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Decisions deriving from analysis constitute the intended strategy of the firm. They rarely survive in its original form
as unforeseen environmental developments, unanticipated resource constraints, or changes in managerial preferences
may result in at least some parts of the intended strategy remaining unrealized.
On the other hand, good managers will want to take advantage of a new opportunity presented by the environment
even if it was not part of the original set of intentions.
New technologies and green solutions to environmental challenges; such strategic moves do not necessarily
constitute parts of the original strategies of firms and can be opportunistic responses to unfolding events, but they are
certainly parts of an emergent strategy.
The final realized strategy of any firm is a combination of deliberate and emergent strategies.
Stakeholders are affected by what an organization does and can influence, to varying degrees, its performance.
Role of management is to look upon the various stakeholders as competing for the attention and resources of the
organization.
Corporate Social Responsibility calls on firms to consider the changing relationships between business, society, and
government, and to act in a socially responsible manner. Social responsibility is the expectation that businesses or
individuals will strive to improve the overall welfare of society.
As social norms and values change, a corporations actions that constitute socially responsible behaviour change as
Adopted triple bottom line, a technique that involves assessing financial as well as environmental and social
performance.
o The first bottom line presents the financial measures with which all leaders are familiar.
o The second bottom line assesses ecological and material capital.
o The third bottom line measures human and social capital.
3. Intellectual Capital: Knowledge has become the direct source of competitive advantage for companies selling ideas
and relationships as well as for all companies trying to differentiate from rivals by how they create value for their
customers.
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Time to Market: Gap still exists between product development cycles in the US and Europe compared to
Japan. This gap persists even though Japanese companies continue to move operations to other countries.
Shifting Roles and Responsibilities: Design responsibility, purchasing, even project management and systems
engineering, are shifting from the original equipment manufacturers to integrators and other suppliers.
2. Environmental Monitoring: Tracks the evolution of environmental trends, sequences of events, or streams of
activities.
3. Competitive Intelligence: Helps firms better define and understand their industry, also identify rivals
strengths/weaknesses.
- Includes the intelligence gathering associated with the collection of data on competitors and the interpretation of such
data for managerial decision-making.
- Helps a company avoid surprises by anticipating competitors moves and decreasing response time.
4. Environmental Forecasting: Involves the development of plausible projections about the direction, scope, speed, and
intensity of environmental change. Environmental forecastings purpose is to predict change.
- Asks, how long will it take a new technology to reach the marketplace? Will the present social concern about an issue
result in new legislation? Are current lifestyle trends likely to continue?
5. Scenario Analysis: More in-depth approach to forecasting. Draws on a range of disciplines and interests, among them
economics, psychology, sociology, and demographics.
- It usually begins with a discussion of participants thoughts on ways in which societal trends, economics, politics, and
technology may affect the issue under discussion.
SWOT Analysis: One of the most widely used if not basic techniques for analyzing firm and industry conditions.
- Stands for Strengths, Weaknesses, Opportunities, and Threats. Provides a framework for analyzing those four
elements of a companys internal and external environment.
- Managers rely on SWOT to stimulate self-reflection and group discussions about how to improve their firm and
position it for success.
- Use it regularly to identify and evaluate the opportunities and threats in the business environment as well as the
strengths/weaknesses of their firms internal environment.
- Not all trends, opportunities, and threats apply equally to all companies within an industry, and one firms SWOT
analysis is not applicable to another.
- Specific trends may benefit some companies while they harm others.
- SWOT analysis is not the unquestionable solution to strategic planning and should not be an end in itself. It is a
framework that allows a manager to classify issues and observations in a meaningful and useful way.
- It does have its limitations. It is simply a starting point for discussion.
- Cannot yield environmental forecasts nor show managers how to achieve a competitive advantage.
- SWOTs value lies in providing a systematic framework to initiate discussion among thoughtful managers who are
contemplating the challenges and opportunities facing their firm.
B) Product Differentiation:
When existing competitors have strong brand identification and customer loyalty, differentiation creates a
barrier to entry by forcing entrants to spend heavily to overcome existing customer loyalties.
Building a brand requires enormous investment, takes time, and is of course fraught with risk.
C) Capital Requirements:
The need to invest large financial resources to compete creates a barrier to entry, especially if the capital is
required for risky or unrecoverable upfront advertising or research and development.
D) Switching Costs:
One- time costs that the buyer faces when switching from one suppliers product or service to another.
Where the product or service is perceived as a commodity or near commodity, the buyers choice is typically
based on price, service, and well- defined features, resulting in pressures from intense price and ser-vice
competition.
Lack of switching costs has the same effect, as competitors can easily replace each others product offerings.
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Industry Dynamics
- One of the criticisms often levelled against traditional industry analysis is that it is static, while the competitive
landscape undergoes very rapid changes due to technological developments, shifting customer preferences, changes in
the regulatory environment, as well as competitive moves of the incumbents.
- An industry whose core activities or core assets face obsolescence will follow one of four change paths.
o A) Radical Change (FedEx Delivery): Occurs when core activities and core assets both face the threat of
obsolescence.
Ex. The overnight delivery industry is experiencing this problem. Availability of cheap and instantaneous
document delivery through fax machines and the Internet has made the core assets (delivery trucks, airplanes,
and a central hub) and core activities (document tracking) of firms such as FedEx suddenly less relevant.
o
B) Creative Change (Pharmaceutical Industry): When core assets are threatened but core activities are not.
Ex. Include the film production industry, the pharmaceutical industry, oil and gas exploration, and prepackaged software. There is rapid asset turnover but relatively stable relationships with suppliers and
customers. In the pharmaceutical industry patents for some drugs expire while new drugs are approved, but
the core activities of commercialization and marketing continue to be relevant.
C) Intermediating Change (Car dealership): Occurs when core assets are not threatened but core activities
are.
Ex. Automobile dealerships as customers can get all the information they need online. Second, as the quality
and longevity of cars improve, individual purchases have become less frequent. Car manufacturers are
increasingly sharing the task of customer relations with the dealers, and, in some cases, they have even
completely taken over this function. Finally, inventory management and financing are now subject to
significant economies of scale which only large, integrated companies can take advantage of.
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D) Progressive Change: Occurs in industries where neither core assets nor core activities face imminent
threat of obsolescence. Change does occur, but it is within the existing framework of the industry.
Ex. Commercial airline industry and the discount retailing industry. Their suppliers and the customers have
not changed, the core assets and activities have changed only incrementally, but over the last decade both
these industries have experienced significant changes.
When faced with radical or intermediating changes, it is wise to aggressively pursue profits in the near term while
avoiding investments that could reduce strategic flexibility in the future.
Another response is forming alliances, often with rivals, to protect common interests and defend against new
competition.
Diversification can also be an effective solution for firms facing radical change.
Firms facing intermediating change must find unconventional ways to extract profits from their core assets.
Firms facing creative change include spreading the risk of new-project development over a portfolio of assets or
outsourcing project management and development tasks.
Chapter 3
Value- chain
- Analysis views the organization as a sequential process of value- creating activities.
- Includes various necessary inputs to create the product offering that the firm brings to the marketplace
- Disaggregates a firm into its various activities in order to understand the ways all inputs are deployed and costs are
incurred in creating a firms products and services.
- This also helps in creating a competitive advantage for the firm
Service
- Service consists of the range of activities associated with enhancing or maintain the value of the product, such as
installation, maintenance, support, repair, training, parts supply, and product adjustment
- Example: can add value through customer service
2. Support Activities
(Relationships between functional groups)
- procurement
- technology development
- human resource management
Firm infrastructure either adds value by them or add value through important relationships with both primary
activities and other support activities.
Procurement
- refers to the function of purchasing inputs to be used in the firms value chain
- Purchased inputs include raw materials, supplies, and other consumable items as well as assets such as machinery,
laboratory equipment, office equipment, and buildings.
- Important to note it is not looking at the items themselves, but the purchasing of the items
- *For example: say you are purchasing inputs from a supplier, if you are able to improve the quality of your suppliers,
this improves your procurement as well
Technology Development
- Every value activity embodies technology
- Technologies employed can be very broad within organizations
- Ranging from technologies used to prepare documents and transport goods to those embodied in processes and
equipment or the product itself
- Technology development related to the product and its features supports the entire value chain
- Other technology development is associated with particular primary or support activities.
- Example Wall-marts use of inventory system technology the supports there inbound activities
Human Resource Management
- Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel
- supports both primary and support activities ( e. g., hiring of engineers and scientists) and the entire value chain ( e. g.,
negotiations with labour unions)
General Administration
- Consists of a number of activities, including general management, planning, finance, accounting, legal and government
affairs, quality management, and information systems. Administration typically supports the entire value chain and
not individual activities.
- Administrative activities can be also viewed as competitive advantage effective information systems can contribute
significantly to cost position, while in some industries, top management plays a vital role in dealing with important
buyers.
Resource base of the firm
- To carry out the basic activities of the value chain, the firm needs resources
- firms resource base comprises all the inputs necessary for the performance of each of the activities, irrespective of who
owns or controls those resources
- firm may sometimes contract for certain resources and other resources they own
Two Perspective to RBV (resource based view)
1. the internal analysis of phenomena within a company
2. an external analysis of the industry and its competitive environment.
- Goes into greater context compared to just a swot analysis. Swot tells you a companys strength but doesnt tell you to
turn it into a competitive advantage
Advantage based on inimitability wont last forever either. Competitors will eventually discover a way to copy most valuable
resources
Managers can fore-stall this and sustain profits for a while longer by developing strategies around resources that have
at least one of the following four characteristics
1) Physical uniqueness is inherently difficult to copy. Examples: beautiful resort location, mineral rights, or Merck &
Co.s pharmaceutical patents simply cannot be imitated
2) Path dependency that resources are unique and, therefore, scarce because of all that has happened in the course of
their development and/ or accumulation
3) Casual ambiguity Inimitability may also arise because it is impossible to disentangle the causes or possible
explanations for either what the valuable resource is or how it can be recreated
- In many cases, causally ambiguous resources are organizational capabilities.
4) Social complexity firms are socially complex making it hard to imitateExamples include interpersonal relations
among the managers of a firm, its culture (ex.zappos), or its reputation with its suppliers and customers
Are substitutes readily available?
- Very different resources can become strategic substitutes online sellers, such as Amazon. ca, diminish the
uniqueness of prime retail locations by substituting bricks- and- mortar locations with the convenience of the Internet
4 factor Employees and Manager can generate a higher profit
1.Employee bargaining power
- If employees are vital to forming a firms unique capability, they will earn disproportionately high wages (for example,
if employees know vital information, they have more power of earning higher wages)
2.Employee replacement costs
- If employees skills are idiosyncratic and rare (a source of resource-based advantage), they should have high bargaining
power, based on the high cost required by the firm to replace them
3.Employee exit costs
- This factor may tend to reduce an employees bargaining power. An individual may face high personal costs when
leaving the organization (other things to take into consideration is that some employee skills may be more applicable
for that job, but other employers may see it as limited value)
4.Manager Bargaining Power
- managers power would be based on how well they create resource-based advantages
- They are generally charged with creating value through the process of organizing, coordinating, and leveraging
employees as well as other forms of capital such as plant, equipment, and financial capital
Evaluating firm performance
- Two approaches to evaluate a firms performance
(1) financial ratio analysis, which, generally speaking, identifies how a firm is performing according to its balance sheet
and income statement
- When performing a financial ratio analysis, managers must take into account the firms performance from a historical
perspective (not just at one point in time) as well as the way in which it compares with industry norms and key
competitors
(2) Broader stakeholder perspective Firms must satisfy a broad range of stakeholders, including employees, customers,
and owners, to ensure their long- term viability
Financial ratio analysis need to analyze 5 different types
1. Short- term solvency or liquidity
2.Long- term solvency measures
3.Asset management (or turnover)
4.Profitability
5. Market value
Financial analysis of ratios must go beyond just looking at the ratios for example you should look a ratios over a time
period to see how ratios are changing
Historical Comparisons
- When managers evaluate a firms financial performance, it is very useful to examine changes in its financial position
over time
- This provides means of evaluating trends
Comparison with industry trends
- A company may compare its financial performance to other firms, but when compared to industry norms you may see
your company performance may not be that great
- By comparing to all firms in an industry, we can calculate relative performance
- Social networks can provide an important mechanism for obtaining both resources and information from individuals
and organizations outside the boundary of a firm
Potential downside of Social capital
- Some companies have been damaged by high social capital that breeds groupthink a tendency not to question
shared beliefs
- When people identify strongly with a group, they sometimes support ideas that are suboptimal or simply wrong
- An excess of warm and fuzzy feelings among group members prevents people from challenging one another with
tough questions and discourages them from engaging in the creative abrasion
Using technology to leverage human capital and knowledge
- Technology can be used to leverage human capital and knowledge within organizations as well as with customers and
suppliers beyond their boundaries
Codifying Knowledge for competitive advantage
- One of the challenges of knowledge- intensive organizations is to capture and codify the knowledge and experience
that, in effect, resides in the heads of its employees
- The use of information technology to codify knowledge can also help a firm to integrate its internal value- chain
activities with its customers and suppliers
Retaining knowledge when employees leave
- Information technology can often help employers cope with turnover by saving some tacit knowledge that the firm
would otherwise lose
- Example: Customer relationship software, for example, automates sales and provides salespeople with access to client
histories, including prior orders and complaints. This enables salespeople to quickly become familiar with client
accounts (about which they might otherwise know nothing)
Chapter 5: Business Level Strategy
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Without competitive advantages, firms are only able to earn, at best, economic profits - the level of normal returns
that they could expect from any investments that have the same level of risk.
Strategy formulation is about the processes and the decisions managers make to address (1) the choices of businesses
in which to compete and (2) how to compete in these businesses.
Business- level strategy is essentially about the particular ways a firm competes in its chosen business. A firm
presumably chooses to compete in certain ways in order to create superior value as compared to competitors. The
superiority is manifested in the market places response to its products and services.
2. Differentiation: Requires a firm to create products/services that are unique and valued as such in the eyes of its
customers.
- Primary emphasis is on non- price attributes for which customers will gladly pay a premium.
3. Focus Strategy: Direct its attention toward narrow product lines, buyer segments, or targeted geographic markets.
- Must attain advantages either through differentiation or a cost leadership approach.
o Overall cost leadership and differentiation strategies strive to attain advantages industry-wide,
o Focusers build their strategy with a narrow target market in mind.
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Firms that identify with one or more of the forms of competitive advantage that Porter identified, outperform those
that do not.
o The lowest performers were those that did not identify with even a single type of advantage. Classified as
stuck in the middle- that is, unable or unwilling to make choices about how to compete, having tried to do
everything and accomplishing nothing particularly well.
When a firm decides to pursue one type of competitive advantage (low cost), it must attain parity on the basis of the
other competitive advantages (differentiation) relative to competitors.
o *To generate above- average performance, a firm following an overall cost leadership position needs to be
able to stay on par with competitors with respect to differentiated products.
Process improvements involve identifying the best practices in other industries and adapting them for implementation
in ones own firm. When firms benchmark competitors in their own industry, the end result is often copying and
playing catch- up.
Potential Pitfalls
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1. Differentiation: Consists of creating differences in the firms product or service offering by creating something that is
perceived industry-wide as unique and valued by customers. Takes many forms:
o Prestige or brand image (BMW).
o Quality (Presidents Choice).
2. Focus: Based on the choice of a narrow competitive scope within an industry. Selects a segment or group of segments
and tailors its strategy to serve them.
o Cost Focus: Strives to create a cost advantage in its target segment and serve customers within that segment
with a lower price than rivals who may either target the whole industry or be unable to match the lower- cost
position.
Exploits differences in cost behaviour in a particular segment and takes advantage of potentially
lower costs that arise from purposefully limiting the firms customer base to a well- defined segment.
o Differentiating Focus: Seek to differentiate itself within a narrow segment. Aims to provide better service,
prestige, image, or quality to a well- defined segment.
Ex. Keg Steakhouse & Bar has developed a simple operating formula that serves it with a stable
business, and its customers with perfect steaks, every time. Has purposefully limited its menu and has
stayed away from food fashions and fads such as nachos and pizzas; it targets young families and the
aprs- work crowd.
Potential Pitfalls
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Many specialty ethnic and gourmet food stores may see their sales and profits shrink as large, national
grocers, such as Loblaw, expand their already broad product lines to include similar items. Given the
enormous purchasing power of the national chains, it would be difficult for such specialty retailers to attain
parity on costs.
Potential Pitfalls
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Turnaround Strategies
- One problem with the life- cycle analogy is that we tend to think that decline is inevitably followed by death.
- Decline can be reversed by strategies that lead to turnaround and rejuvenation. Such a need for turnaround may occur
at any stage in the life cycle. However, it is more likely to occur during the maturity or decline stage.
- Most successful turnarounds start with a careful analysis of the external and internal environments.
o External analysis is identification of market segments or customer groups that may still find the product
attractive.
o Internal analysis points to opportunities for reduced costs and higher efficiency.
3 strategies to successfully turnaround:
o 1: Asset and cost surgery.
Mature firms tend to have accumulated assets that do not produce any returns.
Outright sales or sale and leaseback of these assets free up considerable cash and improve
returns.
Investment in new plants and equipment can be deferred.
Try to aggressively cut administrative expenses and inventories and speed up collection of
receivables.
Outsourcing production of various inputs for which market prices may be cheaper than in- house
production.
o