Strategic Management examination

Lectures

1. Strategy – definition, key elements/components.

- long term plan for achieving goals taking into account internal changes and this in
environment
Key elements Griffin:
- scope (on which markets we operate)
- distinctive competence (other companies don’t have this competence)
- resource deployment (how we distribute resources)
Key elements Obój:
- functional programmes of action
- domain of action
- strategic advantage
- strategic goals

2. The levels of strategy: corporate strategies, business strategies, functional strategies, operating
strategies.

Operating strategy: lowest level strategy, formulated by plant managers or lower level
managers, detailed
Functional strategy: formulated within business unit, game plan for business unit
Business strategy: formulated for each business unit (example marketing, finance, HR, how
to achieve competitive positon)
Corporate strategy: formulated for company as a whole (example how much diversification,
kind of diversification, investment priorities, synergy)
Corporate level strategy is only for diversified companies.
Rest is in both: diversified and not diversified.

3. Research perspectives (approaches) in strategic management: planning approach, evolutionary

perspective, competitive positioning approach, resource based view.

Planning approach:
- the organization can shape its future by building strategic plans
- building a strategy is a rational process that consists in analyzing the environment,
strengths, and weaknesses of the company and building strategic plans
- introduces the concept of the environment using the SWOT analysis
- limitations: the current pace of change, resistance to change, hard-to-implement
innovations, not flexible, no room for a quick, creative reaction to market changes
Evolutionary perspective:
- Company should adapt to changes
- negates the rationality of the traditional approach
- Current decisions are not the result of a plan, but a reaction to ongoing events and
changes.
- developing social sciences - sociology and psychology, which were to complement the
analytical and statistical approach.
- It has become important to adapt to consumer expectations
- The result of this approach was a focus on short-term action, without a coherent view of
the company's vision and goals.

Competitive positioning approach:

1. Attractive industry 2. Cost leadership or differentiation
- the company's priority is to achieve economic success thanks to the position it occupies in
relation to the market environment - customers and competition.
- finding attractive industry, choosing differentiation or cost leadership
- The advantage is to be built thanks to the model of Porter's Five Forces.
- only the position of the leader matter
- necessary to reduce costs
- economized the strategy, pushing non-material factors to the margins
- Large, profit-oriented enterprises,
- not building values and relationships, unfortunately,
- did not have flexibility, vulnerable to change.

Resource based view:

- based on the knowledge and skills of employees, thanks to which the company can create a
competitive advantage by offering unique products and solutions.
- The company's potential is based on its core competencies.
- unique, but in flexible approach, for example, the possibility of transferring solutions or
technologies to new devices and markets, e.g. Honda perfectly managed its potential ability
to build engines, adapting technology also for boats and tools.
- Innovation is the key to success, so the success of the strategy means the creation of
innovative products surprising the market and consumers.
- maximizing customer satisfaction with the product, because it can identify it, not just use it.
- It turned out that values have the advantage over products that are more difficult to
imitate.
4. The strategic management process (Developing a strategic vision & mission; Setting objectives;
Crafting a strategy; Implementing the strategy; Evaluating performance & initiating corrective
adjustments).

Developing strategic mission and vision

- Clear, inspiring, exciting, simple, concise
- Long-term direction, big picture
- Communicate to employees to motivate them
- Who we are? What we do?
- Not too broad, not too narrow

Setting objectives SMART (SPECIFIC, MEASURABLE, ACHIEVEABLE, RELEVANT, TIME-BOUNDED)

- Convert mission into performance targets
- have sth to track progress
- performance goals
- challenging but achievable

Crafting a strategy
- how to achieve competitive advantage
- evolves over time (changing costs, competition, new technologies)
- how to make a vision/mission reality

Implementing strategy
- planned stategy +adaptive stategy = actual stategy
- support system
- building a company capable of carrying out strategy

Evaluating performance and correcting

- monitoring
- if sth can be done better – Levin model of managing change: unfreezing, change,
refreezing)
- maybe even changing stategy or way of executing it
5. Corporate competitiveness model (competitive potential, competitive advantage, instruments
of competition, competitive position).

Competitive instruments : 1.price 2. Quality 3. Service 4. Information

 Corporate competitiveness model – it is a measure of the ability and performance of a company
within a business sector

 Competitive potential – includes many of the available natural materials, labor, financial and
intangible resources and capabilities of facilities, physical and legal entities to give enterprises
the opportunity to gain a competitive advantage over other market participants.

 Competitive advantages – refers to factors that allow a company to produce goods or services
cheaper than its rivals. The four primary methods of gaining a competitive advantage are cost
leadership, differentiation, defensive strategies and strategic alliances.

Instruments of competition
 Price
 Quality
 Performance features offered
 Customer service
 Warranties and guarantees
 Advertising and special promotions
 Dealer networks
 Product innovation

Competitive position

1. Cost Leadership Strategy – selling products at a price lower than competitors (bigger
market share, economy of scale)
2. Best Cost Strategy – high quality and low price for a product “more value for the money”
3. Differentiation Strategy: concerned with product differentiation. Making a company’s
product different from the similar products of the competitors.
4. Market Niche or Focus Strategy: offering the niche - customers a product customized to
their requirements
5. Identify competitive approach
a. Low-cost leadership
 b. Differentiation
c. Focus

PEST analysis and environmental scenarios (cf. feuille module 3 – PEST)

macroenvironment
POLITICAL ENVIRONMENT
ECONOMIC ENVIRONMENT
SOCIO-CULTURAL ENVIRONMENT
TECHNOLOGICAL ENVIRONMENT
optimistic scenario, pessimistic scenario, the most likely scenario, surprising scenario
data – trend – impact factor – probability
- Identify key processes (high impact factor and probability)
- Turbulence of environment (span between pessimistic an optimistic scenario)
- Homogeneity of environment (span of the most likely scenario)
WHICH SEGMENTS POSE THREAT, WHICH HAVE OPPORTUNITIES?

6. The five forces model of the industry competition (Porter’s model – cf. feuille Plastwood study)

- POWER OF BUYERS (how much they buy?

- POWER OF SUPPLIERS (how important are parts that they offer? Plane engines or cabin
equipment(engine more important) Cost of switching suppliers? Are they a big part of our
cost? Can we make it cheaper ourselves? Many substitutes?)
- THREAT OF SUBSTITUTE PRODUCTS (is there a lot? switching costs? Are they cheaper?
What is their quality?)
- THREAT OF NEW ENTRANCE (is industry is attractive? Are barriers high? (Economy of scale,
customer switching cost, customer loyalty) How will competitors react?)
- COMPETITIVE RIVALRY WITHIN THE SECTOR (is there many competitors? Are they strong?
What is their strategy?)

Attractive industry:
Rivalry – low or moderate
Entry barriers – high
Competition from substitutes – low
Bargaining power of supliers and buyes - low

Not attractive industry:

Rivalry – strong
Entry barriers – low
 Competition from substitutes – strong
Bargaining power of supliers and buyes – strong

7. Mapping competition in strategic groups (cf. feuille strategic group map)

- It shows rival companies with similar approaches and position industry

(same price, quality, geographic area, similar product, similar technology)
- Axes – variables – show differences
- Size of circle – correlated to sales
- Sometimes one map is not enough
- The closer the groups on the map the higher rivalry
- Asses attractiveness of group, we can change it

The map informs us about how many strategic groups there are, which companies belong to which
groups, who is a direct competitor.

8. Analysing industry key success factors and industry attractiveness (cf. feuille industry
attractiveness + key success factors)

The key success factor - it is an element of competitive potential. It can be a resource, a skill, or
something that sets us apart from competitors in a given sector (e.g. economies of scale and great
marketing).
We can use it in the analysis of the environment, specifically to assess our market rivals and
compare ourselves with them and use it to assess our strength.

How to conduct this analysis?

1. Collect data, and determine key success factors important for our sector, e.g. ask experts, and
experienced employees of the company. 5-6 such factors at most, but the number and what factors
must be adjusted each time to the sector in which we operate.

2. Assign weights to the factors (which have the greatest impact on the company's success)

3. Evaluation of our company, expert rating and assessment of the adopted scale, striving to agree
experts' opinions and highlighting discrepancies resulting from expert assessments, e.g. standard
deviation.

4. Calculation of the weighted value - we multiply the assessment by the weight, and we get the
assessment of the key factors of our company.

Similar thing can be done to whole sector.

KSF – examines company
Industry attractiveness – examine the industry/sector

9. SWOT analysis (cf. feuille TWOS – SWOT analysis)

● Strengths - elements of the competitive potential, everything that is an asset, advantage,

advantage
● Weaknesses - everything that is a weakness, barrier, defect, requiring improvement, especially
those that may hinder us from taking advantage of market opportunities
● Opportunities - (in the environment) what creates an opportunity for a favorable change can be
used by the company to improve its advantage
● Threats - (in the environment) what poses a risk of unfavorable change

Once we build the matrix, we calculate the correlations between the individual variables. The idea
is to identify in which of the 4 fields formed at the intersection of individual variables we have the
greatest number of interactions. Where it is the highest, this field shows us the recommended
strategy.
We have 4 strategic options:

Maxi maxi (aggressive strategy) - the best option, in the environment we have an advantage of
opportunities and at the same time we are a strong company, we can benefit from entering new
markets, increasing production, competing aggressively.

Mini mini - the worst variant, we have a very unfavorable situation in the environment, many
threats, we are a weak enterprise, a weak position. you have to
consider withdrawing.

Mini maxi - weaknesses dominate the internal structure, but the external situation is very
favorable. We try to improve our weaknesses and, on the other hand, take advantage of emerging
opportunities.

Maxi mini (conservative) - we operate in a difficult environment, there are many threats, but we are
a strong company, good competitive position, good potential.

10. Strategic analysis of a diversified company – the process approach.

Evaluating Strategies of Diversified Companies in 8 steps

1. Identifying the present corporate strategy

2. Evaluating the industry attractiveness
3. Evaluating the competitive strengths of each of the business units
4. Strategic – fit analysis
5. Resource – fit analysis
6. Ranking business – units
7. Determining priority for resource allocation
8. Formulating a corporate strategy

11. The BCG matrix (cf. feuille BCG Matrix)

- Market growth rate (high – faster than

economy; low – slower than economy)
- Relative market share ( market share
divided by market share of biggest
competitor high above 1, low below it can
be 0,8, 0,75 etc,)
 Cash cows – they usually bring a net surplus and finance other products (low market growth,
high market share),
- They bring the company a surplus of income, so they can finance investments, other
products, or be a source of funding for developing stars.

Stars – require inputs, generally do not bring a surplus, significant revenues, competitive
and developmental product (high market growth, large share in market),
- Do not invest in them in conditions of high dynamics of the environment. The products are
developmental and competitive, and investing in a star gives a large guarantee of profits.
Stars can turn into cash over time cows.
We can distinguish here:

 Question marks –deficit products, opportunities difficult to define, (high market growth, low
market share). In the long run, if they are invested in, they can become stars.

 Dogs – do not bring a significant surplus, are non-development, weak competitive position,
(low market growth, low market share). Consider the possibility of withdrawing from a given
market sector, possibly a harvesting strategy (we take money from the market, but we do not
invest in this product anymore).

12. The industry attractiveness – business strength matrix.

- Industry attractiveness
- Competitive position
- In which to invest, which ones harvest or divest
13. The

company value chain and the industry value chain – key assumptions.

- Identifies activities that have to be done

- PRIMRY ACTIVITIES – value for customers
- RELATED SUPPORT ACTIVITIES

Cost determinants:

- STRUCTURAL COST DRIVERS (technology, economies of scale etc.)

- EXECUTIONAL COST DRIVERS (attitudes towards quality, improvement etc.)
Costs in one activity influence costs in others.
COMPANYS COMPETIVENESS DEPENDS ON HOW WELL IT’S MANAGES IT’S VALUE CHAIN AND
HOW WELL COMPETITORS DO
- Research data
- Better value chain of supplier = cheaper supplies

14. Achieving cost competitiveness through value chain optimisation.

- COMPANYS COMPETIVENESS DEPENDS ON HOW WELL IT’S MANAGES IT’S VALUE CHAIN
AND HOW WELL COMPETITORS DO
 - Comparing value chain with key rivals (benchmarking)
- Cost difference depends on suppliers value chain, company value chain and forward
channels
- Get to know where costs are generated if in suppliers (pick cheaper substitute, integrate
backwards, negotiate) forward (negotiate with distributors, change distribution strategy,
internal (eliminate cost producing activities, reengineer, outsource, cost saving
technologies, simplify product)

15. The typology of generic competitive strategies.

OVERALL LOW COST LEADERSHIP STRATEGY

FOCUSED LOW COST LEADERSHIP STRATEGY
BRAOD DIFFERENCIATION STRATEGY
FOCUSED DIFFERENCIATION STRATEGY
BEST-COST PRODUCER STRATEGY

16. Overall cost leadership strategy – key assumptions, functional programmes of actions,
competitive strengths protecting against the industry competitive forces, drawbacks.

OVERALL LOW COST LEADERSHIP STRATEG

- Cost advantage over competitors (efficiency, bypassing cost-producing activities, or both)
- Economy of scale, learning curve effect, outsourcing, simpler technological process, simpler
packaging, limited variety of product, budgeting, not tolerating waste, cost saving
improvements)

Why?
- Only few ways to differentiate
- All customers have similar needs
- Product is basic
- Low switching costs
- Buyers are large

Disadvantages:
- Too fixated on low cost
- No investments
- No changing product
- Cost effective improvements are easy to imitate by competitor

RIVALS – we have lower price

POTENTIAL ENTRANTS – pricing power is significant entry barrier
SUBSTITUTES – use low price as defence against substitutes
BUYERS – protected against negotiating powers
SUPPLIERS – more isolated than competitors than rivals
17. Differentiation strategy – approaches to differentiation, competitive strengths protecting
against the industry competitive forces, drawbacks.

BRAOD DIFFERENCIATION STRATEGY

- Differentiate from competitors – make buyers prefer company product to rivals, make
product stand out (product attributes that lower the cost of using for user, raise
performance, increase satisfaction)
- value for customers that is NOT COPIED EASILY by competitors
- Brand loyalty
- Sell by premium price
- Prestige, quality, different taste, superior service, technological leadership
- Invest in R&D, marketing
- Signals of value

Why?
- Many ways to differentiate
- Buyers needs are diverse

Disadvantages:
- Over-differentiation
- Too high price
- Do not identifying real needs of customers

RIVALS – buyers are loyal to brand

POTENTIAL ENTRANTS – loyalty of buyers acts as barrier
SUBSTITUTES – buyer is too attached to product to buy substitutes
BUYERS – our product is so attractive so it blunts bargaining power of buyers
SUPPLIERS – sellers are in good position to negotiate

18. Best-cost producer strategy – key assumptions.

BEST-COST PRODUCER STRATEGY

 - Combine focus on low-cost with focus on differentiation
- Upscale product with low price
- This way we can compete with followers of low-cost leadership strategy and differentiation
strategy followers
19. Focus/niche strategies – segment’s attractiveness for focusing, competitive strengths protecting
against the industry competitive forces, drawbacks.

FOCUSED LOW COST LEADERSHIP STRATEGY

FOCUSED DIFFERENTIATION STRATEGY
- Find a niche (segment of customers with not satisfied needs)
- Lower cost than rivals at serving niche segment
- Something different than rivals serving niche segment

Why?
- Segment has to be big enough
- Good growth potential
- Big rivals are not interested in this segment
- We do not have resources to serve bigger segment

Disadvantages:

- Bigger firms will start to be interested in this segment

- Niche buyers preferences may change

 RIVALS – rivals cannot meet needs of niche customers

 POTENTIAL ENTRANTS – serving well segment can act as barrier
 SUBSTITUTES – our product is an obstacle for competitors
 BUYERS – unique ability to meet needs niche customers can BLUNT THE BARGAINING POWER
OF BIGGEST BUYERS

20. Offensive vs. defensive strategies.

Offensive strategy is focused on achieving competitive advantage. Offensive strategy is a type of

corporate strategy that consists of actively trying to pursue changes withing the industry.
Companies that are managed as offensive competitive generally invest heavily in technology and
R&D in an effort to stay ahead of the competition.

Objectives of offensive strategies:

 To maximize the sales
  To destabilize the current market leader
 To acquire market share

Defensive strategies are management tools that can be used to fend off an attack from a potential
competitor. Think of it as a battleground: You have to protect your share of the market to keep
your customers happy and your profits stable. Defending your business strategy is about knowing
the market you’re best equipped to operate in and about knowing when to widen your appeal to
enter into new markets. The established company simply uses its defensive marketing to reinforce
customer confidence in its products and swat the newcomer away.

Objectives of defensive strategies:

 To maintain the existing market share and maximize profitability

 To safeguard the existing levels of competitive advantage
 To keep up top position in local and existing markets

Companies pursuing offensive strategies target competitors from which they want to capture
market share. In contrast to offensive strategies – are aimed to attack your market competition –
defensive strategies are about holding onto what you have and about using your competitive
advantage to keep competitors away.

Defensive strategies are used to discourage or turn back an offensive strategy on the part of the
competitor. It is considerably less risky and needs less resources than offensive strategy. But it
doesn’t allow development. A firm that uses just defensive strategy may be able to maintain its
current position and competitive advantage, but can’t grow beyond this situation

21. Integration strategies (vertical, horizontal, conglomerate).

Integration strategies

- are processes that business can use to enhance their competitiveness, efficiency or market
share by expanding their influence into new areas. These areas can include supply,
distribution or competition. Each area requires a different integration strategy, and there
are several types that businesses can use.

Vertical strategy

- Vertical integration occurs when a company gains control over the production or
distribution processes of its product. This allows the company to expand its power in the
market by lowering its costs and increasing the reach of its product.

Raw Materials -> Manufacturing -> Distribution -> Retail

Forward ->

Backward <-
  Backward integration: Acquiring a business operating earlier in the supply chain – e.g.,
manufacturer buying a supplier of raw materials (ikea buys forests)
 Forward integration: Acquiring a business further up the supply chain – e.g., manufacturer
buys a distributor

Horizontal strategy

Horizontal integration involves gaining control over other businesses that provide similar products
or services. Acquiring a business at the same stage of supply chain – e.g., a retailer buys a
competitor. For example, Marriott buys Sheraton

Conglomerate strategy

Where the acquisition has no clear connection to the business buying it (diversification) – different
industries. Reducing exposure to risk.

A conglomerate is a corporation of several different, sometimes unrelated businesses. In a

conglomerate one company owns a controlling stake in several smaller companies, conducting
business separately and independently.

Conglomerates often diversify business risk by participating in many different markets, although
some conglomerates, such as those in mining, elect to participate in a single sector industry.

22. Strategies for competing in various types of generic industries (emerging, maturing, declining,
fragmented industries, international markets).

EMERGING INDUSTRY
- “no rules of the game”
- Try to win early race for industry with bold, creative strategy
- Push hard
- Improve technology, quality
- Shape the rules of competition
- First-mover advantage
- Be pioneer, respond quick

MATURING INDUSTRY
- Push hard for cost reduction
- Prune product line
- Try to increase sales
- Purchase rival companies
 - Expand internationally

DECLINING INDUSTRY
- Pursue differentiation strategy
- Cut costs
- EXPLOIT GROWTH SEGMENTS WITHIN INDUSTRY

FRAGMENETED INDUSTRY
- Be a low cost producer
- Specialize by product type
- Specialize by customer type
- Focus on limited geographic area

MULTICOUNTRY STRATEGY:
- Match strategy to a host country
- Market conditions different among countries
- Different government policies to tackle

GLOBAL STRATEGY:
- Coordinate company’s moves worldwide
- Compete against both international and domestic rivals
- Gain competitive advantage

23. Strategic options for companies in various competitive positions (industry leaders, runner-up
companies and weak businesses)

Industry leaders

An industry leader is an organization within an industry that is considered the most effective and
impactful in that industry. Companies typically become industry leaders when they are the most
recognizable among their competitors and have high sales numbers. Individuals typically become
industry leaders when they lead an organization to market recognition and high sales as well as
become known as an expert in business or that industry.

These are some of characteristics of industry-leading companies:

 Effective strategic planning and management

 High sales
 Loyal customers, client base or audience
 Talented and satisfied employees
 Innovation
  Strong operational execution

Strategy options for industry leaders:

 Stay on the offensive strategy:

- Best defence is a good offense

- Be a first mover
- Relentlessly pursue continuous improvement and innovation
- Force rivals to scramble to keep up
- Launch initiatives to keep rivals off balance
- Grow faster than industry, taking market share from rivals

 Fortify and defend strategy:

a) Objectives
- Make it harder for new firms to enter and for challengers to gain ground
- Hold onto present market share
- Strengthen current market position
- Protect competitive advantage

b) Strategic options

- Increase advertising and R&D

- Provide higher levels of customer service
- Introduce more brands to match attributes of rivals
- Add personalized services to boost buyer loyalty
- Keep process reasonable and quality attractive
- Build new capacity ahead of market demand
- Invest enough to remain cost competitive
- Patent feasible alternative technologies
- Sign exclusive contracts with best suppliers and distributors

 Follow the leader strategy:

a) Objectives

- Use competitive muscle to encourage runner – up firms to be content followers

- Signal smaller rivals that move to cut into leader’s business will be hard fought

b) Strategic options
- Be quick to meet competitive price cuts
- Counter with large – scale promotional campaigns if challengers boost advertising
- Offer better deals to major customers of maverick firms
- Dissuade distributors from carrying rivals’ products
- Attempt to attack key executives of rivals
- Use “hard ball” measures to signal aggressive small firms who should lead
Runner-up companies

A runner up company is a company that stands at second position in the industry in terms of
market share, sales with respect to the leading firm in the industry. Runner up companies acquire
weaker market position than the industry leaders. Some of them are upcoming market challengers
who use offensive strategies in order to gain market share and build a good market position
whereas some firms that try to improve their cost by concentrating only on serving a small portion
of the market.

Market challengers:
 Employ offensive strategies to gain market share

Content followers:
 Willing to coast in current position because profits are adequate

Strategic options for runner – up firms:

1. Where large size yields significantly lower unit costs giving large – share firms a coast
advantage, two options exist:

a) Build market share

 Become a lower – cost producer
 Pursue a differentiation strategy

b) Withdraw from business

Runner – up should avoid attacking a leader head – on with an imitative strategy, regardless of
resources and staying power an underdog may have!

2. Where large size does not yield a cost advantage, runner – up firms have six strategy
options:

a) Vacant niche strategy

b) Specialist strategy
c) “Ours is better than theirs” strategy
d) Content follower strategy
e) Growth via acquisition strategy
f) Distinctive image strategy

Weak businesses
Strategic options:

 Launch a strategic offensive

  Play aggressive defence
 Adopt a harvest strategy
Harvest strategy
- steers middle course between status quo and exiting quickly
- involves gradually sacrificing market position in return for bigger near-term cash
flow/profit
- objectives
- short term – generate largest feasible cash flow
- long term – exit market

24. The typology of corporate level strategies.

SINGLE PRODUCT STRATEGY
DIVERSIFICATION STRATEGY: RELATED, UNRELATED

25. The Ansoff growth matrix.

MARKET PENETRATION (same product, same market)

- When market is not fully saturated with our product
- When correlation between marketing and sale is high
- When market share of competitor is declining

MARKET DEVELOPMENT (same product, new market)

- When new distribution channels are available
- When new, unsaturated market exists
- When we have excess production

PRODUCT DEVELOPMENT (new product, same market)

- When we have succesfull mature products
 - High growth industry
- Stong R&D

DIVERSIFICATION (new product, new market)

- Related; unrelated

26. Single product strategy – characteristics, strengths and risks.

- Just one product or service; one geographical market

Advantages:
- Effort on one product makes success more likely, product is better
- We know who we are
- We might form long term competitive advantage
- Innovative ideas
Disadvantages:
- High risk; what if only product is not accepted by market?
- Substitute can arise
- Market might change

27. Related diversification strategy – characteristics, the bases of relatedness, strengths and risks.

- Several LINES OF BUSINESS that are not the same but similar, have STATEGIC FIT
- Strategic fit can be turned into advantage
- Transferring know-how
- Sharing factories
- Similar suppliers, marketing, customers
- Sharing brand recognition
- Due to above we can have cheaper product
- 2+2=5

MARKET RELATED FITS (same customers, same dealers, suppliers, marketing, same brand name)
OPERATING FIT (cost sharing, skill transfer, similar R&D, technology)
MANAGEMENT FIT (managerial know-how)

Strategic fit can be based on:

- Shared technology
- similar distribution channels
- similar know-how
- customer overlap
- similar suppliers
CONCEPT: ECONOMIES OF SCOPE
- operating businesses under the same umbrella
- centralized management
- interrelationships

CONCEPT: STRATEGIC FIT

- 2+2=5

28. Unrelated diversification strategy – characteristics, strengths and drawbacks.

- Company operates multiple businesses that are not logically related

- No linkages or strategic fit between LINES OF BUSINESS
- Go into any business that we think that can be profitable
- CONGLOMERATES

Advantages:
- Stable performance over time
- Ability to allocate resources to maximize companys performance
- Risks shared through different businesses
- Stability of profit

Disadvantages:
- Management problems
- No synergy

29. Types of organisational designs (functional structure, geographical structure, divisional

structure, conglomerate structure, matrix structure).

An organizational structure is a system that outlines how certain activities are directed in order to
achieve the goals of an organization. These activities can include rules, roles, and responsibilities.

The organizational structure also determines how information flows between levels withing the
company. For example, in a centralized structure, decision flow from the top down, while in a
decentralized structure, decision – making power is distributed among various levels of the
organization.

Having an organization structure in place allows companies to remain efficient and focused.

Functional structure – traditional

A functional organization structure starts with positions with the highest
levels of responsibility at the top and goes
down from there. Primarily, though,
employees are organized according to their
specific skills and their corresponding function
in the company. Each separate department is
managed independently.

Pros:
 Allows employees to focus on their role
 Encourages specialization
 Help teams and departments feel self-determined
 Is easily scalable in any sized company

Cons:
 Makes interdepartmental communication difficult
 Hides processes and strategies for different markets or products within the company.

Geographical structure
Divisions are separated by region, territories, or districts, offering
more effective localization and logistics.
Companies might establish satellite offices across
the country or the globe in order to stay close to
their customers.

Props:
 Helps large companies stay flexible
 Allows for a quicker response to industry changes or customer needs
 Promotes independence, autonomy, and a customized approach

Cons:
 Can easily lead to duplicate resources
 May mean cloudy or insufficient communication between headquarters and its branches
 Can result in a company competing with
itself
Divisional structure

In divisional organizational structures, a company’s divisions have control over their own
resources, essentially operating like their own company withing the larger organization. Each
division can heave its own marketing team, sales team, IT team, etc. This structure works well
for large companies as it empowers the various divisions to make decisions without everyone
having to report having to report to just a few executives. Depending in your organization’s
focus, there are few variations to consider. (Market- based divisional structure, product-based
divisional structure, geographical divisional structure)

Conglomerate structure

A conglomerate is a company that

owns a group of subsidiaries
conducting business separately,
often in distinct industries. It reflects
diversification of operations, product
line and market to allow business
expansion.

Matrix structure

A matrix organizational chart looks like a

grid, and it shows cross – functional teams
that form for special projects. For example,
an engineer may regularly belong to the
engineering department (led by engineering
director) but work on a temporary project
(led by a project manager). The matrix
organizational chart accounts both for both
of these roles and reporting relationships

Props:
 Allows supervisors to easily choose individuals by the needs of a project
 Gives a more dynamic view of the organization
 Encourages employees to use their skills in various capacities aside from their original roles

Cons:
  Presents a conflict between department managers and project managers
 Can change more frequently than other organizational chart types

FUNCTIONAL STRUCTURE: (traditional)

Reading sessions

1. The Balanced Scorecard – key assumptions, perspectives, the examples of measures.

Key Assumptions
A set of measures that give top managers a fast but comprehensive view of the business.

Perspectives
 Customer perspective – How do customers see us?
- 4 categories of customer’s concern
- time, quality, performance and service, cost

 Internal Business Perspective – What must we excel at?

- Excellent customer performance derives form process, decision and action
- Cycle time, quality, productivity, cost
- Information systems
  Innovation and learning perspective – Can we continue to improve and create value?
- Targets for success are not constants, they keep changing
- Innovate, improve and learn
- ‘Ten- for’ improvement program

 Financial Perspective – How do we look to shareholder?

- Financial goals: survive, succeed and simple to survive/ succeed and to prosper.
- Financial measures nit needed (critics)
- Improve some, eliminate others.

2. Using the Balanced Scorecard as a strategic management system – translating the vision,
communicating and linking, business planning, feedback and learning.

1. Translating the vision is a mean of expressing the mission/vision statements with an

integrated set of objectives and measures. This forces the top management to develop
operational measures, which requires them to discuss, and eventually agree on, a means of
achieving the goals of the company.

2. Communicating and linking is a process that facilitates the communication of strategies

throughout the entire organization. Departmental and individual objectives must be aligned
with the strategy through evaluation procedures and incentives. To have goal congruence
between the individual employees and the company, scorecard users engage in three
activities: communicating and educating, setting goals, and linking rewards to performance
measures which are in turn linked to overall strategy.

 Communicating and educating is achieved by maintaining policies that ensure all employees
are aware of the strategies of the organization.
 Setting goals alone is not sufficient to change employee’s mind-set.
 Linking rewards to performance is an important incentive to help an organization achieve its
purpose. What the balanced scorecard adds to the traditional means of linking rewards to
financial performance is that it takes a more holistic look at the organization. It ensures that
the correct criteria are used as a measure of performance before rewards are given. The
idea is that, if you are not using the correct indicators to evaluate performance, there is a
high risk in rewarding this behaviour.
 3. Business planning is the third process used by managers with the balanced scorecard. By
using the scorecard, business will integrate their strategic planning and budgeting
processes. This makes sure that the budgets support the strategies of the company.
4. Feedback and learning - By adding the feedback and learning process, the scorecard
becomes balanced by providing real time information to enhance strategic learning.

3. Business model – the components of business model, the process of business model
development, the determinants of the business model change.

Business model

Business model is about creating, delivering and capturing value. Business model is a plan for how a
company is going to make money

The components of a business model include details on all operations, as well as short and long –
term visions for the businesses’ growth. Without a business model, investors and owners will not
have a clear idea how to best grow the business, and it will be much harder to create a stable and
sustainable concern.

The components of a business model

 Value proposition (offer) PRODUCT

 Market segments/ Target customer (we need to understand who our customer is) MARKET
 Infrastructure (resources – we need to be able to create value for costumer) THE DELIVERY
 Financial viability (revenue and costs. Profitability) THE EXPENSE

The process of business model development

To develop an effective business model for your company, draw a picture that establishes a
structure so your employees can produce products or services for customers in a profitable way. A
business model typically includes a description of your customers, how customers use your
products, how you distribute your product and details about how you promote your business. The
model also describes key operational tasks, staffing and other resource requirements as well as
details about how business is conducted. A business model describes your business using visual
images, typically on a single page, while a business plan describes your business in a lengthier
document.

The determinants of the business model change

I would say changes in the external environment, improvement of technology or for example
changes in customers behaviour.

4. Business model – definition and elements, choices and consequences making a business model,
the features of a good business model, how can companies compete through business models?

Business model describes entire procedure of creation delivery and capturing of organizational
values in both economic and social aspects. It represents core aspects of the business which
includes strategic organizational structure purpose operational process policies infrastructure and
business practices.

Business model is made of process, policies, infrastructure and business practices.

Business model is made of choices and consequences (truly related)

Choices - policies/assets and governed

consequences - flexible/ rigid

The features of a good business model are: customer value proposition, a profit formula, key
resources, key processes

The companies compete through business model as it identifies the product or service the business
plans to sell, it shows the target market and any anticipated expenses. It is important for both new
and established business. They help new developing companies attract investments, recruit and
motivate management and staff.
5. Blue and Red Ocean strategies – differences between Red Oceans and Blue Oceans,
characteristics of Blue Ocean strategies and their development, traps of Red Ocean strategies.

Red Ocean Strategy – competing in the industries that are already in existence
Blue Ocean Strategy – creating the demand that doesn’t exist yet, rather than competing with
other companies in existing market space

Differences between Red Oceans and Blue Oceans

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space Create unknown market space
Confronting and trying to beat Make the competition irrelevant
competitors
Exploiting existing demand Create and capture new demand
Make the value/ cost trade off Break the value/ cost trade off
Reduce prospects for growth and profits Product of strategy and managerial
actions

Characteristics of Blue Ocean strategies and their development

 Never use competition as benchmark
 Pursue differentiation and low cost simultaneously
 Hard to be imitated
 A consistent pattern

Traps of Red Ocean strategies

1. Market creating strategy ≠ customer orientation

Focus only on the existing customer – meanwhile missed the opportunities of unlocking new
markets and acquire new customers
2. Market creating strategy ≠ niches strategy
Thought on creating specific focus in an existing space is the same as opening new markets
 3. Technology innovation ≠ new markets
Assuming the innovation of technology is inevitably a discovery of new markets
4. Creative destruction ≠ market creation
The thought on creative destruction – while it can be done by offering new solutions without
displacing an existing products/business
5. Market creating strategy ≠ differentiation
Misrepresenting differentiation through trade – offs, when it’s a case of “both - and” rather
than “either – or”, meaning that we must pursue differentiation and low cost at the same
time
6. Market creating strategy ≠ low-cost strategy
Focus on elimination – without further thinking of improving the offering’s value

6. The rules of successful strategy execution.

Strategy execution is the implementation of a strategic plan in an effort to reach organizational
goals. It comprises the daily structures, systems, and operational goals that set your team up for
success. Even the best strategic plan can fall flat without the right execution. In fact, 90 percent of
the businesses fail to reach their strategic goals, which researchers believe is due to a gap between
strategic planning and execution.

1. Commit to a strategic plan - before diving into execution, it’s important to ensure all
decision – makers and stakeholders agree on the strategic plan
2. Align jobs to strategy – one barrier many companies face in strategy execution is that
employees’ roles aren’t designed with strategy in mind. This can occur when employees are
hired before a strategy is formulated or when roles are established to align with a former
company strategy.
3. Communicate clearly to empower employees – when it comes to strategy execution, the
power of clear communication can’t be overlooked.
4. Measure and monitor performance – strategy execution relies on continually assessing
progress toward goals. For this to be possible, key performance indicators (KPIs) should be
determined during the strategic planning stage, and success should be defined numerically
5. Balance innovation and control – while innovation is an essential driving force for company
growth, don’t let it derail the execution of your strategy.

7. 3A model of global strategy (adaptation, aggregation, arbitrage).

 Adaptation (local responsiveness) seeks to

boost revenues and market share by
maximizing a firm’s local relevance –
 companies with this strategy often develop products customized to the specific country
(differentiation)

 Aggregation (economies of scale – “standardization”) creating or utilizing existing economies

of scale across multiple locations (new markets) it involves standardizing the product or
service offering and grouping together the development and production processes. (Cost
leadership)

 Arbitrage (absolute economies) is the exploitation of differences between national or

regional markets, often by locating separate parts of the supply chain in different places –
call centres in India, factories in China, and retail shops in Western Europe. – this benefits
the whole organization – lower costs

Strategic Management open-book practical examination

1. PEST and environmental scenario analysis

2. Industry Attractiveness Assessment
3. Strategic Groups Map
4. Key Success Factors Analysis
5. BCG Matrix
6. SWOT Analysis