Management Themes & Case studies

Strategy & Planning

(B)

Week 4
 Learning Outcomes
 Understand the strategic management process with
different contents in different contexts;

 Explore the central aspects of strategic management

including Process, Context, and Content;

 Explain the mean features of environmental analysis

models such as Value Chain, PESTLE, Porter’s Five Forces,
and SWOT;

 Use Value Chain, PESTLE, Porter’s Five Forces, and SWOT

to analyse the environment of a given organisation.
Strategic Management
process
 A ‘strategy statement’ should cover the goals of an
organisation, the scope of the organisation’s activities
and the advantages or capabilities the organisation
brings to these goals and activities.

 Strategy work is done by managers throughout an

organisation, as well as specialist strategic planners
and strategy consultants.

Johnson, Whittington and Scholes, 2011

 What is “competitive advantage”?

 According to Barney and Hesterly (2010), the Strategic

Management process leads to Competitive advantage

Analysis
Mission Objectives (Internal and
External)

Strategic Competitive
Strategic choice
implementation Advantage
 According to David (2011), the benefits of Strategic
Management are:

Deeper/Improved
Greater Commitment The Result: All
Enhanced Understanding of
to achieve objectives, managers and
Communication in other’s views and of
to implement employees on a
terms of dialogue what the firm is
strategies and to Mission to help the
and participation doing/planning and
work hard firm succeed
why

David, F. (2011). Strategic Management: concepts

and cases. Upper Saddle River, NJ: Prentice Hall.
 Strategy - also be influenced
by types of organisation
Small/Medium/Large
MNC/SOE/POE
Public vs. Private vs. NGO

Service vs. Manufacturing

Traditional Services
vs. Modern Services
vs. Professional Services
 Process of Strategic Development

Intended Strategy Deliberate Strategy

A strategy a firm An intended strategy a firm Realised Strategy
thought it was going actually implements The strategy a firm is
to pursue actually pursuing

understand the process of Strategic Development

by looking at the different ways in which firms have
introduced and incorporated new strategies

Emergent Strategy
Emergent Strategy
Unrealised Strategy AAstrategy
strategy that
that emerges
emerges over
over
An intended strategy a firm timeor
time or that
that has
has been
been
does not actually implement radicallyreshaped
radically reshaped once
once
implemented
implemented
Source: Barney & Hesterly (2010), based on Mintzberg & McHugh (1985)
 Central Aspects of
Strategic Management
Process :
Strategy can be formed through informal or formal strategy processes

 Context:
the setting within which the business operates (this, of course, affects
the issues managers face as well as every decision making). Strategic
management enables companies to be clear about how they will add
value to resources despite of the changing environment.

 Content:
Decisions regarding what the company will try to do to gain competitive
advantage and gives them an edge over others
Context: Environments can be considered in
terms of a series of ‘layers
 Context: levels
 The macro-environment consists of broad environmental factors that
impact to a greater or lesser extent many organisations, industries and
sectors.

 The industry (or sector) consists of organisations producing the same

sorts of products or services.

 Specific competitors and markets immediately surround

organisations.

 Strategy is about ensuring that INTERNAL capabilities (Value chain

analysis) matches EXTERNAL conditions (PESTEL/PORTER’S 5
FORCES) =>{SWOT)
Internal Environment
analysis
Strategic Capability
analysis
 Resources & Competences
 to establish whether the resources and competences
match the environment in which the firm operates.

 many issues of strategic development are concerned

with changing strategy to better fit the
environment

 “Resource Analysis deals with the gaps between the

resources available at present and those that would be
needed to implement a proposed strategy” (Coyle,
2004)
 Resources & Competences
 Resources are not just the obvious things (such as
land, buildings and machinery) but the intangibles
such as corporate culture, networks, brand etc.

 Tangible and intangible resources are the

building blocks of any operation (Lewis, 2003).

 Distinctive vs. Threshold

resources/competences
 Resources & Competences
 An organisation’s environment creates both
opportunities and threats
 However, a firm is also dependent on having the
STRATEGIC CAPABILITY to perform successfully
 Strategic Capability is related to:
1. Available Resources
2. The Competence with which the organisation
undertakes various activities
3. The balance of resources, activities and business units
Value Chain
analysis
 Content: Value Chain Analysis
 The concept of value chain was first introduced by Porter (1985).
 Value chain divides the firm into different primary activities it
performs such as DESIGNING, MARKETING, DISTRIBUTION,
PRODUCTION, SALES.
 These various primary activities depend on 4 support activities:
 Firm infrastructure: Structure, financial management
 Human resource management: recruitment, training, rewarding
personnel
 Technology development: product and process design, R&D,
supporting inputs, transformation, outputs
 Procurement: acquiring materials and other resources
Value Chain Analysis
 Zara

Inbound logistics – cotton from Vietnam to head office in Spain, or if looking at branch
could be already made clothes from Peru

Think about the supply schedule, is this weekly, daily, by air, by sea? Does it arrive on time?
Do they have enough or excess? Do they have enough warehouses to store materials?

Operations – think about the making of the clothes and packaging. Is this cheap or
expensive process? Good quality? Is the packaging sustainable? Are they recycling to save
cost?

Outbound – if a customer orders clothes, how quickly do they deliver? Do they use a third
party delivery service or do they do the delivery in house? Is this cheaper or more expensive?

Sales/marketing – Think about how they advertise products and manage customers? Cost
effective or not?

Servicing – are you allowed to return the clothes if they don’t fit? Can they fix the products
at no cost? How do they manage customers expectations?

An analysis of all this will indicate if it adds value or reduces cost.

The value chain can also help an organisation understand their competitive advantage
 Value Chain Analysis
The idea of value chain analysis is to calculate the value added at
each stage of a manufacturing or service process. Analysis of each
activity could help identify the competitive advantage of an
organisation. For example, which activities benefits customers and
which are troublesome.

In other words, value chain analysis helps organisations to focus on

aspects which do most to

 REDUCE COST
 ENHANCE VALUE
 DISCOURAGE IMITATION
 Using Value Chain Analysis: There are two different approaches on how to perform the analysis, which
depend on what type of competitive advantage a company wants to create (cost or differentiation
advantage). The table below lists all the steps needed to achieve cost or differentiation advantage using
VCA.

Cost advantage Differentiation advantage

This approach is used when organizations try to
compete on costs and want to understand the
sources of their cost advantage or disadvantage
and what factors drive those costs.(good
examples: Amazon.com, Wal-
Mart, McDonald's, Ford, Toyota)
The firms that strive to create superior products or
services use differentiation advantage approach.
(good examples: Apple, Google, Samsung
Electronics, Starbucks)

 Step 1. Identify the firm’s primary and support

activities.
 Step 1. Identify the customers’ value-creating
 Step 2. Establish the relative importance of activities.
each activity in the total cost of the product.
 Step 2. Evaluate the differentiation strategies for
 Step 3. Identify cost drivers for each activity. improving customer value.

 Step 4. Identify links between activities.  Step 3. Identify the best sustainable
differentiation.
 Step 5. Identify opportunities for reducing
costs.
External Environment
analysis
 External Environment – PEST & P5F

A PEST analysis provides a review of the macro-environment, looking at:

the following:

• Political
• Economic
• Socio-cultural
• Technological

Porter’s Five Forces

Framework will be used
to analyse the
industry / sector and the
organisations relationship
with it’s competitors. Exploring Strategy (12th Ed.) Ch.2, page 35
PEST/PESTLE
analysis
 Political influences
Government policy Is the political environment stable?

Will the national policy change the law

Legislation: UK & EU to strengthen the supervision of
enterprises and collect more taxes?

Regulation of Business What are the market ethical standards

held by the government?
Trade Unions What is the government's economic
policy?
Terrorism
Does the government pay attention to
culture and religion?
Alliances & Agreements / International Bodies

Local government initiatives

Your own current knowledge (awareness) is not enough -

sources(?) and impact / potential impact (?)
 Economic influences
Because enterprises are
micro-individuals in theState of the economy
macro environment, the
economic environment
determines and affectsInterest & inflation rates
the formulation of their
own strategies. Economic
globalization also bringsConsumer confidence
economic
interdependence
between countries. Levels of disposable income
Enterprises also need to
pay attention to, search,
monitor, predict and Unemployment rates
evaluate the economic
situation of other
countries in the decision- Labour costs
making process of
Exchange rates
various strategies.
 Socio-cultural influences

Changes in demographics

Environmental issues - climate change, energy

Multi-cultural issues - languages, tastes

1. What is the religion with the largest number of followers?

Lifestyle changes
2. What is the attitude of people in this country towards
foreign products and services?

Social changes
3. Will language barriers affect the marketing of products?

4. What are the roles of men and women in this country?

Levels of education
5. Do people in this country live long? Is the elderly rich?

6. How do people in this country view environmental

Obesity & health concerns protection issues?
 Technological influences

New technological developments

Distribution systems

Infrastructure

Developments in IT - pcs / tablets / phones

New technology - tills, stock control, robots

Communications technology - internet, mobiles

Weather
 External Environment – PEST

Variations

PESTEL – additional factors considered: ecological and legal

LoNGPEST – PEST (or PESTEL) over layered with the different

geographical areas: local, national and global

Local National Global LoNGPEST

 PEST Analysis - sources of
information

Check – are your

TV sources credible,
Company & can be trusted,
Government Radio peer reviewed,
reports accurate etc?

Electronic Broadsheet
sources eg newspapers Use Library
databases Gateway to assist

Interne Trade
t journals
P5F
analysis
 Porter's Five Forces of Competition
(P5F)

used to analyse the competitive nature of the environment

in which your organisation operates
 Before you start ...some key questions
which you may wish to answer

Sector / market

Who are our competitors

(rivals)?

How likely is it that any

one else might want to
enter our market?

Can customers substitute

our product / service with
an alternative?

Do we understand our
buyer relationship?

Do we understand our
supplier relationship?
Exploring Strategy (12th Ed.) Ch.2, page 35
1) Competitive rivals are organisations with similar products
and services aimed at the same customer group and are direct
competitors in the same industry/market (they are distinct
from substitutes).

Is this force high, medium or low?

What makes you say this? Where is your evidence?

 1) Competitive Rivalry - factors to
consider

to ensure that you have sufficient information

to provide answers to these questions.
Industry Structure? - High
Intensity of competition? - Size & Growth potential of fixed costs need greater
number of current and market? - more intense in volumes, greater
potential competitors stagnating markets competition over market
share

Power of buyers & Lack of differentiation? -

availability of substitutes?
- strong buyers and close
substitutes = intense
rivalry
greater loyalty less
Exit Barriers? - perception
competition, lower
or cost.
differentiation increase
competition

Examples: High spec. camera market vs mobility scooter sectors

 2) The threat of entry is low when the
barriers to entry are high and vice versa.

Often a strategy is appealing to an organisation but trying to enter the market

can be costly in terms of finance or other resources.
 2) Threat of new entrants - factors to
consider

Barriers to entry
Capital set-up costs - high costs
Economies of scale - forward/backward integration
Sufficient customer base?
Differentiation - branding
Legislation - patents
Distribution channel - access
Potential retaliation - price war
 3) Substitutes are products or services
that offer a similar benefit to an industry’s
products or services.

The focus here is on

benefits – this is the
hardest force to
explore. An example
could be an email
replacing a phone call
or text or video call, it
is channel of
communication.

Any other examples?

Transportation?

The Threat of Substitutes is probably the most difficult of all

the forces to assess, as not all products have realistic
substitutes. It is NOT the 'same' product.
 3) Substitutes - factors to consider

What business are you in? - generally different industry

Product - for- product - TV / laptops

Substitution of need - change of need (consider newspapers)

Generic substitution - competition for share of wallet - carpets vs curtains

Customer perception - same function / better value for money

Limits price which can be charged - reduced industry profits

Question: What could 'substitute' for a top quality 'Parker Pen' ?

 4) Suppliers are those who supply what
organisations need to produce the product or
service. Powerful suppliers can eat into an
organisation’s profits.
Suppliers are
those
organisation
from whom
you purchase
goods or
services. Buyers are
Suppliers those
supply organisations
who purchase
goods from
you.
Buyers buy

5) Buyers are the organisation’s immediate customers,

not necessarily the ultimate consumers/end users. If buyers are
powerful, then they can demand cheap prices or product/service
improvements to reduce profits.
 Power of buyers and suppliers
Power levels dependent on two key
factors: numbers and cost

Power level of buyers is high if:

- single key buyer or buyers group together
- switching to an alternative is easy and cheap
- many alternative products or services

Power level of suppliers is high if:

- single key suppliers due to no/few alternatives
- cost of switching supplier difficult or costly

Consider : Power level of Starbuck's buyers

Consider: Power level of Starbuck's suppliers
 Application of Porter's Five Forces

How strong is the

Assess intensity of
Identify threat of new
competitive
competitors rivalry (H/M/L) entrants?
(H/M/L)

Identify substitute Do they offer Evaluate buyers

products or services better value for and their power
(H/M/L) money? (H/M/L)

Make a firm assessment of

Identify main
suppliers of key level of threat or bargaining
resources and their power for each of the 'five
power forces'. Is it high, medium or
(H/M/L) low H/M/L?
why you believe that force is high or low?
 External Environment – bringing it
together
• PEST and P5F analysis provide a summary of the
external environment – in a similar way to the various
‘internal’ analysis providing a summary of the internal
environment.

• The external environment identifies the opportunities

and threats facing the organisation

• Collectively they create a full summary of the

organisation’s Strategic Position

At the completion of all your models it is useful to write a one or two sentence
summary of your key conclusion – your “As I result of completing this modules ...
is the key challenge/opportunity for the organisation in the future.”
SWOT
analysis
 SWOT Analysis
A SWOT analysis provides a summary of the strategic fit
between its capabilities and the needs of the external
environment – it’s Strategic Position

• Strengths Internal/resource
based (organisation
• Weaknesses has control)

• Opportunities External/environmental
• Threats (organisation has less
/no control)
 Strengths and Weakness Analysis
Strengths
S1 - Cash rich demonstrated in the high retained profit
which means that the organisation can use the funds
to survive times of crisis or purchase weaker
competitors (Strategic Capabilities/resources)
S2 - Effective marketing creating high brand awareness,
customers will purchase the brand through
recognition, consider Heinz Ketchup and the branding
copied by competitors (SC/competence)
S3 - High profile CEO increasing the exposure of the
organisation by advising the Government and acting as
a figure head which means the organisation is easily
recognised (SC/resources)
S4- Effective buying systems, maximising stock turnover
and economies of scale through a minimum of 10%
discount from all suppliers reducing costs by 7% and
increasing profits by $10 million (ZZ Report and
Accounts, 2020). (VC – Procurement)
S5 - Effective supply chain relationships* (VS & VC –
Inbound logistics & SC)
S6 - Innovation, we have been voted the most innovative
organisation by New Technologies magazine as well as
registering 100,000 new patents protecting our future
(ZZ Report and Accounts, 2020) (VC –Technology
development)
Weaknesses
W1 - Cash poor – low profit (SC/resources)
W2 - Limited access to finance (SC- competences)
W3 - Limited marketing with low brand awareness
(SC/competences)
W4 - Aging manufacturing plant (SC/resources)
W5 - Poor innovation record (SC/competences)
W6 - Brand negativity (SG/resource & competence)
W7 - Fragmented infrastructure – separate
manufacturing plants requiring costly logistics, this
means that during the coming year we will seek to
rationalise our plants focusing on our key areas of
business. Although we estimate costs savings of
£ 1m, initial expenditure will be £ 5m and this may
lead to a loss in the next financial year (ZZZ, Report
and Accounts). (VC – Infrastructure)
Three Cases

(to be continued in Week 4)

 References
 Boddy, D., (2012) Essentials of Management. Chpts. 6 and 8

 Kay J (1993) Foundations of Corporate Success, Oxford, Oxford

University Press

 Whittington R, Regner P, Angwin D, Johnson G and Scholes K (2020)

Exploring Strategy, 12th Edition, Pearson

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