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Exploring Strategy Summary
Exploring Strategy Summary
Levels of strategy:
Corporate-level strategy: concerned with the overall scope of an organization and how
value is added to the constituent businesses of the organizational whole.
Business-level strategy: about how the individual businesses should compete in their
particular markets (also called competitive strategy).
Operational strategies: concerned with how the components of an organization deliver
effectively the corporate- and business-level strategies in terms of resources,
processes and people.
Strategy statements: should have tree main themes: the fundamental goals the organization
seeks, which typically draw on the organization’s stated mission, vision and objectives; the
scope or domain of the organisation’s activities; and the particular advantages or capabilities
it has to deliver all of these
Mission: Overriding purpose of the organization
Vision: The desired future state of the organization
Objectives: More precise and ideally quantifiable statement of the organisations’s
goals over some period of time.
Scope:
The Strategy Lenses: ways of looking at strategy issues differently in order to generate many
insights
- Strategy as design
- Strategy as experience
- Strategy as variety
- Strategy as discourse (using language to frame strategic problems)
Industries and Sectors: An industry is a group of firms producing products and services that
are essentially the same. Industries and sectors are made up of several specific markets.
Porter’s five forces framework: Indentifies the attractiveness of an industry in terms of five
competitive forces:
- the threat of entry
barriers to entry: scale and experience, access to supply or distribution channels,
expected retaliation, legislation or government action, differentiation
- the threat of substitutes
substitutes come from outside the incumbents’ industry
- the power of buyers
buyer power is high when: concentrated buyers, low switching costs and/or buyer
competition threat (buyer has capability to supply itself)
- the power of suppliers
supplier power is high when: concentrated suppliers, high switching costs, supplier
competition threat
- the extent rivalry between competitors
Competitive rivals are organizations with similar products and services aimed at the
same customer group
Where the five forces are high, industries are not attractive to compete in.
6th force: the existence of organizations that are complementors: if customers value your
product more when they also have the other organization’s product. If it’s more attractive
for suppliers to provide resources to you when they are also supplying the other
organization.
Types of industries:
- Monopoly: industry with just one firm and therefore no competitive rivalry
- Oligopoly: just a few firms dominate and industry, with the potential for limited
rivalry and great power over buyers and suppliers
- Hyper competition: occurs where the frequency, boldness and aggression of
competitor interactions accelerate to create a condition of constant disequilibrium and
change.
- Perfect competition: where barriers to entry are low, there are many equal rivals each
with very similar products, and information about competitors is freely available.
Value net: a map of organizations in a business environment demonstrating opportunities for
value-creating cooperation as well as competition
Competitors and markets: Market is a group of customers for specific products or services
that are essentially the same
Strategic groups: organizations within an industry or sector with similar strategic
characteristics, following similar strategies or competing on similar bases.
Market segment: a group of customers who have similar needs that are different from
customer needs in other parts of the market. (niches)
Blue oceans: New market spaces where competition is minimized.
Strategy canvas: compares competitors according to their performance on key success
factors in order to develop strategies based on creating new market spaces
Critical success factors: those factors that are either particularly valued by customers
or which provide a significant advantage in terms of cost
Value curves: a graphic description of how customers perceive competitors’ relative
performance across the critical success factors
Value innovation: creation of new market space by excelling on established critical
success factors on which competitors are performing badly and/or by creating new
critical success factors representing previously unrecognized customer wants.
Strategic purpose
Mission statement: provides employees and stakeholders with clarity about the overriding
purpose of the organization.
Vision statement: concerned with the desired future state of the organization
Statements of corporate values: they communicate the underlying and enduring core
‘principles’ that guide an organization’s strategy and define the way that the organization
should operate
Objectives: statements of specific outcomes that are to be achieved.
Corporate governance: Concerned with the structures and systems of control by which
managers are held accountable to those who have a legitimate stake in an organization.
Governance chain: Shows the roles and relationships of different groups involved in the
governance of an organization.
Two governance structures:
- Shareholder model: higher rate of return, encouragement of economic growth,
- Stakeholder model:
Historical influences
Path dependency: Where early events and decisions establish ‘policy paths’ that have lasting
effects on subsequent events and decisions.
Cultural influences
Organizational culture: The taken-for-granted assumptions and behaviors that make sense of
people’s organizational context and therefore contributes to how groups of people respond
and behave in relation to issues the face.
- National and regional cultures
- Organizational field: community of organizations that interact more frequently with
one another than with those outside of the field and that have developed a shared
meaning system
Legitimacy: concerned with meeting the expectations within an organizational
field in terms of assumptions, behaviors and strategies.
- Organizational culture: values, beliefs, behaviors and paradigm(taken for granted
assumptions)
Cultural web: Shows the behavioral, physical and symbolic manifestations of a culture
- Core: Paradigm
- Routines: the way doing thing around here
- Rituals: activities or special events that emphasize, highlight or reinforce what is
important in the culture
- Stories
- Symbols: objects, events, acts or people that convey, maintain or create meaning over
and above their functional purpose.
- Power: the ability of individuals or groups to persuade, induce or coerce others into
following certain courses of actions
- Organizational structures: the roles, responsibilities and reporting relationships in
organizations
- Control systems: the formal and informal ways of monitoring and supporting people
within and around an organization
Strategic Business Units: Supplies goods or services for a distinct domain of activity. Market
based or capabilities based.
Generic Strategies
Competitive strategy: concerned with how a strategic business unit achieves competitive
advantage in its domain of activity
Competitive advantage: how an SBU creates value for its users both greater than the costs of
supplying them and superior to that of rival SBUs.
- Having lower costs
- Have products that are exceptional valuable to customers
Porter defines 3 generic strategies:
- Cost leadership: broad target, lower cost: economies of scale
With parity: charge same prices, translating cost advantage wholly into extra profit
With proximity: lower price than average lower costs but still better profits than the
average competitor
- Differentiation: broad target, differentiation: higher prices
- Focus: Narrow target cost focus of differentiation focus
The Strategy Clock: Another way of approaching the generic strategies
- Differentiation zone: differentiation with and without price premium, focused
differentiation
- Low price zone: no frills: low benefits and low prices
- Hybrid strategy zone
- Non-competitive strategies zone: low benefits and high prices
Strategic lock in: uses become dependent on a supplier and are unable to use another supplier
without substantial switching costs
Interactive strategies
Hypercompetitive strategy: demands speed and initiative. Small moves rather than big
moves, be unpredictable, mislead the competition
Cooperation
Game theory: encourages an organization to consider competitors’ likely moves and the
implications of these moves for its own strategy. This is particularly relevant where
competitors are interdependent. So where the outcome of choices made by one competitor is
dependent on the choices made by other competitors.
Strategy directions:
Diversification: Increasing the range of products or markets served by an organization.
Related diversification: Diversifying into products or services with relationships to the
existing business.
The Ansoff product/market growth matrix
Market penetration: Implies increasing share of current markets with the current product
range. Retaliation from competitors and legal constraints are two possible constraints.
Product development: Where organizations deliver modified or new products (or services) to
existing markets. Despite the potential for relatedness, product development can be an
expensive and high risk activity because: new strategic capabilities, project manager risk.
Market development: Involves offering existing products to new markets. New users of new
geographies.
Conglomerate diversification: Involves diversifying into products or services with no
relationships tot the existing businesses.
Diversification drivers:
- Exploiting economies of scope: Refers to efficiency gains through applying the
organization’s existing resources or competences to new markets or services.
- Stretching corporate management competences. Dominant logic: The set of corporate
level managerial competences applied across the portfolio of businesses.
- Exploiting superior internal processes
- Increasing market power: Increases the potential for mutual forbearance: The ability
to retaliate across the whole range of the portfolio acts to discourage the competitor
from making any aggressive moves at all.
Synergy: The benefits gained where activities or assets complement each other so that their
combined effect is greater than the sum of the parts.
Vertical integration: Entering activities where the organization is its own supplier or
customer. Thus it involves operating at another stage of the value network.
Backward integration: refers to development into activities concerned with the inputs into
the company’s current business
Forward integration: refers to development into activities concerned with the outputs of a
company’s current business.
Dis-integrate: Outsourcing: The process by which activities previously carried out internally
are subcontracted to external suppliers.
The decision to integrate or subcontract rests on the balance between two distinct factors:
- Relative strategic capabilities: Does the subcontractor have the potential to do the
work significantly better?
- Risk of opportunism: Is the subcontractor likely to take advantage of the relationship
over time?
Portfolio manager: Operates as an active investor in a way that shareholders in the stock
market are either too dispersed or too inexpert to be able to do.
Synergy manager: A corporate parent seeking to enhance value for business units by
managing synergies across business units.
Parental developer: Seeks to employ its own central capabilities to add value to its
businesses.
Portfolio matrices
The BCQ (or growth/share) Matrix: Uses market share and market growth criteria for
determining the attractiveness and balance of a business portfolio.
The directional policy (GE-McKinsky) matrix: Positions business units according to how
attractive the relevant market is and the competitive strength of the SBU in that market.
The parenting matrix: the Ashridge Porfolio display
Internationalization drivers:
Yip’s globalization framework: Sees international strategy potential as determined by
market drivers, cost drivers, government drivers and competitive drivers.
Market drivers: Similar customer needs, global customers, transferable marketing
Cost drivers: Scale economies, country-specific differences, favorable logistics.
Government drivers: Trade policies, technical standards, host government policies.
Competitive drivers: Interdependence between countries, competitors’ global
strategies
International Strategies:
Global-local dilemma: Relates to the extent to which products and services may be
standardized across national boundaries or need to be adapted to meet the requirements of
specific national markets.
- Simple export: Concentration of activities in one country, low coordination of
activities
- Multidomestic; Loosely coordinated internationally but involves a dispersion overseas
of various activities
- Complex export: Still involves location of most activities in a single country, but
builds on more coordinated marketing.
- Global strategy: Highly coordinated activities disperses geographically around the
world
Innovation diffusion:
Diffusion: the process by which innovations spread amongst users.
The pace of diffusion:
- Degree of improvement
- Compatibility
- Complexity
- Experimentation (free initial trial periods)
- Relationship management (how easy is it to get information etc.)
- Market awareness (Consumer awareness)
- Network effects
- Customer innovativeness
Diffusion S-curve: Reflects a process of initial slow adoption of innovation, followed by a
rapid acceleration in diffusion, leading to a plateau representing the limit to demand
Tipping point: where demand for a product suddenly takes off, with explosive growth
Tripping point: when demand suddenly collapses
Strategic alliances: Where two or more organizations share resources and activities to pursue
a strategy
Collective strategy: About how the whole network of alliances of which an organization is a
member competes against rival networks of alliances.
Collaborative advantage: About managing alliances better than competitors
Types of strategic alliance:
- Equity alliance: creation of a new entity that is owned separately by the partners
involved. (joint venture)
- Non-Equity alliance: based on contracts (franchising, licensing
Motives:
- Scale alliances
- Access alliances
- Complementary alliances: A form of access alliances, but involve organizations at
similar points in the value network combining their distinctive resources so that they
bolster each partner’s gaps or weaknesses.
- Collusive: Secretly organizations collude together to increase market power. (illegal)
Processes:
- Courtship: Courting potential partners
- Negotiation
- Start up
- Maintenance
- Termination: Sale/divorce, amicable separation, or extension
Suitability: Does a proposed strategy address the key opportunities and constraints an
organization faces?
Acceptability: Does a proposed strategy meet the expectations of stakeholders? Is the level of
risk acceptable? Is the likely return acceptable? Will stakeholders accept the strategy?
Feasibility: Would a proposed strategy work in practice? Can the strategy be financed? Do
people and their skills exist or can they be obtained? Can the required resources be obtained
and integrated?
Suitability: Concerned with assessing which proposed strategies address the key
opportunities and constraints an organization faces.
Acceptability: Whether the expected performance outcomes of a proposed strategy meet the
expectations of stakeholders
- Risk: concerns the extent to which the outcomes of a strategy can be predicted
Sensitivity analysis, financial ratios, break-even analysis
- Return: the financial benefits the stakeholders are expected to receive
Financial analysis, Shareholder value analysis, cost-benefit
- Stakeholder reactions
Owners, bankers, regulators, employees, the local community, customers
Systems: Support and control people as they carry out structurally defined roles and
responsibilities.
Types of control systems:
Direct supervision: the direct control of strategic decisions by one or a few individuals,
typically focused on the effort put into the business by employees.
Cultural systems: aim to standardize norms of behavior within an organization in line with
particular objectives. (recruitment, socialization, reward)
Performance targets: focus on the outputs of an organization, such as product quality,
revenues or profits. (balance scorecards: set performance targets according to a range of
perspectives, not only financial. strategy maps: link different performance targets into a
mutually supportive causal chain supporting strategic objectives.)
Market systems: involve some formalized system of ‘contracting’ for resources or inputs
from other parts of an organization and for supplying outputs to other parts of an organization.
Planning systems: plan and control the allocation of resources and monitor their utilization.
- Strategic planning style
- Strategic control
- Financial control
Configurations: The set of organizational design elements that interlink together in order to
support the intended strategy.
McKinsey 7-S framework: highlights the importance of fit between strategy, structure,
systems, staff, style, skills and super ordinate goals.
Strategizing activities
- Strategy analysis
- Strategic issue-selling: process of gaining the attention and support of top management
and other important stakeholders for strategic issues.
- Strategic decision-making
- Communicating the strategy
Strategizing methodologies
- Strategy workshops: involve groups of executives working intensively for one or two
days, often away from office, on organizational strategy.
- Strategy projects: involve teams of people assigned to work on particular strategic
issues over a defined period of time
- Hypothesis testing: a methodology used particularly in strategy projects for setting
priorities in investigating issues and options.
- Business cases: provides data and argument in support of a particular strategy
proposal, e.g. investment in new equipment
- Strategic plans: provides the data and argument in support of a strategy for the whole
organization