Business Management Chapter 14 — Levels of Strategy Levels of Strategy Corporate-level strategy — Strategy formulated by top management to oversee the interests and operations of multiline corporations. * What kind of businesses should the company be engaged in? * What are the goals and expectations of each business? * How should resources be allocated to achieve these goals?Levels of Strategy Business-unit strategy — Strategy formulated to meet the goals of a particular business, also called line-of-business strategy. How will the business compete within its market? * What products / services should it offer? * What customers does it seek to serve? * How will resources be distributed within the business? Levels of Strategy Functional-level strategy — Strategy formulated by a specific functional area in an effort to carry out corporate- level strategy and business-unit level strategy. * For marketing function, it could be identifying the marketing strategy. * 4P mix, Advertising plan and budget, Choice of media, etc. * Operational plans follow from the functional-level strategy.Corporate Strategy Example-1 Product differentiation iPad Pro 2023 21,09,990 Corporate Strategy Example-1 Product differentiation Example: Apple iPad Pro 2023 vs. competitors The new Apple iPad Pro 2023 retails $1350. The earlier Apple iPad Air (discontinued in 2017) costed $274 to make and retailed for $499 — a margin of 45%. Competing tablets often cost nearly $200 less (Samsung $1045, Xiaomi $365). Apple is able to command such premiums because it has successfully differentiated its product from competitors.‘ Corporate Strategy Example-1 i Product differentiation Lightness: The iPad Pro 2023 is lighter, thinner than competitors. Display Quality: The Retina display is visually superior to competing tablets. Software: Apple highlights both the base iOS and the bundled Apple software as being better than what competitors offer. Engineering: Apple seldom fails to highlight its superior engineering and material quality than competitors. Ease of Use: Since Apple makes both the hardware and software, it often emphasizes its products’ ease of use. iPad Pro 2023 is priced not to sell in volume, but to become an aspirational product. This preserves Apple’s reputation as a superior, aspirational brand. Corporate Strategy Example-2 Gaining a technological advantage§ Corporate Strategy Example-2 “Gaining a technological advantage Organizations buy up smaller firms just to gain access to their technology (Facebook-Instagram). A technological advantage can also mean acquiring and retaining key employees that can help a business gain a technological advantage. The recent trend of acqui-hires (a portmanteau of "acquisition" and "hiring“). Byjus & WhiteHat Jr. Corporate Strategy Example-2 Gaining a technological advantage Example: Amazon invests in delivery drones Using drones is a sound business strategy for Amazon for four reasons: * Real technological advantage over competitors who must rely on less efficient ground transportation. Nearly 86% of Amazon packages are under 5lbs, which makes drones the perfect delivery vehicles. * Drones will allow Amazon to reach rural areas where delivery networks aren't as efficient. * Drones can significantly improve delivery times in dense urban areas.Corporate Strategy Example-3 Pricing strategies Example: Walmart, Ikea’s low prices Example: Ferarri prices its cars for exclusivity A i emt Corporate Strategy Example-3 Pricing strategies Businesses essentially have two choices when pricing their products: * Keeping prices low to attract more customers, but must sell a lot of products to make money. Low margins with high volumes. * Pricing a product beyond the reach of ordinary consumers, giving it aspirational value. High margins with low volumes.Corporate Strategy Example-3 Pricing strategies Example: Walmart, Ikea’s low prices Walmart uses its position as the largest retailer in the world to bargain for low prices with suppliers and manufacturers. Walmart keeps its profit margins very low, but selling in large volumes. The Swedish furniture brand Ikea follows the same approach. By selling its self-assembled furniture pieces in large volumes, Ikea is able to price its products very aggressively. Corporate Strategy Example-3 Pricing strategies Example: Ferrari prices its cars for exclusivity Italian auto maker Ferrari made a profit of $1.6 B in 2022 and sold a total of 13,221 cars over the year, which translates into a profit of ~ $76,091 per car. In contrast, the Hyundai motor corporation made a profit of $0.78 B in 2022 and sold a total of 3.94 M cars over the year, which translates into a profit of ~ $200 per car.Levels of Strategy Business-unit strategy Strategic Business Unit - SBU A Strategic Business Unit (SBU) is a_ basic organizational unit for which it is meaningful to formulate a separate competitive strategy (Grant, 2002). Typically the SBU is a business providing a single product or a number of closely related products that serve a_ well-defined product-market combination and compete with a well-defined set of competitors.Strategic Business Unit - SBU A SBU may be a business unit within a larger corporation, or it may be a business into itself or a branch. Corporations may be composed of multiple SBUs, each of which is responsible for its own profitability. General Electric is an example of such a company with around 49 SBUs. SBUs are able to affect most factors which influence their performance. Managed as separate businesses, they are responsible to a parent corporation. SBUs Hindustan Unilever Limited Food and Drinks — Cornetto, Knorr, Lipton, Bru, Annapurna, 3 Roses, Taj Mahal, Kissan Home Care — Wheel, Rin, Surf Excel, Sunlight Personal Care — Axe, Dove, Lifebuoy, Lux, Pepsodent, Ponds, Vaseline, Lakme, Pears, Liril, Ayush Water Purifier — PureitSBUs Hindustan Unilever Limited Home Care — Wheel, Rin, Surf Excel, Sunlight, Vim, Comfort, Sunlight, Domex, Love & care, Pure Strategy: Everybody wants brands. Lever products must be sold to rich and poor alike. There are a lot more poor people in the world than rich people. To be a global business and to have a global market share, you have to participate in all segments. stor SBUs Tata Group + Automotive — Indica, Indigo, Land Rover, Jaguar, Nano, Xenon, Safari Financial — Tata Capital, Tata MFs, Tata AIA Life Insurance, Tata AIG General Insurance * Food and Beverage — Tata Tea, Tata Salt, i-Shakti, Tetley, Tata Water Plus, Tata Gluco Plus * Hotels and Realty — Taj, Vivanta, Taj Air, Gateway, Taj Safaris * Retail —Titan, Sonata, Croma, Eye +, Tanishq, Westside * Services — Vistara, Tata Docomo, Tata Photon, Tata SkySBUs Tata Group Automotive — Indica, Indigo, Land Rover, Jaguar, Nano, Xenon, Safari, Nexon, Punch, Harrier, Tiago, Altroz, Tigor Strategy: Our goal is to position ourselves as a major international automotive company by offering products across various markets by combining our engineering and other strengths and through strategic acquisitions. SBUs Power Renewable energy Oil Gas Energy Management Healthcare Transportation Appliances & Lighting 1. 2. 3. 4. 5. 6. 7. 8. Capital & financial industryLevels of Strategy Functional-level strategy Marketing Strategy of Ola Cabs Empowering the Drivers — Help drivers buy their own cars at huge discounts and access to affordable repayment schemes. The launch of Ola-mini, Ola share. Strategic Partnership with MakeMyTrip (2013). Advertising Partnership with TVF (online YouTube channel). Ola Boats during Chennai Floods. Innovatively thought concept ideas and ads : Ola Share pass, Ola outstation, etc. Ola ElectricMarketing Strategy of Ola Cabs Treating Customer with Care — Here is just one incidence of when Ola converted an angry customer into a loyal one. Pradeep Chopra, Founder of Digital Vidya, booked a cab for his daughter to attend the b’day celebrations of her friend. When Pradeep was about to enter into the meeting, he got a call from his wife mentioning that she got a message from Ola that the booking has been cancelled because of the unavailability of the cabs. Pradeep couldn’t concentrate on the meeting as he was trying for some alternate arrangement. After some time, Pradeep realized that Ola has ruined the plan of his 6 year old daughter. te, ¥ Marketing Strategy of Ola Cabs Disappointed as he was, he decided to write a complete review of his bad experience about the cab service. Pradeep tweeted about the bad experience and next day got a call from Senior Customer Relationship manager who listened to him completely and without defense apologized for the mistake. After explaining the whole situation to the representative of the company he was bit relieved; however, did not change his mind about dropping a detailed review and his bad experience with Ola Cabs.Marketing Strategy of Ola Cabs After the long hectic day and complete narration of his bad experience to the company representative, Pradeep went back home and was pleasantly surprised to know that his daughter was happy with the gift she received from Ola Cabs. It was a cake box and, carried the following message: Business Management Chapter 15 — SWOT AnalysisStrategy Formulation — SWOT Analysis SWOT analysis (alternatively SWOT matrix) is an acronym for strengths, weaknesses, opportunities, and threats and is a structured planning method that evaluates these four elements of a project or business venture. A SWOT analysis can be carried out for a company, product, place, industry, or person. Strategy Formulation — SWOT Analysis Some authors credit SWOT to Albert Humphrey, who led a convention at the Stanford Research Institute (now SRI International) in the 1960s and 1970s using data from Fortune 500 companies. However, Humphrey himself did not claim the creation of SWOT, and the origins remain obscure.Strategy Formulation — SWOT Analysis * Strengths: characteristics of the business or project that give it an advantage over others. * Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others. * Opportunities: elements in the environment that the business or project could exploit to its advantage. * Threats: elements in the environment that could cause trouble for the business or project. Strategy Formulation — SWOT Analysis * Strengths: characteristics of the business or project that give it an advantage over others. * Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others. * Opportunities: elements in the environment that the business or project could exploit to its advantage. * Threats: elements in the environment that could cause trouble for the business or project.ji Strategy Formulation — SWOT Analysis The degree to which the internal environment of the firm matches with the external environment is expressed by the concept of strategic fit. SWOT Analysis SWOT ANALYSIS atte) Strengths (Invest) S Industry Market Environment Competitors Resources Capabilities Customers Employees ais (Identify) Wea (Overcome) Internal External We can We can control impactLimitations of SWOT Analysis * Internal bias: A SWOT analysis is usually dominated by your internal view — your perceptions of your performance and market. * No prioritization: It organizes strategic factors that impact your business, but it doesn’t prioritize them. * Doesn’t translate to action: A SWOT analysis doesn’t offer solutions. + Aggregate and high level: Often, a SWOT is used to review an entire company, region, or product line, and “the customer” is discussed broadly at the aggregate level. * It’s not used consistently: Usually, a SWOT analysis is a tool used early on in the strategy development process. TOWS Analysis Threats (T) Opportunities (0) "A “A TOWS a _ c * Cc Strengths (S) Weaknesses (W) ATOWS Analysis Objective - push yourself to the top right (the SO quadrant) and shy away from the lower left corner (the WT quadrant). Strengths and Opportunities (SO) — How can you use your internal strengths to take advantage of the external opportunities? These are attacking or proactive strategies. Strengths and Threats (ST) — How can you take advantage of your internal strengths to avoid real and potential external threats? Weaknesses and Opportunities (WO) — How can you use your external opportunities to overcome the internal weaknesses you are experiencing? Weaknesses and Threats (WT) — How can you minimize your internal weaknesses and avoid the external threats? These are defensive strategies. Business Management CHAPTER 16-BCG-GE-PorterIdentification of Corporate Strategy With a corporate strategy, managers stake a claim for their organization’s place in the future. Corporate strategy is about how people at an organization will interact with people at other organizations over time. Corporate strategy guides people in the organization in their day-to-day work over an extended period of time. Corporate Portfolio Approach Top management evaluates each of the corporation’s various business units with respect to the marketplace and the corporate’s internal makeup. When all business units have been evaluated, an appropriate strategic role is developed for each unit with the goal of improving the overall performance of the organization.Corporate Portfolio Approach Boston Consulting Group (BCG) Matrix Goal of BCG Matrix is to develop a balance among business units that use up cash and those that supply cash. It focuses on: * Sales, * Growth of the market and * Whether the unit absorbs or produces cash in its operations. Corporate Portfolio Approach Boston Consulting Group (BCG) Matrix The Boston Consulting Group (BCG) is an American worldwide management consulting firm with 90 offices in 50 countries. BCG Matrix or the BCG Growth-Share Matrix (otherwise called the product portfolio matrix, Boston Box, Boston matrix, Boston Consulting Group analysis, BCG lattice, BCG investigation) was created by Bruce D Henderson in the mid-1970s for Boston Consulting Group.Boston Consulting Group (BCG) Matrix 209% * 2 2 Star Question Mark g Problem Child & 10%] 3/3 Cash Cow Dog 0% — 1.0 High 0.5 Low. 0 Relative Position (Market Share) Corporate Portfolio Approach Boston Consulting Group (BCG) Matrix Relative market share = Firm’s market share (revenue / units) this year / largest competitor’s market share (revenue / units) this year For example, if a firm has a market share of 20% and their largest competitor has a 40% market share, then the firm’s relative market share would be 0.5, (that is, 20% / 40%). It is possible to calculate the relative market share by using either the dollar (rupee) market share or the unit market share. It’s value can vary anywhere between 0 and 1.Corporate Portfolio Approach Boston Consulting Group (BCG) Matrix Business or Market growth rate = Total market unit sales in current year / Total market unit sales in previous year It is expressed as a percentage and can typically vary anywhere between 0% and typically 20% Boston Consulting Group (BCG) Matrix Cash cow - High relative market share in a slowly growing market is both profitable and a source of excess cash. The slow growth of the market does not require large investments to maintain market position.Boston Consulting Group (BCG) Matrix Question mark — A business with a relatively small market share in a rapidly growing market can be an uncertain and expensive venture. Rapid growth of the market may force heavy investments to maintain its low share (with low or even negative profits or cash flows) or even heavier investments to increase the market share relative to the market leader. Exciting if the corporate has adequate funds for investing. Boston Consulting Group (BCG) Matrix Star — High relative market share in a rapidly growing market could be quite profitable. However, the need to continue investing to keep up with the rapid growth may consume more cash than is currently being earned.Boston Consulting Group (BCG) Matrix Dog — A business with low relative market share in a slowly growing or stagnant market is seen as a moderate user or supplier of cash. Boston Consulting Group (BCG) Matrix Strategy A success sequence in the BCG matrix involves investing cash from cash cows and the more successful dogs in selected question marks to enable them to become stars by increasing their relative market shares. Over time, when the rate of market growth slows, the stars will become cash cows, generating excess cash to invest in the next generation of promising question marks.Business Growth Rate Market growth rate and relative market share are categorized only as high or low. But, they could be categorized as moderate or medium too, Ignores interdependencies among a corporation’s business units. A dog, for example, may be helping a question mark or a star * High = S x Question Mark Problem Child 3 Cash Cow Dog yt oe 0% Harvest Divest 1.0 High 05 Low oO with cash. Market growth rate is only one factor that makes an industry attractive. Similarly, relative market share is only one factor that gives a unit a competitive advantage. According to critics, the Relative Position (Market Share) BCG Matrix Limitations matrix ignores other factors that determine profitability.Corporate Portfolio Approach General Electric (GE) Matrix GE multi factoral matrix was developed by McKinsey for General Electric in the 1970s. Used to assess the strength of a strategic business unit (SBU) of a corporation. It analyzes 9 industry attractiveness measures (analogous to market growth rate in BCG). It analyzes 12 internal business competitive strength measures (analogous to relative market share in BCG). Helps a company decide what product(s) to add to its product portfolio and which opportunities in the market they should continue to invest in. Corporate Portfolio Approach General Electric (GE) Matrix Measuring Industry Attractiveness Long run market growth rate Industry / market size Industry profitability: entry barriers, exit barriers, supplier power, buyer power, threat of substitutes and available complements (use Porter’s Five Forces analysis to determine this) Industry rivalry Industry structure (use Structure-Conduct-Performance framework to determine this) Product life cycle changes Changes in demand / Demand variability Trend of prices Global opportunities Macro environment factors (use PEST or PESTEL (Political, Economic, Social, Technological, Environmental, Legal) framework for this) Seasonality Availability of labor Market segmentationCorporate Portfolio Approach General Electric (GE) Matrix Measuring Business Competitive Strength * Total market share + Market share growth compared to rivals + Brand strength / Brand equity (use brand value for this) * — Distribution channel access * Profitability of the company / Margins relative to competitors * — Customer loyalty + VRIO resources or capabilities (use VRIO (Value, Rarity, Imitate, Organization) framework to determine this) + Your business unit strength in meeting industry’s critical success factors (use Competitive Profile Matrix to determine this) + Strength of a value chain (use Value Chain Analysis and Benchmarking to determine this) + Level of product differentiation + Production capacity / flexibility ee i N GE / McKinsey Matrix a H a| o|G Grow / Invest Grow / Invest Hold / Protect © S| x 2 = o|M B/E < < ° Grow / Invest Hold / Protect Harvest = u S| ~ ey Blo Hold / Protect Harvest Divest Ss oi|w £ HIGH MEDIUM Low Business Unit Strength < >Corporate Portfolio Approach Michael Porter’s Five Forces Model Developed by Harvard Business School's Michael E. Porter in 1979. The five forces model looks at five specific factors that help determine whether or not a business can be profitable, based on other businesses in the industry. Michael Porter = (1947 -) q Michael Eugene Porter is an American academic known for his theories on economics, business strategy, and social causes. He is Professor at Harvard Business School, and he was one of the founders of the consulting firm The Monitor Group (now part of Deloitte) and FSG, a social impact consultancy. He is credited for creating Porter's five forces analysis. He is generally regarded and hailed as the father of the modern strategy field. He is also regarded as one of the world's most influential thinkers on management and competitiveness as well as one of the most influential business strategists the world has ever seen.Corporate Portfolio Approach Michael Porter’s Five Forces Model "Understanding the competitive forces, and their underlying causes reveals the roots of an industry's current profitability while providing a framework for anticipating and _ influencing competition (and profitability) over time; a healthy industry structure should be as much a competitive concern to strategists as their company’s own position”. Michael Porter Corporate Portfolio Approach Michael Porter’s Five Forces Model An organization’s ability to compete in a given market is determined by its technical and economic resources, as well as by five environmental “forces”, each of which threatens the organization’s venture into a new market. The strategic manager must analyze these forces and propose a program for influencing or defending against them. The aim is to find a lucrative and defensible niche for the organization.Corporate Portfolio Approach Michael Porter’s Five Forces Model Five Forces: * Rivalry among current competitors * Bargaining power of suppliers * Bargaining power of buyers (customers) * Threat of new entrants * Threat of substitute products Corporate Portfolio Approach Michael Porter’s Five Forces Model Rivalry among current competitors: Rivalry competition is high when there are just a few businesses equally selling a product or service, when the industry is growing and when consumers can easily switch to a competitor offering for little cost. Rivalry is quantitatively measured by the Concentration Ratio (CR), which is the percentage of market share owned by the four largest firms in an industry.Corporate Portfolio Approach Michael Porter’s Five Forces Model Bargaining power of suppliers: The fewer the suppliers, the more power they have. Businesses are in a better position when there are a multitude of suppliers. Sources of supplier power also include the switching costs of firms in the industry, the presence of available substitutes, and the supply purchase cost relative to substitutes. Corporate Portfolio Approach Michael Porter’s Five Forces Model Bargaining power of buyers (customers): Consumers have power when there aren't many of them, but lots of sellers, as well as when it is easy to switch from one business's products or services to another. Buying power is low when consumers purchase products in small amounts and the seller's product is very different from any of its competitors.Corporate Portfolio Approach Michael Porter’s Five Forces Model Threat of new entrants: The easier it is for a competitor to join the marketplace, the greater the risk of a business's market share being depleted. Barriers to entry include absolute cost advantages, access to inputs, economies of scale and well- recognized brands. Corporate Portfolio Approach Michael Porter’s Five Forces Model Threat of substitute products: It looks at how many competitors there are, how their prices and quality compare to the business being examined and how much of a profit those competitors are earning, which would determine if they have the ability to lower their costs even more. The threat of substitutes are informed by switching costs, both immediate and long-term, as well as a buyer's inclination to change.Strategy to expand competitive advantage Once the analysis is complete, we need to implement a_ strategy to expand the company’s competitive advantage. Porter identifies three "generic strategies“ that can be implemented in any industry, and in companies of any size. Cost leadership, Differentiation and Focus. Strategy to expand competitive advantage Cost leadership: In this strategy, your goal is to increase profits by reducing costs while charging industry-standard prices, or to increase market share by reducing the sales price while retaining profits.Strategy to expand competitive advantage ae: Differentiation: This strategy aims to make the company's products significantly different from the competition, improving their competitiveness and value to the public. This strategy requires both good research and development and effective sales and marketing teams. Strategy to expand competitive advantage Focus: In the focus strategy, businesses select niche markets in which to sell their goods. This strategy requires intense understanding of the marketplace, its sellers, buyers and competitors. The use of this strategy frequently requires the companies to also implement a cost leadership or differentiation position.Business Management Differentiation Strategy Strategy to expand competitive advantage Differentiation A focused differentiation strategy requires offering unique features that fulfill the demands of a narrow market. As with a focused low-cost strategy, narrow markets are defined in different ways in different settings. Some firms using a focused differentiation strategy concentrate their efforts on a particular sales channel, such as selling over the Internet only. Example: Amazon.Business Management Focused Niche Strategy Strategy to expand competitive advantage Focused Niche A niche market is the subset of the market on which a specific product is focused. The market niche defines the product features aimed at satisfying specific market needs, as well as the price range, production quality and the demographics that is intended to impact. It is also a small market segment.The McKinsey 7S Model Figure 1: The McKinsey 7S Mode! Structure Strategy Systems ‘Shared | Values |) Skills Style Staff The McKinsey 7S Model McKinsey 7s model is a tool that analyzes a firm’s organizational design by looking at 7 key internal interrelated elements: Strategy, Structure, Systems, Shared values, Style, Staff and Skills In order to identify if they are effectively aligned to achieve organizational objectives.The McKinsey 7S Model Hard Elements Soft Elements Shared Values Strategy Skills Structure Style Systems Staff The McKinsey 7S Model The 7S model is a management model developed by well- known business consultants Robert H. Waterman, Jr. and Tom Peters (who also developed the MBWA-- "Management By Walking Around", and authored In Search of Excellence) in the 1980s. The lack of hierarchy among these factors suggests that significant progress in one part of the organization will be difficult without working on the others.The McKinsey 7S Model Robert H. Waterman Jr. (1936 - ) and Tom Peters (1942 - ) The McKinsey 7S Model What is it used for? The 7-S model can be used in a wide variety of situations where an alignment perspective is useful, for example, to help you: * Improve the performance of a company. * Examine the likely effects of future changes within a company. ¢ Align departments and processes during a merger or acquisition. * Determine how best to implement a proposed strategy.The McKinsey 7S Model What do you need to do? * Evaluate each of the 7S elements both for the current scenario as well as the proposed scenario. * Identify gaps in the elements and inconsistencies between the elements in the current scenario. * Check whether these gaps are filled up and the inconsistencies are resolved in the proposed scenario. The McKinsey 7S Model Strategy: the plan devised to maintain and build competitive advantage over the competition. Structure: the way the organization is structured and who reports to whom. Systems: the daily activities and procedures that staff members engage in to get the job done. Shared Values: called "superordinate goals" when the model was first developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic. Style: the style of leadership adopted. Staff: the employees and their general capabilities. Skills: the actual skills and competencies of the employees working for the company.The McKinsey 7S Model Strategy: What is our strategy? How do we intend to achieve our objectives? How do we deal with competitive pressure? How are changes in customer demands dealt with? How is strategy adjusted for environmental issues? The McKinsey 7S Model Structure: How is the company/team divided? What is the hierarchy? How do the various departments coordinate activities? How do the team members organize and_ align themselves? Is decision making and controlling centralized or decentralized? Is this as it should be, given what we're doing? Where are the lines of communication? Explicit and implicit?The McKinsey 7S Model Systems: What are the main systems that run the organization? Consider financial and HR systems as well as communications and document storage. Where are the controls and how are they monitored and evaluated? What internal rules and processes does the team use to keep on track? The McKinsey 7S Model Shared Values: What are the core values? What is the corporate / team culture? How strong are the values? What are the fundamental values that the company / team was built on?The McKinsey 7S Model Style: * How participative is the management/leadership style? * How effective is that leadership? * Do employees/team members tend to be competitive or cooperative? * Are there real teams functioning within the organization or are they just nominal groups? The McKinsey 7S Model Staff: * What positions or specializations are represented within the team? * What positions need to be filled? * Are there gaps in required competencies?The McKinsey 7S Model Skills: * What are the strongest skills represented within the company/team? + Are there any skills gaps? * What is the company/team known for doing well? * Do the current employees/team members have the ability to do the job? * How are skills monitored and assessed? Business Management Chapter 17 — Strategy — StructureStrategy and Structure An organisation's strategy is its plan for the whole business that sets out how the organisation will use its major resources. An organisation's structure is the way the pieces of the organisation fit together internally. It also covers the links with external organisations such as partners. For the organisation to deliver its plans, the strategy and the structure must be woven together seamlessly. Strategy and Structure “Sa ae: There are many ways to structure an organization. For example, a structure may be built around: * Function: reflecting main specialisms e.g. marketing, finance, production, distribution. * Product: reflecting product categories e.g. bread, pies, cakes, biscuits. * Process: reflecting different processes e.g. storage, manufacturing, packing, delivery.Strategy and Structure Organizational structures need to be designed to meet aims. They involve combining flexibility of decision making, and the sharing of best ideas across the organization, with appropriate levels of management and control from the center. Strategy and Structure Two approaches: Approach 1: The Structuralist approach * Structure supports or shapes strategy. * Acompany’s strategic options are bounded by the environment. * This approach has dominated the practice of strategy for the past 30 years.Strategy and Structure ae: Two approaches: Approach 2: The Reconstructionist approach * Strategy supports or shapes structure. * Example of Ford’s Model T, Amazon, UBER, etc. * Blue ocean strategy: A company’s performance is not necessarily determined by an industry’s competitive environment. Structure follows Strategy In management theory, the thesis that Structure follows Strategy was proposed by the historian Alfred Chandler. This means that a corporate structure is created in order to implement a given corporate strategy.Strategy and Structure ard Blue ocean strategy * Ideas and actions of individual players can shape the economic and industrial landscape. * Kim & Mauborgne - “Blue Ocean Strategy” book. * Creating "blue oceans” of uncontested market space. * Unlocking new demand and making the competition irrelevant. Strategy and Structure zest Red Ocean Strategy © Blue Ocean Strategy pete in existing market space. SNC eT Las ries Catone Nucci acai Eee) eee iis Make the value-cost trade-off. Break the value-cost trade-off. Align the whole system of a firm's activities in pursuit of differentiation and low cost,Choosing the Right Strategic Approach are attractive and the organization has the resources and capal ties to build a distin: position = Structural conditions are less than attractive but the organization has the resources and capa- bilities to outperform comp: A reconstruction- ist approach is a good fit when: = Structural conditions are attractive but players are ‘wall-entronched and the organization lacks the resources or capabilities to outperform the = Structural conditions are unattractive and they work against an organization irespec- tive of ite resources and capabilities distinctively indicate one approach or the other, the right-choice ‘will tum on the organization's strategic mind-set. = The organization has a bias toward defending current strategic posi- tions and a raluct venture into unfa toritory to Achieving = The organization has an orientation toward ovation and 9 willing- ness to pursue new opportunities HBR, 2009 Strategy Alignment VALUE PROPOSITION The utility buyers re- eaive from an offering minus the price they pay for PROFIT PROPOSITION ‘The revenues an argani- zation generates from an offering minus the cost to produes and doliver it, PEOPLE PROPOSITION ‘The positive motivations and incentives p place for people ns ‘to support and impl ment the strategy. ™ STRUCTURALIST APPROACH ‘The alignment of the three strategy propos! tions in pursuit of, f RECONSTRUCTIONIST APPROACH lignment of the three strategy proposi- tions In pursuit of BOTH differentiation and low cost. HBR, 2009Alignment of the Three Propositions * Value and profit proposition are the basis of strategy formulation to benefit the business and the customer. * People proposition determines the quality of execution by the employees. * In the case of a B2B organization, the business has to formulate two value propositions, one for their customers and the other for their customer’s customer. * Similarly, the people proposition is not limited to employees alone, but must cover the supply chain and other associates. Alignment of the Three Propositions * If value and profit propositions are strong but the people proposition does not motivate the employees, it is a classic example of execution failure. * On the other hand a business having a strong people proposition but lacking a good value and profit proposition is a classic example of formulation failure. * Typically, businesses focus on value and profit propositions and ignore the people proposition.Non-alignment of Strategies Online music provider Napster (HBR, 2009) seat * Napster — Founded in 1999. * 80 million registered users. * Value proposition: Simple, easy-to-use software that allowed music files to be indexed, searched, and freely shared across computers throughout the world. + Record labels approached Napster to work out a revenue-sharing model that would benefit both sides. * Napster ignored the need for a people proposition. * Napster was forced to shut down before it had developed a profit proposition to benefit from its huge user base. * Napster’s market-creating innovation failed to deliver commercial success. Non-alignment of Strategies Online music provider Apple (HBR, 2009) * Apple launched the iTunes Music Store in 2003. + Number one music seller in America within five years. + Value proposition: Allowed buyers to freely browse more than 200,000 songs, listen to 30-second samples, and download an individual song for 99 cents or an entire album for $9.99. + People proposition for the five major music companies. Apple gained the support of BMG, EMI Group, Sony, Universal Music Group, and Warner Bros. records by ensuring that music was downloaded with proper copyright protection and paying the music companies 65 cents for every song downloaded. + iTunes not only earned money for every song downloaded but also drove sales of Apple’s already popular iPod. + The alignment across iTunes’s value, profit, and people propositions enabled it to establish a firm footing in the industry.