Business Strategy - SMO306: February-June 2022

Business Strategy – SMO306
February-June 2022
Week 1-5
Week Number
Location Topic/Theme/Title Pre-reading
and/or Date
Online BBB Week Learning Mall Introduction module. Selected theory textbook
1 What is strategy?
20-25 Feb Mission, vision, and values.
Macro-environment analysis.
PESTEL + scenarios
Online BBB Week Learning Mall Industry analysis + Porter’s 5 Forces, Selected theory textbook
2 Blue Ocean strategy Resources and Capabilities.
28 Feb - 4 March VRIO, SWOT.
Online BBB Week Learning Mall Review Selected theory textbook

3 Stakeholders and governance.
7-11 March Stakeholder mapping, CSR.
History and Culture
Online BBB Week Learning Mall Competitive strategies, strategic clock. Selected theory textbook
4 Diversification, Ansoff Matrix, BCG Model
14-18 March Global-Local
Online BBB Week Learning Mall Disruptive innovation entrepreneurial life Selected theory textbook
5 cycle, first-mover advantage.
21-25 March Strategic fit, alliances.
Week 6-11
Lecture Week 6 Online or Lecture Introduction + TA’s experience Learningmall (LM)
31 March ES101 sharing(online), tutorial rehearsal tutorial material
(9-12 noon) (students self-study)
Midterm
Workshop Week 8 Foundation Building Business Simulation Game – Practice LM online tutorial
14 April FB351, FB359 Round + material
(9-12 noon) Round 1. The Round 2 will be executed
between week 8 and 9.
Workshop Week 9 Foundation Building Business Simulation Game – Round 3 + LM online tutorial
21 April FB351, FB359 Round 4 material
(9-12 noon)
Workshop Foundation Building Business Simulation Game – Round 5 + LM online tutorial

Week 10 FB351, FB359 Round 6 material
28 April
(9-12 noon)
Week 11 Group Group Presentations: every group presents See LM for assessment
2-6 May Presentations (30% of final mark) instructions and
(location tbd) schedule
Week 12-14
Lecture Week 12 Lecture ES101 SAFe criteria, gap analysis Selected theory textbook
12 May Deliberate vs. emergent strategies, strategic
(9-12 noon) planning.
Lecture Week 13 Lecture ES101 Organisation structures Selected theory textbook

19 May Types of strategic change
(9-12 noon)
Week 14 TBD TBD Review ALL

Grading
The grading will consist of 2 parts (total 100%):
• Presentation for Business Simulation Game

(30%)
• Final Exam (70%)
Business Strategy
Ewout van der Schaft

Lecture 4, March 2022
Business Strategy
Week 4
Business Strategy and
Business Models
Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Business Strategy
Strategic business units (SBUs)
(Page 329-341)
A strategic business unit (SBU) supplies
goods or services for a distinct domain of activity.
• A small business has just one SBU.
• A large diversified corporation is made up of
multiple businesses (SBUs).
• SBUs can be called divisions or profit centres.
• SBUs can be identified by:
– Market-based criteria (similar customers, channels
and competitors);
– Capabilities-based criteria (similar strategic
capabilities).
9
Example SBUs
GE (General Electric) has several SBU’s.

Examples include:
• GE Capital
• GE Energy Management
• GE Oil & Gas
• GE Home & Business Solutions
10
The purpose of SBUs
• To decentralise initiative to smaller units within
the corporation so SBUs can pursue their own
distinct strategy.
• To allow large corporations to vary their business
strategies according to the different needs of
external markets.
• To encourage accountability – each SBU can be
held responsible for the success or failure of its
own strategy.
Generic competitive strategies
Michael Porter introduced the term ‘generic
strategy’ to mean basic types of competitive
strategy that hold across many kinds of business
situations.
• Competitive strategy is concerned with how a
company, business unit or organisation achieves
competitive advantage in its domain of activity.
• Competitive advantage is about how a company,
business unit or organisation creates value for its
users, both greater than the costs of supplying
them and superior to that of rivals.
Three generic strategies
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by
Michael E. Porter. Copyright © 1985, 1998 by Michael E. Porter. All rights reserved.
Cost-leadership strategy
Cost-leadership strategy involves becoming the
lowest-cost organisation in a domain of activity.
Four key cost drivers that can help deliver cost
leadership:
• Lower input costs
• Economies of scale
• Experience
• Product/process design.
Examples: Lidl, Vanguard, SEAT and Skoda

Differentiation strategy
The key drivers of differentiation are:
• Product and service attributes – providing better
or unique features (e.g. Apple or Dyson).
• Customer relationships – customer service and
responsiveness (e.g. Zalando); customisation (e.g.
SAP) or marketing and reputation (e.g. Coca Cola).
• Complements – building on linkages with other
products/services (Apple and iTunes).
Focus strategy
A focus strategy targets a narrow segment or domain
of activity and tailors its products or services to the
needs of that specific segment to the exclusion of
others.
Two types of focus strategy:
• Cost-focus strategy (e.g. Ryanair).
• Differentiation focus strategy (e.g. Ecover for
ecological cleaning products).
‘Stuck in the middle’?
Porter argues:
• It is best to choose which generic strategy to
adopt and then stick rigorously to it.
• Failure to do this leads to a danger of being
‘stuck in the middle’ – doing no strategy well.
• The argument for pure generic strategies is
controversial. Porter acknowledges that the
strategies can be combined (e.g. if being
unique costs nothing).
Hybrid strategy
A hybrid strategy combines different generic
strategies.
For example Southwest Airlines (USA)
famously pioneered low cost air fares but also
seeks to differentiate on convenience,
frequent departures and friendly service.
19
Five generic strategies (page 135)
The Strategy Clock (1 of 2)
The strategy clock provides an alternative
approach to generic strategy which gives more
scope for hybrid strategies.
It has two distinct features:
• It is focused on the prices to customers rather
than the costs to organisations.
• The circular design allows for incremental
adjustments in strategy rather than stark
choices.
The Strategy Clock (2 of 2)
Source: Adapted from D. Faulkner and C. Bowman, The Essence of Competitive Strategy, Prentice Hall, 1995.
Strategy clock – differentiation
• Strategies in this zone seeks to provide products
that offer perceived benefits that differ from
those offered by competitors.
• There is a range of alternative strategies:
– differentiation without price premium (12 o’clock)
– used to increase market share.
– differentiation with price premium (1 o’clock) –
used to increase profit margins.
– focused differentiation (2 o’clock) – used for
customers that demand top quality and will pay a
big premium.
Strategy clock – Low-price
Low price combined with low perceived value.
• A standard low-price strategy (9 o’clock)
Low prices combined with similar quality to
competitors aimed at increasing market share.
Needs a cost advantage (such as economies of
scale) to be sustainable, e.g. Asda/Walmart in
grocery retailing.
• A ‘no-frills’ strategy (7 o’clock)
Focusing on price sensitive market segments –
typified by low-cost airlines like Ryanair.
Slide 6.25
Low Price-leadership
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Strategy clock – hybrid strategy
Seeks to simultaneously achieve higher benefits
and lower prices relative to those of competitors.
Hybrid strategies can be used:
• to enter markets and build position quickly;
• as an aggressive attempt to win market share;
• to build volume sales and gain from mass
production.
A classic example is IKEA.
Strategy clock – non-competitive
strategies
Increased prices with low perceived product or
service benefits.
• In competitive markets, such strategies will be
doomed to failure.
• Only feasible where there is strategic ‘lock-in’ or
a near monopoly position.
Cooperative strategy
• Sometimes too much competition can be
damaging and it is in the interests of
competitors to restrain competition.
• Collaboration with some competitors may
give competitive advantage over other
competitors (or potential entrants).
• Figure 7.8 illustrates various benefits from
cooperation using the five forces framework.
Cooperating with rivals
Source: Adapted from Competitive Strategy: Techniques for Analysing Industries and Competitors, The Free Press, by Michael E. Porter.
Copyright © 1980, 1998 by The Free Press. All rights reserved.
Business Strategy
Week 4
Corporate Strategy and
Diversification
Strategic directions and
corporate-level strategy
Corporate strategy directions (Ansoff)
Source: Adapted from H.I. Ansoff, Corporate Strategy, Penguin, 1988, Chapter 6 . Ansoff originally had a matrix with four separate boxes, but in practice strategic directions involve
more continuous axes. The Ansoff matrix itself was later developed – see Reference 2.
A. Market penetration
Market penetration implies increasing share
of current markets with the current product
range.
This strategy:
• builds on established strategic capabilities;
• means the organisation’s scope is
unchanged;
• leads to greater market share and increased
power vis-à-vis buyers and suppliers;
• provides greater economies of scale and
experience curve benefits.
Constraints on
market penetration
‘Economic
Legal
Retaliation constraints
constraints
from e.g. market
e.g. restrictions
competitors downturn,
imposed by
e.g. price wars public sector
regulators
funding crisis
B. Product development
Product development is where an organisation
delivers modified or new products (or services)
to existing markets.
This strategy:
• involves varying degrees of related diversification
(in terms of products);
• can be expensive and high risk;
• may require new resources and strategic
capabilities;
• typically involves project management risks.
C. Market development
Market development involves offering

existing products to new markets.
This strategy involves:
• new users (e.g. extending the use of aluminium to
the automobile industry);
• new geographies (e.g. extending the market to new
areas – international markets being the most
important);
• meeting the critical success factors of the market;
• new strategic capabilities (e.g. in marketing).
D. Diversification
• Diversification involves increasing the range of
products or markets served by an
organisation.
• Related diversification involves expanding
into products or services with relationships to
the existing business.
• Conglomerate (unrelated) diversification
involves diversifying into products or services
with no relationships to existing businesses.
D. Conglomerate diversification
Conglomerate (or unrelated) diversification
takes the organisation beyond both its existing
markets and its existing products and radically
increases the organisation’s scope.
Potential benefits to an acquired business is that
it gains from the reputation of the group and
potentially lowers financing costs.
Potential costs arise because there are no
obvious ways to generate additional value.
Diversification drivers
• Exploiting economies of scope – efficiency gains
through applying the organisation’s existing
resources or competences to new markets or
services.
• Stretching corporate management competences
(‘dominant logics’) i.e. applying these
competences across a portfolio of businesses.
• Exploiting superior internal processes.
• Increasing market power via mutual forbearance
or cross subsidisation.
Case Study TomTom
40
Synergy
Synergy refers to the benefits gained where
activities or assets complement each other so
that their combined effect is greater than the
sum of the parts. (e.g. A film company and a
music company can add value by working
together).
N.B. Synergy is often referred to as the

‘2 + 2 = 5’ effect.
Vertical integration
• Vertical integration describes entering activities
where the organisation is its own supplier or
customer.
• 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.
Diversification and integration options
Outsourcing
Outsourcing is the process by which activities
previously carried out internally are
subcontracted to external suppliers.
Examples include:
• Subcontracting the manufacture of components
to a specialist supplier.
• Outsourcing non-core activities to a cheaper
location (e.g. call centres).
• Outsourcing to a specialist supplier (e.g. IT).
To outsource or not?
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 matrices
BCG (or growth/share) matrix – uses market share and

market growth criteria for determining the
attractiveness and balance of a business portfolio.
The GE–McKinsey directional policy matrix which

categorises business units into those with good
prospects and those with less good prospects.
The BCG (or growth/share) matrix (1 of 2)
(Page 258-261)
The BCG (or growth/share) matrix (2 of 2)
• A star is a business unit which has a high

market share in a growing market.
• A question mark (or problem child) is a
business unit in a growing market, but it does
not yet have a high market share.
• A cash cow is a business unit that has a high
market share in a mature market.
• A dog is a business unit that has a low market
share in a static or declining market.
BCG Matrix Example Unilever
49
The directional policy
(GE–McKinsey) matrix
The directional policy
(GE–McKinsey) matrix vs BCG
The directional policy matrix is more complex than the BCG matrix.
However, it can have two advantages.
First, unlike the simpler four-box BCG matrix, the nine cells of the directional
policy matrix acknowledge the possibility of a difficult middle ground. Here
managers have to be carefully selective. In this sense, the directional policy
matrix is less mechanistic than the BCG matrix, encouraging open debate on
less clear-cut cases.
Second, the two axes of the directional policy matrix are not based on single
measures (i.e. market share and market growth). Business strength can
derive from many other factors than market share, and industry
attractiveness does not just boil down to industry growth rates.
Business Strategy
Week 4
International Strategy
International strategy: main themes
International and global strategy
• International strategy refers to a range of
options for operating outside an organisation’s
country of origin.
• Global strategy involves high coordination of
extensive activities dispersed geographically in
many countries around the world.
N.B. Global strategy is just one kind of international

strategy.
Internationalisation Drivers
Internationalisation drivers (1 of 2)
Market drivers
− Similar customer needs (e.g. credit cards).
− Global customers (e.g. car components).
− Transferable marketing (e.g. Coca-Cola).
Cost drivers
− Scale economies (e.g. R&D in aircraft manufacturing).
− Country-specific differences (e.g. clothing:
manufacturing in Bangladesh/design in Paris).
− Favourable logistics (e.g. low cost of transporting
microchips).
Internationalisation drivers (2 of 2)
Government drivers
− Trade policies (e.g. reduction of trade barriers in
the EU; WTO policies).
− The liberalisation and adoption of free markets.
− Technical standardisation (e.g. in electronics).
Competitive drivers
− Interdependence (e.g. global coordination
between subsidiaries in different countries).
− Global competitors (e.g. rivals may use profits to
cross subsidise aggressive moves).
Global sourcing
Global sourcing refers to purchasing services and
components from the most appropriate suppliers
around the world, regardless of their location.
The advantages include:
• Cost advantages: e.g. labour costs, transportation and
communications costs, taxation and investment
incentives.
• Unique local capabilities: e.g. centres of excellence in
R&D clusters globally.
• National market characteristics and national
reputation for a particular product.
Locational advantages
Locational advantages can be due to:
• Cost advantages including labour costs,
transportation and communications costs and
taxation and investment incentives e.g. employing
software engineers in India.
• Unique local capabilities. European pharma firms
locating in Boston and California to tap into local
research expertise.
• National market characteristics. Differentiated
product offerings aimed at different market segments
e.g. Gibson guitars.
The global–local dilemma
The global–local dilemma relates to the

extent to which products and services may
be standardised across national boundaries
or need to be adapted to meet the
requirements of specific national markets.
The global–local dilemma
International strategies
Four international strategies (1 of 4)
Export strategy:
• Leverages home country capabilities,
innovations and products in foreign markets.
• Used when pressure for both global integration
and local responsiveness is low.
• Suitable for companies with strong brands (e.g.
Google).
• The key risk is a home country-centred view in
contrast to skilled local rivals.
Multi-domestic strategy:
• Maximises local responsiveness – different
product offerings for different countries.
• A low level of international coordination.
• Organisation is like a collection of relatively
independent units.
• Commonly found in marketing-orientated
companies (e.g. food companies).
• Risks include manufacturing inefficiencies and
brand dilution.
Global strategy:
• Maximises global integration with little or no
local adaptation of products/services.
• Standardised products are deemed to suit all
markets and efficient production is
emphasised through economies of scale.
• Geographically dispersed activities are
centrally controlled from headquarters.
• Common for commodity products (e.g.
cement) but also might include IKEA.
Transnational strategy:
• Complex strategy that maximises local
responsiveness and global coordination.
• Aims to maximise learning and knowledge
exchange between dispersed units.
• Efficient operations but products/services
adapted to local conditions.
• Hard to achieve but General Electric is a
possible example.
Market selection and entry
Market characteristics
Four elements of the PESTEL framework are particularly
important in comparing countries for entry:
• Political – political environments vary widely between
countries and can alter rapidly.
• Economic – key comparators are gross domestic
product and disposable income indicating the
potential size of the market.
• Social – factors like population characteristics and
lifestyle and cultural differences.
• Legal – countries vary widely in their legal regime. .
The CAGE framework (1 of 2)
Cultural Administrative and

distance political distance
Geographic Economic/wealth
distance distance
The CAGE framework (2 of 2)
• Cultural distance – differences in language,
ethnicity, religion and social norms.
• Administrative and political distance –
compatibility of administrative, political or
legal traditions.
• Geographic distance – not just miles but also
aspects such as size, sea-access and the quality
of communications.
• Economic/wealth distance – wealth and
income differences.
Modes of entry
Export
Licensing or franchising
Joint ventures
Wholly owned subsidiaries
Table: Comparison of entry mode strategies
Subsidiary roles in multinational firms
Source: Reprinted by permission of Harvard Business School Press. From Managing across Borders: The Transnational Solution by C.A. Bartlett and S. Ghoshal. Boston, MA 1989, pp. 105–11 .
Copyright © 1989 by the Harvard Business School Publishing Corporation. All rights reserved.

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Business Strategy – SMO306

Online BBB Week Learning Mall Review Selected theory textbook

Workshop Foundation Building Business Simulation Game – Round 5 + LM online tutorial

Lecture Week 13 Lecture ES101 Organisation structures Selected theory textbook

Week 14 TBD TBD Review ALL

The grading will consist of 2 parts (total 100%):

• Presentation for Business Simulation Game

Ewout van der Schaft

GE (General Electric) has several SBU’s.

Examples: Lidl, Vanguard, SEAT and Skoda

Market development involves offering

N.B. Synergy is often referred to as the

BCG (or growth/share) matrix – uses market share and

The GE–McKinsey directional policy matrix which

• A star is a business unit which has a high

N.B. Global strategy is just one kind of international

The global–local dilemma relates to the

Cultural Administrative and

Wholly owned subsidiaries

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