TUM SIM MSC SMNE 02

Technical University of Munich
Strategies in MNEs
– 2. Strategic redirection
Prof. Dr. Thomas Hutzschenreuter

Chair of Strategic and International Management
Technical University of Munich
TUM.SIM.MSc.SMNE.02.pptx
Strategies in MNEs
Agenda
1 Strategy context, financial success, and strategy levels
2 Strategic redirection
3 Portfolio management and product diversification
4 Growth programs and internationalization
5 Corporate growth modes and acquisitions
6 Corporate transformation

Technical University of Munich Chapter 2 | 2
Strategies in MNEs
Agenda
2.1 Overview
2.2 Strategy analysis, formulation, and implementation
2.3 Strategy redirection plan
Learnings

What changes the firm?
Events & Behavior in the external Events & Behavior in the external
environment – anticipated – environment – anticipated –
Environ- Events & Behavior in the external Environ- Events & Behavior in the external
ments environment – unanticipated – ments environment – unanticipated –
Change process
Initiation Formu- Imple- Formu- Imple-

lation mentation Initiation
lation mentation
The firm Behavior within the firm The firm Behavior within the firm
– intended – – intended –
Behavior within the firm Behavior within the firm
– unintended – – unintended –
t-n t0 t1 tn
time
An idealized process of strategy making includes three phases

Process of internal business strategy making
Initiation Formulation Implementation
Perception: What is going on?

External Internal
analysis analysis Developing structures
Identification: Do we have a and systems to
problem, and what support strategy
is it?
Strategy Deriving plans of
options Strategy
Structuring: What are sub- as operations
problems that we action
can work on? Objectives Envisioning, enabling,
Evaluation empowering people
to live strategy
Processing: What do we have
to do to come to a Strategy control
strategy? Strategy
as plan

Strategies in MNEs
Agenda
2.1 Overview
Learnings

External and internal analyses help to understand current

performance and to predict future performance
External and internal factors and their influence on performance
External External
• Competitive forces • Suppliers
• Demand forces • Other environments
• Environments - Political
- Political - Economic
- Economic - Social
- Social - Technological
- Technological - Ecological
- Ecological - Legal
- Legal
Internal Internal
• Value to customer • Value chain
• Price to customer (primary processes)
• Value chain
(secondary processes)
Revenues Profit/ Costs
Performance

From resources and positioning to competitive advantage to

performance advantage is the core of strategic thinking
Strategy and antecedents of performance advantage
Antecedents Competitive advantage Performance advantage
Market position
Value advantage Return spread
Price advantage Financial value
Resource base

The market-based view and the resource-based view form the

theoretical basis of strategy
Overview of theoretical concepts
• Structure-Conduct Performance
paradigm as basis
Market-based
view • Attractiveness of markets and
influencing of market structure as
main drivers of success
Market imperfection as
Theoretical central assumption:
explanations for - Information asymmetry
temporary out- - Specific resources
performance - Opportunistic behavior
• Resource-conduct-performance
paradigm as basis
Resource-based
view • Valuable, inimitable, non-transferable
resources (core competencies) as
main drivers of success

Firms are influenced by their environments

Environments of a firm
Macro
Environment
Legal + Political Economic
Environment Environment
(Government) (Economy) • The industry environment is
composed of a set of forces
Industry that directly shape competition
Environment • The macro environment has
Customer an impact on the firm through
its effect on the industry
Ecological Techno- environment
Environment logical
(Nature) Company Competitors Environment
• The macro environment affects
(Technology) all firms of an economy in a
general fashion
• The industry environment can
partly be shaped by firms; the
macro environment can hardly
be influenced
Social Environment
(Society)

Industrial organization economics provides the theory of how

industry structure affects industry profitability/attractiveness
Profitability
potential Actual profitability (= share of profitability
2 potential remaining with producers) depends on:
1 Value of the product to the customer

• Importance of product
4
• Alternatives/substitutes
1
2 Relative bargaining power
• Of producers and customers
3 Relative bargaining power
• Of producers and suppliers
3 (customer power, supplier power)
4 Intensity of competition (most obvious force

and historical focus of analysis)
• Monopoly: producer captures surplus
• Competition: price tends toward cost
Cost of Price of of producers (rivalry, entrants)
products products

Porter‘s five forces framework helps to understand the industry

environment
Forces affecting industry attractiveness
Potential entrants
Threat of new
entrants
Bargaining power
Industry of buyers
competition
Suppliers Buyers
Rivalry among
existing firms
Bargaining power
of suppliers
Threat of
substitutes
Substitutes

Core competencies are the basis for success in any kind of

business system
Definition of core competencies
VRIN model
Resources
Tangible Core competencies

resources Capabilities • Valuable (revenues,
cost, customers for
(Equipment, The ability to free)
location, ...) deploy resources • Rare
by coordinating • Inimitable (defendable/
them through difficult/impossible
Intangible • Structures
resources to imitate/substitute)
• Processes • Not transferable
• Systems
(Technology, know-
how, brand, ...)

Resources are built and exploited in value chain systems

Value chain and generic competitive strategies
R&D Purchasing Operations Marketing/ Service

sales
• Patents • Quality • Quality control • Brand • Relationship

Differen- • Creativity • Supplier • Flexibility • Target group • Training
tiation relationship focus
• Cutting edge
• “Design to • Price • Economies of • Mass market • Automation

Price manufacture” • Volume scale • Market
leadership • “Democratize” • Volume penetration
innovation • Automation

SWOT Analysis summarizes internal and external analyses and

identifies key issues
SWOT Analysis
Key environmental /
industry
developments
Opportunities Threats
Strengths • Do we have strengths • Do we have strengths

to meet opportunities? to master threats?
Core
competencies
• Which opportunities • What are the threats
Weaknesses do we miss because our weaknesses
of our deficits? expose to us?
Source: Bruner et al., The Portable MBA, 2003, p. 223.

The resource-based view of strategy has altered the dominant

perspective of strategic management
Logic of the market and resource-based view of strategy
Develop a
strategy that • Outside-in-perspective
Industry, Opportunities
environment and threats exploits • Creating strategies on
opportunities / opportunities
masters threats
Fit
Develop a
Resources, strategy that • Inside-out perspective
Strength and exploits core
capabilities / core weaknesses • Creating strategies on
competencies competencies to
use and creates strengths
opportunities

A competitive advantage is created if a company’s service to its

customers is superior to that of its competitors
Nature and characteristics of competitive advantage
Characteristics of competitive advantage
4 1 The company creates value for its

customers (value / price ratio greater 1)
Customer
2 The realized price is above the company’s
costs
Value / Value /
1 3 The value / price ratio of the company is
price price 3
Competitive superior to the value / price ratio of its
advantage competitors
Company Competitor 4 The area where the company provides

superior value is
2
• Perceived by customers
Costs Costs • Important to customers
• Defendable against competitors

Two generic competitive strategies are to be distinguished

Generic competitive strategies
Assumption Strategy
Better perceived value

(Providing a unique pro-
duct/service, that is Similar prices “Differentiation”
valuable to the customer)
Competitive
advantage
(Better value/
price-ratio)
Same value
Better prices compared to “Price Leadership”
competitors

What is strategy: Five elements that form a whole
Arenas: In which markets do we want to be active in?
Differentiators: Which competitive advantages do we want to achieve?
Economic Logic/Financials: How will we obtain revenues and profits?
Vehicles/Systems: What is our business system?
Staging/Timing: What will be our speed and sequence of moves?

Strategy implementation distinguishes four fields

Fields of strategy implementation - overview
Structures + Systems Structures: formally defined roles, responsibilities,

lines of reporting
Systems: support and control
Functional plans Concrete goals and measures for all functional units
Envisioning, Enabling, Empowering To make people understand and believe in strategy, to ensure
(Env., Ena., Emp.) their qualifications to live strategy, and to give them the power
to make decisions and implement these according to strategy
Strategic control To provide information on outcome of actions and enable

feedback loops on assumptions, consistency, and strategy-
action fit

‘Strategy needs structure’ instead of ‘structure follows strategy’

Interdependence of strategy and structure
Emergent
“strategy“
Structure Action Realized

“strategy“
needs
Strategy
Structure determines how the corporation really acts.

Strategic change tries to create a new situation for the company

Strategic change - overview
Level 3: (Anti) - Change forces Level 3:

high Liquidity Liquidity
problems problems
Change initiatives
Level 2: Level 2:
Styles, Change
Performance approa- fields Performance
problems Actors problems
Need to ches
change
Level 1: Level 1:
Expectation Expectation
problems Change resistance problems
Styles, Resis-
Level 0: Actors approa- tance Level 0:
low Healthy ches fields Healthy
company company
t0 Strategic t1 time
change
Strategies in MNEs
Agenda
2.1 Overview
Learnings

Executives have to specify five strategy objects

Co-evolution of the firm and its environments
Complexity Causality Uncertainty
• Mission
The firm • Vision The firm
• Strategy …
• Structure
• Systems
Events and Behavior in the …

Environ- external environment Environ-
ments ments
t-m t0 t1 tn
time
Strategies in MNEs
Agenda
2.1 Overview
Learnings

Learnings


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Technical University of Munich

Prof. Dr. Thomas Hutzschenreuter

1 Strategy context, financial success, and strategy levels

3 Portfolio management and product diversification

4 Growth programs and internationalization

5 Corporate growth modes and acquisitions

Prof. Dr. Thomas Hutzschenreuter

2.2 Strategy analysis, formulation, and implementation

2.3 Strategy redirection plan

Prof. Dr. Thomas Hutzschenreuter

What changes the firm?

Initiation Formu- Imple- Formu- Imple-

An idealized process of strategy making includes three phases

Initiation Formulation Implementation

Perception: What is going on?

Prof. Dr. Thomas Hutzschenreuter

2.2 Strategy analysis, formulation, and implementation

2.3 Strategy redirection plan

Prof. Dr. Thomas Hutzschenreuter

External and internal analyses help to understand current

Prof. Dr. Thomas Hutzschenreuter

From resources and positioning to competitive advantage to

Antecedents Competitive advantage Performance advantage

Value advantage Return spread

Price advantage Financial value

Prof. Dr. Thomas Hutzschenreuter

The market-based view and the resource-based view form the

Prof. Dr. Thomas Hutzschenreuter

Firms are influenced by their environments

Prof. Dr. Thomas Hutzschenreuter

Industrial organization economics provides the theory of how

1 Value of the product to the customer

4 Intensity of competition (most obvious force

Prof. Dr. Thomas Hutzschenreuter

Porter‘s five forces framework helps to understand the industry

Prof. Dr. Thomas Hutzschenreuter

Core competencies are the basis for success in any kind of

Tangible Core competencies

Prof. Dr. Thomas Hutzschenreuter

Resources are built and exploited in value chain systems

R&D Purchasing Operations Marketing/ Service

• Patents • Quality • Quality control • Brand • Relationship

• “Design to • Price • Economies of • Mass market • Automation

Prof. Dr. Thomas Hutzschenreuter

SWOT Analysis summarizes internal and external analyses and

Strengths • Do we have strengths • Do we have strengths

Source: Bruner et al., The Portable MBA, 2003, p. 223.

The resource-based view of strategy has altered the dominant

Prof. Dr. Thomas Hutzschenreuter

A competitive advantage is created if a company’s service to its

Characteristics of competitive advantage

4 1 The company creates value for its

Company Competitor 4 The area where the company provides

Prof. Dr. Thomas Hutzschenreuter

Two generic competitive strategies are to be distinguished

Better perceived value

Prof. Dr. Thomas Hutzschenreuter

What is strategy: Five elements that form a whole

Arenas: In which markets do we want to be active in?

Differentiators: Which competitive advantages do we want to achieve?

Economic Logic/Financials: How will we obtain revenues and profits?

Vehicles/Systems: What is our business system?