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Welcome to BA495 Business Strategy and Policy. John A. Hengeveld. Agenda for Today – short day…. Chapter 4-5 of Grant Discussion of Simulation/Q&A. Analyze Strategic Framework. CRITERIA. External Analysis. KSF. Competitive Mapping Customer Value Drivers Sustaining Profitability

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agenda for today short day
Agenda for Today – short day…
  • Chapter 4-5 of Grant
  • Discussion of Simulation/Q&A
strategic process map

Analyze Strategic

Framework

CRITERIA

ExternalAnalysis

KSF

Competitive Mapping

Customer Value Drivers

Sustaining Profitability

Global Framework

InternalAnalysis

R/C

Competency

Rent Earning Potential

Resource/Capability Map

Strategic Process MAP

Strategic

Implementation

Organizational

Structure

Process

Change

Management

Implementation

Plan

Risk

Mitigation

Implementation

Strategic

Due Diligence

Draft

Implementation

Congruence

R/C Review

Competitive

Response

RiskIdentification

And Reduction

Select Strategic Direction

Generate Strategic

Alternatives

Select Short List v Criteria

TOWS

Classic

Strategic

Approaches

slide4

Identifying Key Success Factors

by Analyzing Profit Drivers: Retailing

Sales mix of products

Return on Sales

Avoiding markdowns through

tight inventory control

Max. buying power to minimize

cost of goods purchased

ROCE

Max. sales/sq. foot through:

*location *product mix

*customer service *quality control

Sales/Capital

Employed

Max. inventory turnover through

electronic data interchange, close

vendor relationships, fast delivery

Minimize capital deployment

through outsourcing & leasing

slide5

The Contribution of Game Theory

to Competitive Analysis

  • Main value:
  • Framing strategic decisions as interactions between competitors
  • Predicting outcomes of compeittive situations involving a few
  • players
  • Some key concepts:
  • Competition and Cooperation—Game theory can show conditions
  • where cooperation more advantagfeeous than comeptition
  • Deterrence—changing the payoffs in the game in order to deter
  • a comeptitor from certain actions
  • Commitment—irrevokable demployments of resoruces that
  • give criditability to threats
  • Signaling—communication to influnece a comeptior’s decision

Problems of game theory:

Useful in explaining past competitive behavior—weak in prediucting

future competive behaoir.

What’s the problem? — Multitude of models, outcomes highly sensitive

to small changes in assumptions

a framework for competitor analysis
A Framework for Competitor Analysis

OBJECTIVES

What are competitor’s current goals?

Is performance meeting there goals?

How are its goals likely to change?

STRATEGY

How is the firm competing?

  • PREDICTIONS
  • What strategy changes
  • will the competitor
  • initiate?
  • How will the competitor
  • respond to our strategic
  • initiatives?

ASSUMPTIONS

What assumptions does the competitor

hold about the industry and itself?

RESOURCES & CAPABILITIES

What are the competitors’ key

strengths and weaknesses?

segmentation analysis the principal stages
Segmentation Analysis: The Principal Stages
  • Identify key variables

and categories.

  • Construct a segmentation matrix
  • Analyze segment attractiveness
  • Identify KSFs in each segment
  • Analyze benefits of

broad vs. narrow scope.

Identify segmentation variables

Reduce to 2 or 3 variables

Identify discrete categories for

each variable

Potential for economies

of scope across segments

Similarity of KSFs

Product differentiation benefits

of segment focus

the basis for segmentation customer and product characteristics

*Size

*Technical

sophistication

*OEM/replacement

The Basis for Segmentation: Customer and Product Characteristics

Industrial buyers

Characteristics

of the Buyers

*Demographics

*Lifestyle

*Purchase occasion

Household buyers

*Size

*Distributor/broker

*Exclusive/

nonexclusive

*General/special

list

Distribution channel

Opportunities for

Differentiation

Geographical

location

*Physical size

*Price level

*Product features

*Technology design

*Inputs used (e.g. raw materials)

*Performance characteristics

*Pre-sales & post-sales services

Characteristics

of the Product

segmenting the world automobile market
Segmenting the World Automobile Market

REGION

US& Canada W.Europe E.Europe Asia Lat America Australia Africa

Luxury Cars

Full-size sedans

Mid-size sedans

Small sedans

Station wagons

Passenger minivans

Sports cars

Sport-utility

Pick-up trucks

slide11

Vertical Segmentation & Industry Profit Pools

—The US Auto Industry

25%

20

Service & repair

Leasing

Operating margin

15

Warranty

Aftermarket

parts

Auto manufacturing

10

Auto rental

Auto insurance

Auto loans

New car dealers

5

Used car dealers

0

Gasoline

100%

0

Share of industry revenue

segmentation and key success factors in the u s bicycle industry

SEGMENT

Segmentation and Key Success Factors in the U.S. Bicycle Industry

KEY SUCCESS FACTORS

* Low-costs through global sourcing of components

& low-wage assembly.

* Supply contract with major retailer.

Leading competitors: Taiwanese & Chinese assemblers,

some U.S manufacturers, e.g. Murray Ohio, Huffy

Low price bicycles sold primarily

through department and discount

stores, mainly under the retailer’s

own brand (e.g. Sears’ “Free Spirit”);

*Cost effieciency through large scale operation and

either low wages or automated manufacturing.

*Reputation for quality (durability, reliability) through

effective marketing to dealers and/or consumers.

* International marketing & distribution.

Leading competitors: Raleigh, Giant, Peugeot, Fuji

Medium-priced bicycles sold

primarily under manufacturer’s brand

name and distributed mainly through

specialist bicycles stores;

*Quality of components and assembly, Innovation in

design (e.g. minimizing weight and wind resistence).

*Reputation (e.g. through success in racing, through

effective brand management).

*Strong dealer relations.

High-priced bicycles for enthusiasts.

Children’s bicycles (and tricycles) sold

primarily through toy retailers (discount

toy stores, department stores, and

specialist toy stores).

Similar to low-price bicycle segment.

strategic group analysis
Strategic Group Analysis

A strategic group is a group of firms in an industry following the same or similar strategy.

  • Identifying strategic groups:
    • Identify principal strategic
  • variables which distinguish
  • firms.
    • Position each firm in relation
  • to these variables.
    • Identify clusters.
strategic groups in the world automobile industry
Strategic Groups in the World Automobile Industry

Broad

GLOBAL, BROAD-LINE

PRODUCERS

e.g., GM, Ford, Toyota, Nissan, Honda, VW, Daimler Chrysler

REGIONALLY-FOCUSED BROAD-LINE PRODUCERS

e.g. Fiat, PSA, Renault,

GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g., Volvo, Subaru, Isuzu, Suzuki, Saab, Hyundai

NATIONALLY FOCUSED, INTERMEDIATE LINE PRODUCERS

e.g. Tofas, Kia, Proton, Maruti

PRODUCT

RANGE

LUXURY CAR MANUFACTURERS

e.g., Jaguar, Rolls Royce, BMW

NATIONALLY- FOCUSED, SMALL, SPECIALIST PRODUCERS e.g., Bristol (U.K.), Classic Roadsters (U.S.), Morgan (U.K.)

PERFORMANCE CAR PRODUCERS e.g., Porsche, Maserati, Lotus

Narrow

National

GEOGRAPHICAL SCOPE

Global

strategic groups within the world petroleum industry
Strategic Groups Within the World Petroleum Industry

INTERNATIONAL

UPSTREAM

COMPANIES

INTEGRATED OIL MAJORS

INTERNATIONAL

UPSTREAM,

REGIONALLY

FOCUSED

DOWNSTREAM

Premier

Oil

Enterprise

Kuwait Petroleum

PDVSA

INTEGRATED

DOMESTIC

OIL COMPANIES

  • NATIONAL
  • PRODUCTION
  • COMPANIES

Iran

NOC

0 0.5 1.0 1.5 2.0

Statoil

BP-Amoco

Exxon

-Mobil

Vertical Balance

INTEGRATED

INTERNATIONAL

MAJORS

Pemex

Petronas

Chevron

Royal Dutch

-Shell Gp.

Phillips

ENI

Elf-Fina-Total

Repsol

YPF

Indian Oil

Phillips

Texaco

Petrobras

ENI

INTERNATIONAL

DOWNSTREAM

OIL COMPANIES

Repsol

Nippon

E.g. Neste

Tosco

0 10 20 30 40 50 60 70 80

NATIONALLY-FOCUSED

DOWNSTREAM COMPANIES

Geographical Scope

analyzing resources capabilities
Analyzing Resources & Capabilities
  • The role of resources and capabilities in strategy formulation.
  • The resources of the firm
  • Organizational capabilities
  • Appraising the profit potential of resources and capabilities
  • Creating new capabilities.

OUTLINE

slide17

Shifting the Focus of Strategy Analysis:

From the External to the Internal Environment

THE FIRM

Goals and

Values

Resources and

Capabilities

Structure and

Systems

  • THE
  • INDUSTRY
  • ENVIRONMENT
  • Competitors
  • Customers
  • Suppliers

STRATEGY

STRATEGY

The

Firm-Strategy

Interface

The

Environment-Strategy

Interface

rationale for the resource based approach to strategy
Rationale for the Resource-based Approach to Strategy
  • When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus.
  • Resources and capabilities are the primary sources of profitability
the evolution of honda motor company
The Evolution of Honda Motor Company

50cc 2-cycle engine

Related products:

ground tillers, marine

engines, generators,

pumps, chainsaws

Founding of

Honda motor

company

405cc

motor

cycle

4 cycle

engines

1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995

First product:

clip-on engine

for bicycles

The 50cc

super

-cub

N360 mini

car

1000cc

Goldwing

touring

motor cycle

Acura Car

division

slide20

Canon: Products and Core Technical Capabilities

Precision

Mechanics

Fine

Optics

Plain-paper copier

Color copier

Color laser copier

Laser copier

35mm SLR camera

Compact fashion camera

EOS autofocus camera

Digital camera

Video still camera

Basic fax

Laser fax

Inkjet printer

Laser printer

Color video printer

Mask aligners

Excimer laser aligners

Stepper aligners

Calculator

Notebook computer

Micro-

Electronics

slide21

Evolution of Capabilities and Products: 3M

Road signs

& markings

Videotape

Sandpaper

Carborundum

mining

Floppy disks &

data storage

products

Scotchtape

Audio tape

Acetate

film

Post-it notes

Housewares/kit-

chen products

PRODUCTS

Surgical tapes

& dressings

Pharmaceuticals

Materials sciences

Flexible

circuitry

Health sciences

CAPABILITIES

Microreplication

New-product

development &

introduction

Thin-film

technologies

Abrasives

Adhesives

slide22

The Links between Resources, Capabilities

and Competitive Advantage

INDUSTRY KEY

SUCCESS FACTORS

COMPETITIVE

ADVANTAGE

STRATEGY

ORGANIZATIONAL

CAPABILITIES

  • RESOURCES
  • TANGIBLE INTANGIBLE HUMAN
  • Financial
  • Physical
  • Skills/know-how
  • Capacity for communication & collaboration
  • Motivation
  • Technology
  • Reputation
  • Culture
appraising resources
Appraising Resources

RESOURCE CHARACTERISTICS INDICATORS

Financial Borrowing capacity Debt/ Equity ratio

Internal funds/ generation Credit rating

Tangible Net cash flow

Resources Physical Plant and equipment: Market value of

size, location, technology fixed assets.

flexibility. Scale of plants

Land and buildings. Alternatives for fixed

Raw materials. assets

Technology Patents, copyrights, know how No. of patents owned.

R&D facilities. Royalty income

Intangible Technical and scientific R&D expenditure.

Resources employees R&D staff

Reputation Brands. Customer loyalty. Company Brand equity. Product

reputation (with suppliers, customers, price premium.

government) Recognition.

Human Training, experience, adaptability, Employee qualifications,

Resources commitment and loyability of customers pay rates, turnover.

firms with the highest ratios of market value to book value
Firms with the Highest Ratios of Market Value to Book Value

Juniper Networks 58.5 Computer software and services

Oracle (US) 56.2 Computer software and services

TIM (Italy) 45.0 Telecommunications

Broadcom 42.6 Computer software and services

Nokia (Finland) 42.0 Telecom equipment

Yahoo (US) 41.3 Computer software and services

Cisco Systems (US) 31.9 Telecom equipment

America Online (US) 34.0 Telecommunications

US West (US) 28.9 Telecommunications

Glaxo Wellcome (UK) 25.4 Drugs

Sun Microsystems (US) 24.4 Computers

Charles Schwab (US) 24.2 Financial services

L.M. Ericsson (Sweden) 24.1 Telecom equipment

Warner Lambert (US) 23.0 Drugs

EMC (US) 21.5 Electronics

Amgen (US) 21.4 Drugs

Dell Computer (US) 21.0 Computers

Colegate Palmolive (US) 20.8 Personal care products

SmithKline Beecham (US) 20.6 Drugs

SAP (Germany) 19.4 Computer software and services

Pfizer (US) 19.4 Drugs

Eli Lilly (US) 18.8 Drugs

Sprint PCS Group 18.3 Telecommunications

Softbank (Japan) 18.2 Computer software and services

Source: Business

Week, July 2000

the world s most valuable brands 2000
The World’s Most Valuable Brands, 2000

RankCompanyBrand Rank Company Brand

value value

($bn.) ($bn.)

1 Coca-Cola 72.5 8 Disney 33.6

2 Microsoft 70.2 9 McDonald’s27.9

3 IBM 53.2 10 AT&T 25.5

4 Intel 39.0 11 Marlboro 22.1

5 Nokia 38.5 12 Mercedes 21.1

6 Genera Electric 38.1 13 Hewlett-Packard 20.6

7 Ford 36.4 14 Cisco Systems 20.0

Source: Interbrand

identifying organizational c apabilities functional approach
Identifying Organizational Capabilities :Functional Approach

FUNCTION CAPABILITY EXEMPLARS

Corporate Financial management Exxon, Coca Cola

Management General Electric,

Strategic Control Emerson Electric, GE

Coordinating decentralized ABB, Shell

business units

Managing Acquisitions Nationsbank, ConAgra

MIS Speed and responsiveness through American Airlines

rapid information transfer LL Bean

R&D Research capability Mereck, AT&T

Development of innovative new products Sony, 3M

Manufacturing Efficient volume manufacturing Briggs & Stratton

Continuous Improvement Nucor, Motorola

Flexibility Benetton

Design Marketing Design Capability Apple, Swatch,

Brand Management Proctor & Gamble,

PepsiCo

Sales & Distribution Promoting reputation American Express

Responsiveness to market trends The Gap

Sales Responsiveness Microsoft, Glaxo

Efficiency and speed of distribution Federal Express

Customer Service Walt Disney

the value chain the mckinsey business system
The Value Chain: The McKinsey Business System

TECHNOLOGY

PRODUCT DESIGN

MANUFACTURING

MARKETING

DISTRIBUTION

SERVICE

a hierarchy of capabilities a telecom manufacturer
A Hierarchy of Capabilities: A Telecom Manufacturer

CROSS FUNCTIONAL CAPABILITIES

BROAD FUNCTIONAL CAPABILITIES

ACTIVITY RELATED CAPABILITIES (Operations related only)

SPECIALIZED CAPABILITIES (Manufacturing related only)

SINGLE-TASK CAPABILITIES (Only those related to PCB assembly)

INDIVIDUALS’ SPECIALIZED KNOWLEDGE

appraising vw s resources and ca pabilities
Appraising VW’s Resources and Capabilities

10

Superfluous Strengths

Key Strengths

  • Relative
  • Strength

5

Zone of Irrelevance

Key Weaknesses

1

1

5

10

Strategic Importance

amoco s appraisal of organizational capabilities

6

9

4

5

2

11

3

1

10

1

8

Amoco’s Appraisal of Organizational Capabilities

(illustrative only)

1. Effective deal making

2. Rapid new product development

3. Relentless cost forms

4. Product quality

5. JV management

6. Superior EH&S management

7. Managing culturally diverse workforce

8. Fast decision making

9. Customer segmentation

10.Capture synergies across divisions

11. Effective procurement

Superfluous

strengths

Key weaknesses

Superior

Performance

Parity

Inconsequential

weaknesses

Key strengths

Deficient

7

Not important

Needed to play

Needed to win

Importance

distinctive capabilities as a consequence of childhood experiences
Distinctive Capabilities as a Consequence of Childhood Experiences

Company Capability Past History

Exxon Financial Exxon’s predecessor, Standard Oil (NJ)

management was the holding co. for Rockefeller’s

Standard Oil Trust

RD/ Coordinating Shell a j-v formed from Shell T&T founded to

Shell decentralized sell Russian oil in China, and Royal Dutch

global empire founded to exploit Indonesian reserves

BP “Elephant Discovered huge Persian reserves, went on to

hunting” find Forties Field and Prudhoe Bay

ENI Deal making in The Enrico Mattei legacy; the challenge of

politicized managing government relations in post-war

environments Italy

Mobil Lubricants Vacuum Oil Co. founded in 1866 to supply

patented petroleum lubricants

2

slide32

Approaches to

Capability Development

1) Linking strategy to Human Resource Management--developing individual competencies

2) Greenfield development in separate organizational unit (IBM & the PC, Xerox & PARC, GM & Saturn)

3) Product sequencing (Intel , Sony, Hyundai)

4) Change management to transform values and behaviors (GE, BP)

slide33

Product Sequencing to Build Capabilities: Hyundai

  • Hydrodynamics
  • Thermodynamics
  • Fuel engineering
  • Emission control
  • Lubrication
  • Kinetics& vibration
  • Ceramics
  • Electronic control
  • systems
  • Auto styling &design
  • Casting & forging
  • Chassis design
  • Tooling
  • Body production
  • Export mktg.

Capabilities

  • FWD
  • engineering
  • CAD/CAM
  • Assembly
  • control
  • systems
  • Advanced
  • component
  • handling
  • Assembly
  • Production
  • engineering
  • Local
  • marketing
  • Large-scale design integration
  • Global logistics
  • Lifecycle engineering

‘Alpha’

engine

SKD CKD

Ford Cortina

Accent

Avante

Sonanta

Pony

Excel

Products

1968

1970

1985

1974

1994-95

slide34

Summary: A Framework for Analyzing Resources and Capabilities

4. Develop strategy implications:

(a) In relation to strengths--How canthese

be exploited more effectively and fully?

(b) In relation to weaknesses

--Identify opportunities to outsourcing

activities that can be better

performed by other organizations.

--How can weaknesses be corrected

through acquiring and developing

resources and capabilities?

STRATEGY

POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE

3. Appraise the firm’s resources and capabilities in terms of:

(a) strategic importance

(b) relative strength

2. Explore the linkages between resources

and capabilities

CAPABILITIES

1. Identify the firm’s resources and

capabilities

RESOURCES

appraising the capabilities of a business school

6

9

3

5

2

8

4

1

10

7

Appraising the Capabilities of a Business School

(illustrative only)

C1 Alumni relations

C2 Student placement

C3 Teaching

C4.Administration

C5 Course devlpmnt

C6 Student recruitment

C7 Research

C8 Corporate relations

C9 Marketing

C10 IT

C11 PR

C12 HRM

Superfluous

strengths

Key strengths

Superior

Relative Strength

Parity

Inconsequential

weaknesses

12

11

Key weaknesses

Deficient

Not important

Critically important

Importance

essential step get to action

10

Superfluous Strengths

Key Strengths

Relative Strength

Zone of Irrelevance

Key Weaknesses

1

1

Strategic Importance

10

Essential Step: Get to Action

Plan Leverage

Divestiture??

Most CRITICAL

ZONE OF ACTION

essential step get to action38

10

Superfluous Strengths

Key Strengths

Relative Strength

Zone of Irrelevance

Key Weaknesses

1

1

Strategic Importance

10

Essential Step: Get to Action

Move UP

MOVE LEFT