible # human assets and intellectual capital$ brands$ e%ternal relationships$ and company culture. @rgani>ational Capability5 3s the intangible but observable capacity of a firm to perform a critical activity proficiently using a related combination /bundle0 of its resources. 3s knowledge based$ residing in people and in a firms intellectual capital or in its organi>ational processes and functional systems$ which embody tacit knowledge. Besource and Capability )nalysis5 3dentify the firms resources and capabilities. Test the competitive power of the firms resources and capabilities5

3s the resource /or capability0 competitively 4aluable6 3s it Bare ; is it something rivals lack6 3s it 3n imitable /hard to copy06 3s it ,on Substitutable6 /&I7 ana!ysis !anaging Besources and Capabilities "ynamically5 Threats to Besources and Capabilities5 Bivals providing better substitutes over time Capabilities decaying from benign neglect "isruptive competitive environment change !anaging Capabilities "ynamically 3s the process of creating new andKor updating e%isting resourcesKcapabilities to obtain durable value in both resource types in syncing their support of a resource based competitive strategy J<+ST3@, C # 3s The Company )ble to Sei>e !arket @pportunities and ,ullify +%ternal Threats6 SA@T )nalysis 3s a powerful tool for si>ing up a firms5 3nternal strengths /the basis for strategy0 3nternal $eaknesses /deficient capabilities0 !arket opportunities +%ternal threats Competence # activity that a firm has learned to perform with proficiency # a capability. Core Competence # a proficiently performed internal activity that is central to a firms strategy and competitiveness. Aeakness # something a firm lacks or does poorly or a condition that puts it a competitive disadvantage. Types of Aeaknesses5 3nferior skills$ e%pertise$ or intellectual capital 'hysical$ organi>ational$ or intangible assets deficiencies !issing or inferior capabilities in key areas Types of Threats5 ,ormal course of business threats. Sudden death threats. Considering Threats5 -. 3dentify the threats to the companys future prospects. 1. +valuate what strategic actions can be taken to neutrali>e or lessen their impact. Characteristics of !arket @pportunities5 )n absolute must pursue market Bepresents much potential but is hidden in fog of the future. ) marginally interesting market 'resents high risk and (uestionable profit potential. )n unsuitableKmismatched market The firms strengths are not matched to market factors;best avoided. SA@T )nalysis 3nvolves5

"rawing conclusions from the SA@T listings about the firms overall situation. Translating these conclusions into strategic actions by the firm that5 !atch its strategy to its internal strengths and to market opportunities. Correct important weaknesses$ and defend it against e%ternal threats. 2asy ru!e: !oo- at intersections: SW, S', S0=
Steps 3nvolved in SA@T5

J<+ST3@, F # )re the *irms 'rices and Costs Competitive with Those of Dey Bivals6 Signs of a *irms Competitive Strength5 3ts prices and costs are in line with rivals. 3ts customer value proposition is competitive and cost effective. 3ts bundled capabilities are yielding a sustainable competitive advantage. Concept of Company 4alue Chain5 3dentifies the primary internal activities that create customer value and the related support activities. 'ermits a deep look at the firms cost structure and ability to offer low prices. Beveals the emphasis that a firm places on activities that enhance differentiation and support higher prices.

4alue Chain )nalysis

*acilitates a comparison$ activity by activity$ of how effectively and efficiently a


company delivers value to its customers$ relative to its competitors. The 4alue Chain )nalysis 'rocess5 Segregate the firms operations into different types of primary and secondary activities to identify the ma:or components of its internal cost structure. <se activity-based costing to evaluate the activities. "o the same for significant competitors. .enchmarking # involved improving a firms internal activities based on learning other companys best practices. Sources of .enchmarking 3nfo # reports$ trade groups$ customers$ data from consulting firms. @ptions for 3mproving the +fficiency and +ffectiveness of 3nternal 4alue Chain )ctivities5 3mplement best practices throughout the company$ particularly for high cost activities. Bedesign products to eliminate high cost components or facilitate speedier and more economical assembly or manufacture. Belocate high cost activities to areas where they can be performed more cheaply. @utsource activities that can be performed by contractors more cheaply than in house. Shift to lower cost technologies andEor invest in productivity enhancing$ cost saving technological improvements. Stop per orming activities that a"" !itt!e or no customer va!ue. Aays to 3mprove the +ffectiveness of the Customer 4alue 'roposition and +nhance "ifferentiation5 )dopt best practices and technologies that spur innovation$ improve design$ and enhance creativity. 3mplement the best practices in providing customer service. Beallocate resources to devote more to activities that will have the biggest impact on the value delivered to the customer and that address buyers most important purchase criteria. *or intermediate buyers$ gain an understanding of how the activities the firm performs impact the buyers value chain. )dopt best practices for signaling the value of the product and for enhancing customer perceptions. J<+ST3@, H # 3s The Company Competitively Stronger or Aeaker than Dey Bivals6 Competitive )dvantage 3ndicators5 Superior profitability /comparing to strategic group peers0 )bility to effectively and efficiently bundle resources and capabilities )chieving a high rank on each key success factor J<+ST3@, I # Ahat Strategic 3ssues and 'roblems !erit !anagerial )ttention6 3dentifying Strategic 3ssues5 How to stave off market challenges from new foreign competitors. How to combat the price discounting of rivals. How to reduce high costs and pave the way for price reductions. How to sustain growth in light of slowing buyer demand. Ahether to e%pand the firms product line. Ahether to correct the firms competitive deficiencies by ac(uiring a rival company with the missing strengths Ahether to e%pand into foreign markets rapidly or cautiously. Ahether to reposition the company and move to a different strategic group. Ahat to do about growing buyer interest in substitute products. Ahat to do to combat the aging demographics of the firms customer base.

Session H.- # 7eneric Competitive Strategies .usiness =evel Strategy5 How to Compete in a Specific 3ndustry -. an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by e%ploiting core competencies in specific product markets. 1. every firm must form and use a business level strategy for each one of its businesses. C. business level strategy choices matter because long term performance is linked to a firms strategies. Dey *actors That "istinguish @ne Strategy *rom )nother5 -. 3s the firms target market broad or narrow6 1. 3s the competitive advantage pursued linked to low costs or product differentiation6 H 7eneric Competitive Strategies5 +ach in a "ifferent !arket 'osition

none of the H business level strategies is superior to the others. the effectiveness of each is contingent upon SA@T D+M5 a successful business level strategy must match e%ternal opportunitiesEthreats with internal strengths /i.e. core competencies0 =ow Cost 'rovider Strategies5 +ffective =ow Cost )pproaches5 'ursue cost savings that are difficult imitate. )void reducing product (uality to unacceptable levels. Competitive )dvantages and Bisks5

7reater total profits and increased market share gained from underpricing
competitors. =arger profit margins when selling products at prices comparable to and competitive with rivals. =ow pricing might not attract enough new buyers. Bivals retaliatory price cutting set off a price war. Ahen a =ow Cost 'rovider Strategy Aorks .est5 'rice competition among rival sellers is vigorous. 'roducts are readily available from many sellers. 3ndustry products are not easily differentiated. !ost buyers use the product in the same ways. .uyers incur low costs in switching among sellers. =arge buyers have the power to bargain down prices. ,ew entrants can use introductory low prices to attract buyers and build a customer base >et, usua!!y there can e3ist on!y one !o$5cost !ea"er on the mar-et Cost "rivers5 Dey to "riving "own Company Costs /<S+ *@B C),)") '@ST C)S+0

+%amples of Cost =eadership Strategy # walmart$ ama>on$ and dollar store. .road "ifferentiation Strategies5 +ffective "ifferentiation )pproaches5 Carefully study buyer needs and behaviors$ values and willingness to pay a uni(ue product or service. 3ncorporate features that both appeal to buyers and create a sustainably distinctive product offering. <se higher prices to recoup differentiation costs. )dvantages of "ifferentiation5 'remium prices for products 3ncreased unit sales .rand loyalty Ahen a "ifferentiation Strategy Aorks .est5

"ifferentiation )pproaches5 1. <nusual features. 2. Besponsive customer service. 3. Bapid product innovations. 4. Technological leadership. 5. 'erceived prestige and status. 6. "ifferent tastes. 7. +ngineering design and performance. <ni(ueness "rivers5 Deys to Creating a "ifferentiation )dvantage

"ifferentiation Strategy Bisks5 C@!'+T3T34+ B3SDS 'B3C+ "3**+B+,T3)=5 between the differentiators and the cost leaders products becomes too large 4)=<+ "3!3,3SH+"5 "ifferentiation ceases to provide value for which customers are willing to pay +N'+B3+,C+5 narrows customers perceptions of the value of differentiated features C@<,T+B*+3T5 goods replicate differentiated features of the firms products *ocused Strategy )pproaches # focused low cost strategy or focused market niche strategy. Ahen a *ocused =ow Cost or *ocused "ifferentiation Strategy is )ttractive5 The target market niche is big enough to be profitable and offers good growth potential.

3ndustry leaders do not see that having a presence in the niche is crucial to their own
success. 3t is costly or difficult for multisegment competitors to meet the needs of target market niche buyers. The industry has many different niches and segments. Bivals have little or no interest in the target segment.

*ocus Strategy Bisks5 C@!'+T3T34+ B3SDS C@!'+T3T3@,5 a large competitor may decide that the market segment served by the focus strategy firm is attractive and worthy of competitive pursuit CH),73,7 'B+*+B+,C+S5 customer preferences in the niche market may change to more closely resemble those of the broader market .est Cost 'rovider Strategies5

!arket Characteristics *avoring a .est Cost 'rovider Strategy5 'roduct differentiation is the market norm. There are a large number of value conscious buyers who prefer midrange products. There is competitive space near the middle of the market for a competitor with either a medium (uality product at a below average price or a high (uality product at an average or slightly higher price. +conomic conditions have caused more buyers to become value conscious. 22ST<CD in the !3""=+22 this strategy is gaining popularity but is B3SDMO 'roducts do not offer sufficient value in terms of either low cost or differentiation. Cost structure is not low enough for attractive pricing of products& products not sufficiently differentiated to create value for target customer. B+S<=T 9 "@ ,@ +)B, ).@4+ )4+B)7+ B+T<B,SO Successful Competitive Strategies )re Besource .ased5 ) firms competitive strategy is unlikely to succeed unless it is predicated on leveraging a competitively valuable collection of resources and capabilities that match the strategy. Sustaining a firms competitive advantage depends on its resources$ capabilities$ and competences that are difficult for rivals to duplicate and have no good substitutes. Session H.1 # Strengthening a Companys Competitive 'osition !a%imi>ing the 'ower of a Strategy5 -. Having offensive and defensive competitive actions. 1. Having competitive dynamics and the timing of strategic moves. C. Having scope of operations along the industrys value chain. Strategic @ffensive 'rinciples5

Belentlessly build competitive advantage and then convert it into sustainable


advantage. Create and deploy resources in ways that cause rivals to struggle to defend themselves. +mploy the element of surprise as opposed to doing what rivals e%pect and are prepared for. "isplay a strong bias for swift$ decisive$ and overwhelming actions to overpower rivals. Choosing the .asis for Competitive )ttack5 )void directly challenging a targeted competitor where it is strongest. <se the firms strongest strategic assets to attack a competitors weaknesses. .e prepared for the threatened competitors counter response. .est Targets for @ffensive )ttacks5 -. !arket leaders that are vulnerable. 1. Bunner up firms with weaknesses in areas where the challenger is strong. C. Struggling enterprises on the verge of going under. F. Small local and regional firms with limited capabilities. 'urposes of "efensive Strategies5 -. =ower the firms risk of being attacked. 1. Aeaken the impact of an attack that does occur. C. 3nfluence challengers to aim their efforts at other rivals. .locking the )venues @pen to Challengers5 )dopt alternative technologies as a hedge against rivals attacking with a new or better technology. 3ntroduce new features and models to broaden product lines to close gaps and vacant niches. !aintain economy pricing to thwart lower price attacks. "iscourage buyers from trying competitors brands. Challenge (uality and safety of competitors products 7rant discounts or better terms to intermediaries who handle the firms product line e%clusively. Signaling Challengers That Betaliation is =ikely5 Signaling is an effective defensive strategy if the firm follows through by5 'ublicly announcing its commitment to maintaining the firms present market share. 'ublicly committing to a policy of matching competitors terms or prices. !aintaining a war chest of cash and marketable securities. !aking a strong counter response to the moves of weaker rivals to enhance its tough defender image. *irst !over # knowing when to make a strategic move is as crucial as knowing what move to make. Conditions That =ead to *irst !over )dvantages5 Ahen pioneering helps build a firms reputation with buyers and creates brand loyalty. Ahen a first movers customers will thereafter face significant switching costs. Ahen property rights protections thwart rapid imitation of the initial move. Ahen an early lead enables movement down the learning curve ahead of rivals. Ahen a first mover can set the technical standard for the industry.

Conditions Creating *irst !over "isadvantages5 Ahen pioneering is more costly than imitating and offers negligible e%perience or learning curve benefits. Ahen the products of an innovator are somewhat primitive and do not live up to buyer e%pectations. Ahen rapid market evolution allows fast followers to leapfrog a first movers products with more attractive ne%t version products. Ahen market uncertainties make it difficult to ascertain what will eventually succeed. To .e a *irst !over or ,ot6 1. "oes market takeoff depend on complementary products or services that currently are not available6 2. 3s new infrastructure re(uired before buyer demand can surge6 3. !ust buyers learn new skills or adopt new behaviors6 4. Aill buyers encounter high switching costs in moving to the newly introduced product or service6 5. )re there influential competitors in a position to delay or derail the efforts of a first mover6

"imensions of *irm Scope5 Hori>ontal Scope 3s the range of product and service segments that a firm serves within its focal market. 4ertical Scope 3s the e%tent to which a firms internal activities encompass one$ some$ many$ or all of the activities that make up an industrys entire value chain system$ ranging from raw material production to final sales and service activities. !erger # combining of two or more firms into a single corporate entity that often takes on a new name. )c(uisition # combination in which one firm$ the ac(uirer$ purchases and absorbs the operations of another firm$ the ac(uired. .enefits of 3ncreasing Hori>ontal Scope5 3ncreasing a firms hori>ontal scope strengthens its business and increases its profitability by5 3mproving the efficiency of its operations Heightening its product differentiation Beducing market rivalry 3ncreasing the firms bargaining power over suppliers and buyers

Strategic @utcomes for Hori>ontal !ergers and )c(uisitions5 3ncreasing the firms scale of operations and market share. +%panding a firms geographic coverage. +%tending the firms business into new product categories. 7aining (uick access to new technologies or complementary resources and capabilities. =eading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities. Ahy !ergers and )c(uisitions Sometimes *ail to 'roduce )nticipated Besults5 Strategic 3ssues5 Cost savings may prove smaller than e%pected. 7ains in competitive capabilities take longer to reali>e or never materiali>e at all. @rgani>ational 3ssues Corporate cultures$ operating systems and management styles fail to mesh due to resistance to change from organi>ation members. =oss of key employees at the ac(uired firm. The managers overseeing the integration make mistakes in melding the ac(uired firm into their own. I Aays to )chieve Synergy5 1. Shared know how 2. Coordinated strategies 3. Shared tangible resources 4. 4ertical integration 5. 'ooled negotiating power 6. Combined business creation 4ertically 3ntegrated *irm # one that participates in multiple segments or stages of an industrys overall value chain. 4ertical 3ntegration Strategy # can e%pand the firms range of activities backward into its sources of supply andEor forward toward end users of its products. Bepresentative 4alue Chain System for an +ntire 3ndustry5

Types of 4ertical 3ntegration Strategies5 -. *ull 3ntegration # a firm participates in all stages of the vertical activity chain. 1. 'artial 3ntegration # a firm builds positions only in selected stages of the vertical chain. C. Tapered 3ntegration # involves a mi% of in house and outsourced activity in any stage of the vertical chain. Beasons for 3ntegrating .ackwards5 Beduction of supplier power Beduction in costs of ma:or inputs )ssurance of the supply and flow of critical inputs 'rotection of proprietary know how

Beasons for 3ntegrating *orward5 To lower overall costs by increasing channel activity efficiencies relative to competitors. To increase bargaining power through control of channel activities. To gain better access to end users. To strengthen and reinforce brand awareness. To increase product differentiation. "isadvantages of a 4ertical 3ntegration Strategy5 3ncreased business risk due to large capital investment. )cceptance of technological advances or more efficient production methods. =oss of operating fle%ibility through dependence on internally self produced parts and components. =ess fle%ibility in meeting buyer preferences if they re(uire non internally produced parts and components. 3nternal production levels and capacity matching problems may not allow for economies of scale. Be(uirements for new skills and business capabilities. @utsourcing # involves farming out value chain activities to outside vendors. @utsource an )ctivity Ahen 3t5 Can be performed better or more cheaply by outside specialists. 3s not crucial to achieving sustainable competitive advantage and does not hollow out the firms core competencies. 3mproves organi>ational fle%ibility and speed time to market. Beduces risks due to new technology andEor buyer preferences. )ssembles diverse kinds of e%pertise speedily and efficiently. )llows a firm to concentrate on its core business$ leverage key resources$ and do even better what it does best. Bisk of @utsourcing5 Hollowing out the resources and capabilities that the firm needs to be a master of its own destiny. =oss of control when monitoring$ controlling$ and coordinating activities of outside parties by means of contracts and arms length transactions. =ack of incentives for outside parties to make investments specific to the needs of the outsourcing firms value chain. Session I # +nvironmental Sustainability$ +thics$ and Social Besponsibility .usiness +thics 3s the application of general ethical principles to the actions and decisions of businesses and the conduct of their personnel. )re not materially different from ethical principles in general because business actions have to be :udged in the conte%t of societys standards of right and wrong. Sources for +thical Standards5 -. School of +thical <niversalism 1. School of +thical Belativism C. 3ntegrated Social Contracts Theory -. +thical <niversalism Holds that common understandings across multiple cultures and countries about what constitutes right and wrong give rise to universal ethical standards that apply to all societies$ all firms$ and all businesspeople.

+ffect on .usiness +thics Ahether a business related action is right or wrong is :udged by universal
standards. 1. +thical Belativism Holds that differing beliefs$ customs$ and behavioral norms across countries and cultures give rise to multiple sets of standards of what is ethically right or wrong. +ffect on .usiness +thics Ahether business related actions are right or wrong depends on local ethical standards. 4ariations in +thical Standards5 -. <se of underage labour. 1. 'ayment of bribes and kickbacks. C. Belativism e(uates to multiple sets of standards. F. The use of local morality to guide ethical behaviour. 3ntegrated Social Contracts Theory5 'rovides a middle ground balance between universalism and relativism. 'osits that the collective views of multiple societies form universal /first order0 ethical principles that all persons have a contractual duty to observe in all situations. Aithin the contract$ cultures or groups can specify locally ethical /second order0 actions. +ffects on +thical Standards5 )dherence to universal ethical norms takes precedence over local norms. ) local custom is not ethical if it violates universal ethical norms. )pplication of codes of ethics should first follow universal standards with allowance for local ethical diversity and influence. The +thics Code =itmus Test5 3s what we are proposing to do fully compliant with our code of ethics6 )re there areas of ambiguity6 3s this action in harmony with our core values6 )re any conflicts or potential problems evident6 3s there anything in the action that is ethically ob:ectionable6 Aould our stakeholders$ our competitors$ the S+C$ or the media view this action as ethically ob:ectionable6 Ahen Strategies *ail the +thical =itmus Test5 -. Si>able civil fines and stockholder lawsuits. 1. "evastating image and public relations hits. C. Sharp stock price drops as investors lose confidence. F. Criminal indictments and convictions. "rivers of <nethical Strategies and .usiness .ehaviour5 -. *aulty oversight and self dealing. 1. 'ressure for short term performance. C. ) weak or corrupt ethical environment. Ahy Should a *irms Strategies .e +thical6 !oral Case # because a strategy that is unethical is morally wrong and reflects badly on the character of the firms personnel. .usiness Case # because an ethical strategy can be both good business and serve the self interest of shareholders.

1 Competing 4iews on .usinesss Boles5 ,egative 3n:unctions # moral minimum5 do no harm /respect the laws0 and ma%imi>e shareholder wealth. 'ositive "uties # improving the world and ma%imi>e stakeholders well being. !aking ethical standards a source of competitive advantage5 -0 Beducing the internal operational costs 10 Beducing the transaction C0 Beducing the long term operating costs and F0 3mproving the reputation H0 Sometimes acting proactively is better than reacting /e.g.$ environmental pollution is easier to prevent in the first place than to eliminate later0 I0 The company becomes the first to build competences enabling capitali>ation on the change in the future Costs a Company 3ncurs Ahen +thical Arong "oing is *ound @ut5

CSB is a firms duty5

to operate in an honorable manner provide good working conditions for employees$ encourage workforce

diversity be a good steward of the environment actively work to better the (uality of life in the local communities where it operates and in society at large.

Triple .ottom =ine5

Sustainability # the relationship of a firm to its environment and its use of natural resources. Sustainable .usiness 'ractices # those practices of a firm that meet the needs of the present without compromising the ability to meet the needs of the future. +nvironmental Sustainability Strategy5 Consists of the firms deliberate actions to5 'rotect the environment. 'rovide for the longevity of natural resources. !aintain ecological support systems for future generations. 7uard against ultimate endangerment of the planet. 'ursuing a Sustainable CSB Strategy in the *irms 4alue Chain )ctivities5 !oral Case # stakeholder benefits. .usiness Case # competitive advantage. TH+ !@B)= C)S+ # The 3mplied Social Contract5 To "o The Bight Thing -. @perate ethically and legally. 1. 'rovide good work conditions for employees. C. .e a good environmental steward. F. "isplay good corporate citi>enship. TH+ .<S3,+SS C)S+

1. 2. 3. 4.

3ncreased reputation and buyer patronage Beduced risk of reputation damaging incidents =ower turnover costs and enhanced employee recruiting and workforce retention 3ncreased opportunities for revenue enhancement due innovation in support of sustainability and CSB 5. Support for the long term interests of shareholders

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