ContinuousAssessment Intro IndustryandEnvironment/Analysis SPACE StrategicPositioningActionC...E...

+FiveForcesmodel Resources+Capabilitiesofthefirm Genericstrategies Costbased Differentiation Genericstrategiesfortechnologybased/knowledgebased Portfoliostrategies BusinessUnitStrategies Corporatemanagement CorporateStrategy BusinessSimulationattheend

3CasesEntertainment/Madonna GeneralGiapVietnamWars AlexFergusonManchesterUnited... Didtheyhaveastrategy? Ifso,whatwere/arethecommonfactorsofsuccess? CommonFactors ConsistentMessage Teamsupport Supportinggroupsyouth Drive IssuesDifferentiation?Madonna...Giapno...

Casestudies Goals,objectives,vision,direction GoalMadonnaStardom GeneralGiapVietnamlongtermprocesskeytoreducethepoweroftheUSforces FergusonCleargoals,simpleandunderstandable Keyelements Clear&understandablegoals Vision! Longtermvisionitisessentialtofocusoncleargoals MadonnaStardomclear&simplegoals GiapUnifythecountry,butnotatanypriceunificationandindependenceunder communistrulemotive,political,philsophicalgoals Fergusonwinningtrophies,incessantlycontinualsuccess Allstakeholdershouldknowwhatthecompanyandfirmstandsfor... ...infourorfivelineswhatareweaimingtodo... Wewanttoget30%marketsharein5years... SMARTobjectivies.... Understandwhatittakestogetthere... Profoundunderstandingoftheenvironment Madonnaclearunderstandingoftheemergingentertainmentarena GiapUnderstandingoftheterrainandtheUSpoliticalsystem,competitionandenemy Fergusongoodunderstandingofthecompetitionintelligenceoftheotherteams,ofthemedia roleinsport. RealisticAppraisalofResources&capabilities Madonnacomparativelylowtalentlimitationsofrawtalentunderstoodwhereherstrengthslay image,styledesign,selfpublicism.Sheunderstoodwhatshedidn'thaveandhowtoacquireit notwhatyouknow,butwhoyouknow. Giappropaganda,unityofpurpose,strengthofideology,understandingoftheirabilities Agoodimplementationofthedifferentelementsofstrategy Commitment,dedication,leadership,implementation Fergusonmasterofgamepsychology.

Frameworkforsuccessfulstrategy Success

Implementation

ClearGoals

Understanding environment

Appraisalof resources

ElementsofSuccess

Madonna Goals Singleminded questforstardom

Giap&North Vietnam Reunificationof Vietnamunder Communistrule

AlexFerguson Successinsoccer anescaperoute frompovertyin Glasgow Clearrecognition ofimportanceof discipline, training, motivation& competitive intelligence Combinedinternal developmentof skillswith acquisitionofkey players

Understandingthe Identified Intimate environment emergingtrendsin knowledgeofthe popularculture. terrain. Recognisedpower Understandingof ofsex.Understood theUSpolitical showbiz system distribution channels Resource Appraisal Recognised limitedrawtalent. Reliedonstrength inselfpromotion, relationship Recognised economic& militaryweakness andpolitical strength

management Implementation Commitmentto hardwork, disciplined, inspirational. Attentiontodetail Tightcontrol,long Commitment, termcommitment. dedication,control Effective ofplayers propaganda. Inspirational leadership

Whatisstrategy?

Distinguishingstrategyfromtactics: Strategyistheoverallplanfordeployingresourcestoestablishafavourableposition. Tacticisaschemeforaspecificmanoeuvre. Characteristicsofstrategicdecisions: Important Involveasignificantcommitmentofresources Noteasilyreversiblelongtermplanning,changestendtobetacticalinnature,rather thanpermanentadaptation GiapUStriedtodumptheirsupportersinVietnaminordertoendthewar politicallytheywantedtonegotiatewiththeN.VietnameseunityofVietnam underVietnamesecontrolwithouttheirclarityofgoal,theywouldhavecreated hesitationinthemindsofthoseinthewarlongtermvision,anddeploymentof resourcesyoucannotchangeeveryyeardiversificationorcostadvantageyou cannotchangeyourstrategyorsinglemindednessofthedirection.

EvolutionofStrategicManagement EtymologyfromGreek Stratosstructureofmiltary AegisChief Strategyisbasedonwarplanning... TsunTsuTheArtofWar GlasviczPrussianwars Recentdecades... 1950sbudgetaryplanningandcontrol...Financialcontrol...Budgeting&projectmanagementand appraisal...Emphasisedfinancialmanagement 1960sCorporateplanning,planningforgrowth,forecasting&investmentplanning,riseof corporateplanningdepartments&formalplanning. EarlytoMid1970sCorporatestrategydiversificationportfoliostrategyplanningsynergy marketsharediversificationquestforglobalmarketshare

Late1970stoearly1980sAnalysisofindustry&competition,positioning,analysisofindustry& competition,industry/marketselectivity.Activeassetmanagement Late1980searly1990sQuestforcompetitiveadvantage,competitiveadvantage,resource analysis,corecompetencesrestructuring,BPR,refocusingandoutsourcing. Late1990searly2000sStrategicinnovation,TheNewEconomyInnovation&knowledge dynamicsourcesofadvantageKnowledgeManagement,cooperationVirtualorganisation, alliancesquestforcriticalmass early1990sPaceofchangehasacceleratedyoucannolongerunderstandtheenvironmentand positionyourselfyoucannolongerplanforthatsincethetechnologyandmarketischangingso quicklythatcorecompetenciesiskeythrowoutanythingthatisnotacorecompetencythe thingsthatmakeyoulesscapablethanyourcompetiors. Porter!Forcesvaluechain!CorecompetenciesProwlerhardandHarold.??? Late2000sStrategicManagementstrategyisadesigntoolyouneedtodesignastrategyto buildadesigntool.Strategybydesign. MintzbergIt'safallacytopretendthatyoucandesigninthischangingandvolatileenvironment strategyisanemergentprocesscontinuousadaptationyoucannotbesuccessfulwitharigid planyouneedtobeadaptableandchangeableorganicandchangeable... ThesamecasescanbeusedtovalidatetheirargumentsHondawasbothPorterandMintzberg's analyses. MintzberginterviewedthesamepeopleasPorterdid. ThefocusishowdidHondagrowfromsmalltolarge?Whatwastheirdrivingforces?Hondawas opportunistictoosmallinJapan. DevelopmarketshareinForeignmarketsHondastartedbyexportingsmallCCmotorbikes...It didn'tworktheUSneverboughtsmallbikesinthe70s.ButHarley'sandBMWwerepopular. Studying,buildingthebigbikesHonda'scorecompetencywasmechanicalengineeringandgood enginestheyachievedquality,reliabilityandrobustnessHarleywasnotreliable,buttheyhadthe image. Hondaextendedtheirmarketintoenginesforboats,whentheyinternationalisedandwenttotheUS. Howtheywouldtaketheopportunities,exportingthecars,andthemotorbikes... Duetochangesintheforeignexchangerate,theywereforcestomaketacticalmovestobuildthe factoriesintheUS. Anemergentstrategy!Mitzberg... AlternativelyPorteranalysisofmarket,analysisofthemarket,andbuildingtheircore competenciestoolstodeploy,andcommunicatebetter,andtoinvolveallthosearoundyouto createconsistentgoals,managementtools,performancemeasurements,anddesignstrategies. Anyfirmwouldhavedifficultywouldhaveissuesinasituationaffectingmoney. Let'sacceptthevalidityofthekeyarguments,butknowingwhereyouaregoingisalsoakeygoal. Glauswiczwhenyougotowar,unlessyouknowhowyouaregoingtowinandyou'vefiguredit outinheadquarters,howcanyouexpecttosucceedinbattle?Soyouneedsomesortofstructure, frameworkandgoal. Sobacktotheframework

1. Goalsandvision 2. Analysisoftheenvironment(whatmarketstructureisthere,whoarethecompeitors,what aretheirstrategies,strengthsandweaknesses) 3. External,internalandResourceauditwhatdowehavetocompeteinthismarket,andwhat doweneedtocompeteinthismarket 4. Implementation(Howdowedothis,etc) SourcesofSuperiorProfitability

Corporate

Goals,ValuesandPerformance

Strategyasaquestforvalue Profitisthedriveroffirmsinamarketeconomyso.... Whatisprofit?Howmuchadditionalmoneyyoumakewhenyouincludeinyour calculationsthecostofcapitalthatyoucreatemorevaluethanwhatthecapitalcosts. Theshareholdervalueapproach Theshareholdervalueandstrategyformulation Missionandvalues

Financialobjectiveofanyfirminthelongterm Strategistshouldbeabletoproducecashflowthatmakes Vmax=Sum(C+/(1+r(ave))+=cashflowisgreaterthantheaveragecostofcapital Maximisethecashflowovertheaveragecostofcapital. Marketswecanborrowcapitalinthemarketsquotedcompanies,thetypicalwaystoraise capitalequityissueofrightsandsharesoryouraisedebtthroughbondissue. Bondseachcompany'spotentialtoraisebondsandatwhatprice. Zeroriskbondsgovernmentbonds0riskbonds,4.80%.lowestcostofcapitalistotripleA ratedcompanieshighestcostofcapitalistoothercompaniespremiumcostforaTripleArated companywhocanborrowat5.80%banksusedtobetripleA,butnowtheyarenolonger... Ifyouareconsideredahigherriskbythemarket,yourborrowingpremiumwillbehigher... IfyouareratedB(neartoB)6%premium... RatingagenciesStandard&Poors(Bisajunknoninvestmentgradecompany),Moody(Cis noninvestment), Inthesituationofaneconomicdownturn,theborrowingofcapitalpremiumincreasesconsiderably e.g.HarleyDavidsonwouldcurrentlyborrowat10%... Companiescanbuildcapitalthroughissuingsharesbutwhentheydothat,theyaregenerallyina badsituationRBSissued12billionata40%discountinordertobeabletosellthem.Even withthe40%discount,theyhadtopay1.2/3%feestotheunderwriters... Insurancetopayhighfees... Theyhadtopayahugecost,buttheyhadnochoice,becausetheirabilitytoborrowwassoreduced,

thattheywouldhavehadtopayahugecostofcapitalininterestrates... Thequestionbecomeshowmuchareyouburningcapitalbycontinuingtobeinbusiness? Areyoucoveringthelongtermcostofcapital? Itisverydifficulttochoseonemeasureofprofitabilitybecauseofallthedifferentmeasuresinthe differentaccountingstandards... FTSE100companiesthatarestillinthetop10020yearslaterwilltellyouaverydifferentstoryto theannualreports. Pensionfundsarecurrentlyfeedingtheinvestments Investmentsaresavings,andthemostcommonformofsavingisinpensions Ifyouareafundmanager,youhavetounderstandtheissueoftheshares,etc... SumofC/(1+r)worksonindividualprojects,butalsocanbeconsideredonacompanylevel. Freecashflowovertimetforecastsofhowmuchyouwillmakecomparedtohowmuchdoesit costyouovertimet.... GoalsandvisionitallcomesdowntotheC/(1+r)overtime... Isthefinancialgoaltheonlyobjectiveofafirm? Therearemanyphilosophicalissuesalongsideit,but... Profitmaximisationanambiguousgoal totalprofitvsrateofprofit Overwhattimeperiod Accountingprofitvseconomicprofit Economicvalueaddedasameasureofeconomicprofit Posttaxoperatingprofitlesscapital. Applyingshareholdervaluemaximizationtostrategychoice

Identifystrategyalternatives SelecttheonewiththehighestNPV...

Comprehensivevaluemetricsframework ValuesandMission AnalysingtheIndustryEnvironment

Objectivesofindustryanalysis Fromenvironmentalanalysistoindustryanalysis Overviewofenvironmentandindustry:SPACE Porter's5forcesFramework

Applyingindustryanalysis Industry&marketboundaries ExtendingtheFiveForcesFramework: Complements,Dynamics,TheNewEconomy IdentifyingtheSuccessFactors Understandhowtheindustryanalysisdriveprofitability Thepastcannotalwayshelpusprotectthefuture.

Environmentalchanges/deregulation Supplyoffactors Changingsomeelementsoftheindustrystructure Canweactuallychangethestructures Competitorscanacttogethertochangepartiallythehigherstructuresofprofitiability EnvironmentalAnalysistoIndustryAnalysis DeterminantsofIndustryProfitability 3KeyInfluences: Thevalueoftheproduct TheSpectrumofIndustryStructures

Perfect Competition Concentration EntryandExit barriers Product Differentiation Information Manyfirms Nobarriers Homogeneous product Perfect InformationFlow

Oligopoly Afewfirms

Duopoly Twofirms

Monopoly OneFirm Highbarriers

Significantbarriers

Potentialforproductdifferentiation Imperfectavailabilityofinformation

IndustrialAttractivenessandEnvironmentalStability:AnOverview SPACEStrategicPositionandActionEvaluation Externaldimensions IndustryAttractiveness

EnvironmentalStability Environmentalfactorssuchasfactorsofproductionland,labour,materials,inputs,energy Demandsidelevelofdemand,levelofprices,demographicstructure,thebigitemsthat

canaffectthedemandtoindustry. Nottheabsolutestatusofelements Firmscanadapttoeventhetoughestofsituationsifchangecanbeanticipated. IfFactorsareunpredictablefirmswillbedifficulttoadapt Theevenplayingfieldforallfirmscompetinginthearena Internaldimensions

Competitiveadvantage Whatisthecompetitiveadvantage?Isitdifferentiationorgoodmanufacturing? Financialstrength Whatisthefinancialsystemofthatparticularfirmtodeploythecompetitiveadvantage? Youneedthefinancialresourcestoexploit,deployandbuildtheprofitabilityofthe advantage...

AggressivePostureStrongfinancialStrength,StrongIndustryattractiveness,lowcompetitive advantage,lowEnvironmentalstability;e.g.Microsofttheyhavetheircashcow,andtheyare protectingit;theyneedtokeepaneyeonthemarketsandacquireaccesstothenewinnovations; Tryingtoensurethattheycanprotectthemselvesfromcompaniesgainingacompetitiveadvantage e.g.Steelmanufacturersbuyingupcompanieslargerthanthemtoleveragetheirfinancialmuscle andreducecompetitiveadvantageinthemarket. CompetitivePostureexamplesincludethosewithfirstmoveradvantage,e.g.Google,BlueRay; Facebookthosewithlowcompetitiveadvantage,andlowfinancialstrength,buthighindustry attractivenessandhighenvironmentaluncertainty ConservativePostureOligopolies;consumergoods,volumeindustries;etcHighFinancial Strengthsandhighcompetitiveadvantage,butlowindustryattractivenessandlowenvironmental stability.Anychangesorinnovationswillbemirroredbyyourcompetitors... Defensivethruste.g.Rovertheyhadnomoney,nocustomers,nobenefits,noprospects,sothey soldupandsoldtoChinaitwasbetternottoinvest.Optionsavailableoption1closedown, andgetoutoftheindustryoroption2makeaturnaroundandmaketheoperationsabitleanerby reducingcostsandemployees...Makeitmoreattractivetosomeoneelsetobuyitandmakethemost oftheassets...

FinancialStrength Conservative 6 Aggressive

1 6 Competitive Advantage 1 6 Industry Attractiveness

Defensive

Competitive Posture 6 (oftenfirstmover EnvironmentalStability advantage) e.g.Google;Blue Ray;Facebook

Measurestoscorethosekeydimensions...
CompanySpecific
FactorsthatUnderpinFinancialStrength

Returnonsales Returnoninvestmentinabsolutetermsandrelativetoindustrypeers Overallcashflow Liquidity Leverage

Capitalneedsversuscapitalavailability Relativesharepriceperformance

Thesearecompanyspecificitisworthconsideringexamplecompaniesonthebasisofthis informationandlookatitontheselevels FactorswhichunderpinthejudgementonCompetitiveAdvantage MarketShare Qualityofproduct/serviceoffer CustomerLoyalty Innovationability Controlofinputsanddistributionhowmuchcontrolofyourinputsdoyouhavehow muchcontrolofyourdistributionchannelsdoyouhave?Ifyoudon'thavecontrolofit, someoneelsemighthavecontrolofit... Qualityofassetshumancapitalincludedskillsandknowledgeacquiredovertime Technology LabourProductivityhowlongdoesittakeyoutomanufacturesomethingcomparedto yourrivals? Thesearecompanyspecific

IndustrySpecific
FactorswhichunderpinthejudgementonIndustryAttractiveness PaulVernonProductLifeCycleInnovation,ExplorationandExploitation,HighGrowthas morepeoplebuy,thepricecomesdownandmorecanbesoldotherplayersjoinandcompetition reducespricesThenitreachessaturationareplacementandrenewalmarketandgrowthslows downtoabout34%Thenmovesintodecline...Theprofitabilityfollowsthatcurvetoosoifitis intheendquartile,itisinlowattractiveness.

Strongbarriersfromnewentrants Highdifferentiation Growthrateandgrowthpotential Lowpricesensitivity Highvalueadded Highlevelofresourceutilisation Attractivelevelofprofitabilitynowandinthefuture

FactorswhichunderpinEnvironmentalStability

Instabilityinthewiderenvironmentimpacts Ontheindustrydimensions Demand Pricelevels Technologicalobsolescence Onthecompetitiveadvantagedimensions costsoflabour materials

finances Generalareastoconsiderare: howtheeconomy,governmentregulations,technology,societyandecologycombine toaffectdemand,prices,costsandcompetitiveintensity

Thisisasimplemodel,butifyouhaveaccesstodata,wecanrefineitthisiswhycompaniespay wellforbusinessintelligenceandthusyoucanapplyhigherfunctionalityforthedifferentpeople. Comparehistoricinformationtocomparehowtheshapechangesovertime,andassesswhatcould potentiallybehappeninganalysisofacompany'sdynamicsandwhereitmaybenowandwhereit mightbeinthefuture... Identifyingwhatishappeningandwheretheyareheading,wecanguesswheretheyaregoing... Whatishappeningforallthesemarketsittendstobegenerallymovingtowardsconsolidation... Inthefuture,Eon,EDFandNpowerwillprobablybeallthatisleftoverafter10years... Thebigcompanieshaveanaggressivestrategytobuyupcompetitorsinordertoreducecompetitive advantageinthearea. Thegovernmentdoesn'treallycareifthecompanyismakingalotofprofittheycareabout whetheritmakesacompetitivemarketfortheconsumer... Doestheconsumergaininasituationwherethereisamonopolyorwouldbreakingupacompany improvethingsfortheconsumer? Inutilities,governmentscanregulatebyintroducingacaponreturnoncapital... WhenutilitiesandrailwayswereprivatisedintheUK,thegovernmentintroducedthepriceindex formulasothatconsumersgainfromimprovementsintheproductivityandefficiencies....Any efficiencygainswillbesharedwithconsumers... BAAhasacappedRateofreturnat7%...

ApplySPACEmodeltotheCrownCork Industrialattractiveness&Environmentalstabilitythisisspecifictotheindustry CompetitiveadvantageandFinancialstructurethisisspecifictothecompany Drawtheinformationfromthedifferentcompanies... 1graphpositionkeycompetitors... Theorisepositioninginthefuture.... Q2applyingthefiveforces... Whatisthepositionofeachoftheforceineachoftheindustrieswhothepowerlieswith

suppliers,competitors,newentrantsandsubstitutesassesseachofthefiveforcesintheindustry... Makeanassessmentofthedriversthataredepressingprofitabilityintheindustry....andwhichare thedriversofprofitabilityintotheindustry... Threatofsubstitutesbuyerspropensitytosubstitute/priceperformancecharacteristicsof substitutes. Price/performancecharacteristicsmakealuminiummoreinterestingthansteel,whilststeelismore competitivetoaluminium. Cansofcokecanbemadeusingsteeloraluminium,steelisusuallycheaperthanaluminiumwhilst aluminiumcanmakethecanbetteraluminiumcanbemouldedoneindustrialoperationcan makethetubesteelwillbreaksowithaluminium,youpaymoreinitially,butthecostof manufactureischeaper... Aluminiumyoucandobetterlithographythansteelyoucanprintthebrand/images,etc improvedperformance Substitutiontendencieswillbedrivenbythepriceperformancegraph. Threatofentry Entrant'sthreattoindustryprofitabilitydependsupontheheightofbarrierstoentyrprincipal sourcesofbarrierstoentryare:

Capitalrequirements Economiesofscale Absolutecostadvantage Productdifferentiation Accesstochannelsofdistribution Legalandregulatorybarriers Retaliation

BargainingPowerofBuyers Buyer'spricesensitivity Costofpurchasesas%ofbuyer'stotalcosts Howdifferentiatedisthepurchaseditem? Howintenseisthecompetitionbetweenbuyers? Howimportantistheitemtoqualityofthebuyer'sownoutput? Relativebargainingpower Sizeandconcentrationofbuyersrelativetosellers. Buyer'sinformationaffectofinternet Abilitytobackwardintegrate Analysisofsupplierpowerissymmetric CrownCorkcokecouldpotentiallybuildtheirowncanfactoryinordertoensureIamreasonable aboutthecosts...

Wholesalerimposeshigherpricesontheirbuyers,whatarethechancesthattheywillchargeforit... RivalryBetweenEstablishedCompetitors Extenttowhichindustryprofitabilityisdepressedbyaggressivepricecompetitiondepnedsupon: Concentration(numberandsizedistributionoffirms) Diversityofcompetitors(differencesingoals,coststructure,etc) Productdifferentiation Excesscapacity... Costconditions Economiesofscale Applyingfiveforcesanalysis Industryboundaries:identifyingrelevantmarket... WhatistheindustryisBMWisin? Worldautoindustry Europeanautoindustry Worldluxurycarindustry Keycriterion:substitutability Ondemandside:arebuyerswillingtosubstitutebetweentypesofcarsacrosscountries Onthesupplyside:aremanufacturersabletoswitchproductionbetweentypesofcarsand acrosscountries Mayneedtoanalyseindustryatdifferentlevelsfordifferenttypesofdecision. Activitychainreaduponit.... Cokedon'townanythingapartfromthebrandandtheformulatheydon'tmanufactureanything... Theyjustimposetheirrulesonthefillers,butthebrandiswherevaluecomes...

IdentifyKeysuccessfactors Prerequisitesforsuccessful Whatdocustomerswant? Howdoesthefirmsurvive competition Analysisofcompetition Whatdrivescompetition

Analysisofdemand Whatareourcustomers?

Whatdotheywant?

Whatarethemaindimensionsof competition? Howintenseiscompetition? Howcanweobtainasuperior competitiveposition Keysuccessfactors

IdentifyingKeySuccessFactorsbyAnalysingProfitDrivers:Retailing Returnonsales ROCE Sales/CapitalEmployed Salesmixofproducts Avoidingmarkdownsthrutightinventoryctrl Max.buyingpowertomin.costofgoodspurch. Max.sales/sq.Ftthru: location*productmix/customerservice*QC Max.inventoryturnoverthroughelectronicdata interchange,closevendorrelationships, fastdeliveries Min.capitaldeploymentthroughoutsourcing& leasing

Thehigherinventoryturnover,thebetteryourcapitalisworkingforyou Outsourcethingsyouarenotefficientat Sellandleasebackfreescapitalthatcanbeusedbetteranditallowsyoutoallowother specialiststomanageyourpropertyreducecoststhroughleasing... ConsidertheEconomicfeaturesgothroughthelistingswhenanalysingtheindustries... Forecastingindustryprofitability Strategiestoimproveindustryprofitability Definingindustryboundaries Keycriterionsubstitution KeySuccessFactors IndustryAnalysis&TheNewEconomy MappingStrategicGroups IndividualfirmsandSGscanbeclassifiedaccordingtotheirscoperesourceprofilestrategy pursuedandtypeofcompetitiveadvantagesought. Scope:

Geographic Customerfocus Productscope Competitivestance Quality/serviceoffer Relativeprice Valueoffer Discretionaryexpense Relativecost/technology Thesefactorsareusuallyemployedtoconstructasimpletwoaxisstrategicgroup BCGStrategicEnvironmentMatrix GenericStrategicTypologies

Many Approaches Fragmented Apparel, Specialised construction, Pharma,luxurycars, engineering, chocolate jewellery, confectionary smallconsultancies (regionalmarkets) Stalemate Basicchemicals, volumegradepaper, wholesalebanking, etc Volume Jetengines, Supermarkets, Motorcycles, Standard microprocessors,etc

Few Small Large Approaches PotentialSizeofCompetitiveAdvantage

Thesearebasedonwarfare... Stalemate

VolumeDesertwar FragmentedGuerillawarfare SpecialisedHighgroundwarfare Businesseconomics,descriptors,organisations... AnalysisofeachgenerictypologycanbedoneStalemateStructuralDescription CompetitiveEnvironment Large,wellestablishedmarket Oftencyclical,tiedtolevelsofeconomicactivity Limitedabilitytodifferentiate,tendtowardscommoditystatus Repeatwellinformedbuyers Competitiononpricewithfewswitchingcosts Allcompetitorswilladdsparecapacitytogether,sothateveryoneisabletoscale. Minimumeconomicincrementtendstobeone BusinessEconomics Substantialcapitalinvestments Longlifefixedcapital Oftenhighbreakeven Highentryandexitbarriers Highleveloffactorinputcosts(materials,energy,finance) Labourtendstobetraditionalandunionised LowlevelsofR&D,marketing(duetolowlevelsofdifferentiation) Overhead/administrationasapercentageoftotalcostsislow Highdepreciationcostsinitiallybutlongassetlifemeansthattheycanbefully depreciated,butstilluseful BusinessAttractiveness Overlongterm,lowROCE,shortterm,businesssystemcanbehighlyattractive (upturnofeconomiccyclecreatesbacklogsandrisingprices) Demandishigherthancapacity,mostcompetitorsaddcapacity,whichusually becomeseffectiveatthedownturn,whichinturnmakespricescollapse Highmarketshareisunlikelytoinsulateacompetitorfromthesemarketpressures; smallmarketsharedoesnotimplyhighcosts... Organisation Twinorganisationalthrusts: Longterm:addingandkeepingtheassetbasecurrent Shortterm:emphasisonoperationalefficiency Hierarchicalorganisationtendstoemergewithapowerfulcentretakinglongterm decisionsandoverseeingfunctionalactivitytopdownorganisationalstructure Closecontrolofoperationsisachievedbyshortspansofcontrol,clearprocedures andclearoperationaltargets Withefficiencythedriverintheorganisation,ahandsoncostcontrolcultureoften results ManagingtheStalemate

Intheseindustries,withhighexitcosts,managementoftenhasnochoicebuttostrive toachievethefollowingoperationalkeyfactorsforsuccess: Tightcostcontrol,goodefficiency Goodassetswithhighutilisation Consistencyandreliability Moreradicalsolutionswhichneedtobeconsideredinclude Dislocatingoperationsforbetterfactors(materials,energy,labour,etc) Integrationtocontrolsupplyorlockinendusermarket Segmentandseekspecialisation Leapfroggingtechnology Rationalisationthroughmergersandacquisition Artificialformsofcompetitionsuchasgovernmenthelp,cartel,etc e.g.There'snotenoughminesforthegrowingcommoditydemandinBrazil,ChinaandIndia Volume.... CompetitiveEnvironment HighentrybarriersCapitalintensive Oligopoly Standardproductsthatcanbedifferentiatedthroughbranding Highdifferentiationbranding Segmenting Pricecompetition Innovatinginthemarket Supplychainmanagement Qualityfocusesissues Technologydependent BusinessEconomics LowMargins,buthighrevenuesbyvolume Fastturnoverofworkingcapital(lowinventorydays) Highexitbarriers Economiesofscale Massproduction Standardisationallowsforexpansion Requireshighdemandandlargemarket BusinessAttractiveness Lowmarginsonhighcosts Logisticaldrivers Simpleprocesses Differentiationallowsformarketsharecontrol Potentialverticalintegration Organisation

Supplychaincommitments Strategictopdown,operationalcontrol ManagingtheVolume Controlcascades Operationallyempoweredmiddlemanagement Aggressive? Marketingisaconsiderablecost R&Dcostscontinualproductdevelopment Coststructureisgearedaroundmarketingsincethemoreyouadvertise,themoreyou sellsomarketingcostperunitisstilllow Intensiveinintangiblesratherthantangibles(asstalemateare) Brandincreaseleadstovirtuouscircle,whilstbranddeclinereducesmarketsharedue toreducedmoneytospendonmarketingandreducedcapital,reducedeconomiesofscaleavicious circle Youneedtotakeanaggressivepostureandbeabletotakeashorttermhittoyour margins/profittosecurelongtermgrowth Bogofgetsridofinventoryandbuildsmarketsharelongterm AdoptionofSpecialisationmethodologiescanbuildcompetitiveadvantage(Focus andspecialisatione.g.organic,healthyfood,ratherthantheothers) Fragmented CompetitiveEnvironment Highlycompetitive Differentiationthroughbrandingandquality Numerousplayersofvarioussizessonotoligopolistic Lowbarrierstoentry Tactical,alwayschanging Adaptabilityandagile BusinessEconomics Pricecompetition Costcontrol Perfectcompetition Labourcostsarehigh Lowcapitalinvestment Lowentrybarriers BusinessAttractiveness Attractivetostart Losesattractivenessasyougrow ReliantonUSPs Continualproductdevelopment

Organisation Entrepreneurial Hardworkanddedication FamilyrunSMEs Lowcentralisation;basedonfranchisemodels Highlydistributednetwork Decisioningpowerlieslowerdownthestructureoperationallevels Stillcentralisedstrategyformulation Incentivesareimportantwhenmovingintovolume ManagingFragmented Highrelianceonaccesstoinformationacrossthenetwork Timelyaccesstoaccurateinformation Lessfocusonadvertising Issuesofcontinualaccesstoworkingcapital R&Dnotalottobespent Incrementalimprovementratherthaninnovation Lowprofitability Highlyimitable Empowerandincentivisepeoplesotheycanoperativeasifitistheirown Bybuildingcompetitiveadvantage,companiesshouldtakeadvantageofthe strategiesofVolumebusiness Specialised CompetitiveEnvironment Fewfirms,withhighmarketshare Specialisedinwhattheydo Technologydriven Innovative B2B Nichemarketsegments Differentiatedthroughspecialisation Firstmoveradvantage Creativityoftheworkforce Nimbleandselfempowered BusinessAttractiveness Highrevenues HighMargins Highlyattractive Capitalintensive

BusinessEconomics Lowunitsofproduction Firstmoveradvantage Creativityoftheworkforce Organisation Nimbleandselfempowered Flatorganisationalstructure ManagingSpecialisation Processesnoteasilymapped Empoweredstaff Communicationisimportant NB... (50%savingsratioinChinavs4%vs1%whilstinvestmentisChinais60%vs12%US/UKthere areconsumptionproblemstheyarecreatingexcesscapacityintheseindustries...Chinasalaries arecreepingupandoneofthewaystoincreasearethroughinflationincreasedpurchasing powerChinacouldsetupapensionsystem/medicalinsurance/spendmoreoneducationandthat way,theneedtosavewouldbereducedsecuritybecomeslessofanissueforthepopulationas thevalueoftheircurrencyappreciatesmore,theirforeigncurrencyreserveswillreduceinvalue ($150bn)willreduceinvalueandifthedollardrops,theyloseitall) VideoTopShop/Zara Focusonspeedtomarket TopshopiscompetingwithH&MandZara PhilipGreenboughtTopShop Departmentstoresfelldownduetolongtimetomarket