Introduction to the Dissertation

January 2009

Agenda
PESTEL Key Success Factors (KSFs) Product Life-Cycle Analysis Five Force Analysis
FTMBA Strategic Management
Lecture 2:
Lecturer:
______________ 2011 MacKay

Blue Ocean Strategy Ansoff Matrix Case Exercise and Discussion: Apple Inc.

The Firms Environment Firm

Dr. Brad MacKay, Head, Strategy and International Business Group

Learning Outcomes

What are the primary forces that drive the unfolding future?

1. To be able to apply a PESTEL, Life Cycle Analysis, and the 5 Force Framework; 2. To understand the differences between the 5 Force Analysis and Blue Ocean Strategies; 3. To link the Ansoff Matrix with positioning strategy; 4. To recognize the limitations of market positioning approaches to strategy formulation.

Political Economic Social Dynamics Technology Ecology & Environment Legal, Ethics, & Values

Trend Analysis

GOVERNANCE

What are the primary forces that drive the way that the future unfolds? Political Economic Social Dynamics Technology Ecology & Environment Legal Ethics and Values 5 Industry Forces Political: Economic: Trends Complexity Social: Technological: Environmental: Ethics:

Macro Trends
March to Liberal Democracy/Terrorism; Oil/Structural Unemployment/Finance; Occupy/Roll-back of the state; Impact of the Internet/Green Tech; Global Warming, bio-diversity loss; Corporate Social Responsibility

Some are Pre-Determined (certain) and will play out in any stor we tell about the future. Some are Uncertain and need analysis for impact and criticality.

Means Challenge Your Cognition!

Introduction to the Dissertation

January 2009

Micro Trends
Demographics: Senior Citizens/Me Generation; Legislative Changes (Better fuel economy); Digital world/Mobility/Social Media; New Mobility Trends (Car Sharing) Change in Value Propositions Emergence of Emerging Market OEMs Green movement
1. Company

Key Success Factors

1. Profit Drivers 2. Customer Value

2. Competition
1. Profit Drivers 2. Customer Value

3. Industry
1. Profit Drivers 2. Customer Value

MEANS Challenge Your Cognition!

The Product Lifecycle

Industry standard is established; prices fall; new entrants

Porters Five Force Model

Introduction Growth

Maturity
DVDPC

Decline
Threat of New Entrants

Sales

Firms invest in R&D. The industry has low concentration

MP3 Blackberry High-definition Prices cut Television further; (HDTV) Incumbents

seek to raise entry barriers; Merger and takeovers

CD Player Colour tube TVs

Some firms implement defensive strategies (mergers and collusion); others loose investor confidence, falling share price and bankruptcy

Bargaining Power of Suppliers

Competitive Rivalry

Bargaining Power of Buyers

i-phones Tablets

Threat of New Substitutes

Source: Porter, M. 1985. Competitive Strategy. Free Press.

Profits

Determinants of Five Forces

Entry Barriers Economies of Scale Proprietary product differences Brand identity Switching costs Capital requirements Access to distribution Absolute cost advantages: Proprietary learning curve, access to necessary inputs, proprietary low-cost product design Expected retaliation Determinants of Supply Power Differentiation of inputs Switching costs of suppliers and firms in the industry Presence of substitute inputs Supplier concentration Importance of volume to supplier Cost relative to total purchases in the industry Impact of inputs on cost or differentiation Threat of forward integration relative to threat of backward integration by firms in the industry
Source: Porter, M. 1985. Competitive Strategy. Free Press.

4 More Forces
Socio-Cultural Drivers
(e.g. changing health needs, environmental awareness, consumption trends)

Rivalry Determinants Industry growth Intermittent overcapacity Product differences Brand identity Switching costs Concentration and balance Informational complexity Diversity of competitors Corporate stakes Exit barriers Determinants of Buyer Power Bargaining Leverage Buyer concentration versus firm concentration Buyer volume Buyer switching costs relative to firm switching costs Buyer information Ability to backward integrate Substitute products Pull-through Price Sensitivity Price/total purchases Product differences Brand identity Impact on quality/ performance Buyer profits Decision makers incentives

Threat of New Entrants

Economic Drivers
(e.g. changing exchange rates, economic growth, labor productivity)

Incumbent Rivals

Bargaining Power of Suppliers

(e.g. improved competences, New products, brand positioning)

Bargaining Power of Buyers

Political/Regulatory Drivers
(e.g. new trade regulations, environmental protection laws, privatisation)

Threat of New Substitutes

Innovation Drivers
(e.g. new scientific breakthroughs, Innovative technologies, Communication standards)

Source: Adapted from Porter 1985; De Wit and Meyer, 2004

Introduction to the Dissertation

January 2009

Blue Ocean Strategy

RED OCEAN STRATEGY BLUE OCEAN STRATEGY

Defining characteristics of Blue Ocean strategies

A blue ocean is created when the companys actions affect both its value proposition to buyers and its cost structure favourably. When the factors that an industry competes on are eliminated or reduced, cost savings result; Buyer value increases when elements the industry has never offered are raised or created. As sales volumes increase due to superior value, costs will be reduced as scale economies kick in. Demand is created, not fought over.

Compete in existing market space whole. Create uncontested market space. Beat the competition. Exploit existing demand. Make the value/cost trade-off. Align the whole system of a companys activities with its strategic choice of differentiation or low cost. Make the competition irrelevant. Create and capture new demand. Brake the value/cost trade-off. Align the whole system of a companys activities in pursuit of differentiation and low cost.

Source: Kim and Mauborgne. 2004. Blue Ocean Strategy. HBR. October.

Source: Kim and Mauborgne. 2004. Blue Ocean Strategy. HBR. October.

Creating new market space

Identifying contextual drivers in the business environment

Raise
Political Substitutes Government Economic Media Social Technological Legal Environmental

Create

New Value Proposition

Organization

Competitive Rivalries Suppliers Buyers NGOs New Entrants

Reduce

Barriers to entry

Eliminate

Micro Firm Level

Meso Industry/Transactional Level

Macro National/Global Level

Source: Kim & Mauborgne. 2005. Blue Ocean Strategy/1999. Creating new market space. HBR. January-Februrary. P. 85

The Ansoff Matrix

Products Existing New Market Penetration/Consolidation
Opportunities: Builds on existing capabilities or Downsizing Defends or increases market share Risks: Retaliation from competitors Legal constrains

Ansoffs Matrix
Product Development
Opportunity: Innovation; New capabilities Risks: Master strategic capabilities Project management risk

Existing

Market Penetration/ Consolidation

Product Development

Markets

Market Development
Opportunities: New segments, new users; new geographies

Diversification
Opportunities: Efficiency gains, stretching capabilities, spreading risk, increase market power, responding to market decline, stakeholder expectations

New

Market Development

Diversification

Risks: Old products/services likely to fail; Risks: Lack of relevant brand and marketing skills All of the above; Unrelated diversification
Adapted from: Ansoff, I. Corporate Strategy. 1988. Penguin

Introduction to the Dissertation

January 2009

Case: Apple Inc.

Syndicate Group Discussion Questions:
What aspects of Appless strategy can you identify? Analyse the industry determinants underpinning Apples strategy. What industry determinants has Apple been able to shape? What implications does Jobs passing have for Apples strategy? What scenarios exist for Apple? What recommendations would you give, as a strategic consultant, to the Board of Directors of of Apple for the long-term sustainability of their current market leadership?