Dusincss Siraicgy

MoId. Wasscm
moIdwasscm«gmail.com
-cciivc
< To learn wbat strateglc management ls?
< To unoerstano wby strateglc management take place
< To unoerstano bow lt take place ln mooern buslness
< To learn strateglc oeclslon maklng process
7o deve|op on |n-depth know|edge o5out the pr|nc|p|es, processes, opp||cot|on, stroteg|es
ond d,nom|cs o[ stroteg|c monogement |n on orgon|zot|on w|th regords to the
cho||enges |n the |ndustr, so os to |mport on oppropr|ote dec|s|on mok|ng sk|||s
Siraicgy
Tlme
Cbange
Siraicgy
Tlme
Wbere we are? Wbere we want to be?
Clo-al Economy
< global economy ls one wblcb gooos, servlces, people, skllls
ano loeas move treely across geograpblc boroers.
< Lurope ls now worlo's largest market.
< GDP 35° more tban US.
< Cblna e×tremely competltlve market. Source ot low cost
gooos
< GL beaoquartereo ln US, wlll bave 60° revenue trom
oeveloplng countrles 2015.
TIc marcI of Clo-alizaiion
< Globallzatlon ls tbe lncreaslng economlc lnteroepenoence
among countrles ano tbelr organlzatlon as retlecteo ln tbe tlow
ot gooos ano servlces, tlnanclal capltal knowleoge across
country boroer.
< Wal-Mart- 8ounoary-less retalllng, global prlclng, sourclng ano
loglstlcs
< Globallzatlon- Deslgn, proouctlon, olstrlbutlon ano servlclng ot
gooos ano servlces.
Siraicgy
< strategy ls an 3907,90/ ano coorolnateo set commltments ano
actlons oeslgneo to e×plolt .470.4250903.08ano galn a
.425099;0,/;,39,0.
< ntegrateo
< Two or more component mergeo togetber lnto a slngle system
< Core Competencles
< Specltlc tactor tbat a buslness sees as belng central to tbe way lt works.
< Competltlve aovantage
< strategy competltors are unable to oupllcate or tlno to costly to try to
lmltate
Siraicgy
< unltleo, comprebenslve, ano lntegrateo plan oeslgneo
to ensure tbat tbe baslc objectlves ot tbe enterprlse are
acbleveo.¨ (Glueck, 1980)
< Tbe pattern or plan tbat lntegrates an organlzatlon's
major goals, pollcles, ano actlon sequences lnto a cobeslve
wbole.¨ (Oulnn, 1980)
< pattern ot resource allocatlon tbat enables tlrms to
malntaln or lmprove tbelr pertormance.
Folc of iccInology
< ncreaslng rate ot cbange ano olttuslon
< Perpetual nnovatlon
< Contlnuous ano carry blgb prlorlty
< Sborter llte cycle
< Raplo olttuslon ot lnnovatlon
< Repllcateo wltbln sbort perloo
< Speeo to market may become a source ot competltlve aovantage
< Tbe lntormatlon age
< Companles are wlreo
< Customers
< Lmployees
< venoors
Folc of TccInology
< ncreaslng Knowleoge ntenslty
< Convertlng accumulateo knowleoge ot employees lnto corporate
asset
< Sbareboloer value ls lncreaslngly lntluenceo by tbe tlrm's lntanglble
assets sucb as knowleoge
< From assesslng lntormatlon to e×ploltlng lntormatlon
< Capturlng lntelllgence
< Transtormlng lntelllgence lnto usable knowleoge
< Lmbeoolng lt as organlzatlonal learnlng
< Dlttuslng lt raploly tbrougbout tbe organlzatlon
Compaq failing againsi iccInology
< 1996 takeover ot tanoem computers
< 1998 took over olgltal
< 1999 CLO, Pteltter Sackeo, Wby?
< 8y 1995 Compaq become leaolng seller ot PC
< Purcbase ot DLC also maoe lt leaolng computer servlce tlrm
competlng wltb 8M.
< Compaq lost tocus ot selllng PC, went beblno Dell ln nternet selllng.
< nnounceo a blgger move ln web sales
< Reseller become an×lous
< nnounceo number ot reseller to oe oownslzeo to 4 trom 20.
< 1998, ln cbarge ot servlce buslness reslgneo.
< Creatlng turtber uncertalnty about tbelr tuture
< 2002 taken over by HP
Compciiiivc Advaniagc
< valuable
< llow tbe tlrm to e×plolt opportunltles or neutrallze tbreats ln lts
e×ternal envlronment.
< Rare
< Possesseo by tew, lt any, current ano potentlal competltors
< Costly to lmltate
< Wben otber tlrms cannot obtaln tbem or must obtaln tbem at mucb
blgber cost
< Organlzeo to be e×plolteo
< Tbe tlrm ls organlzeo approprlately to obtaln tbe tull benetlts ot tbe
resources ln oroer to reallze a competltlve aovantage.
Organlzeo
Siraicgic Managcmcni Proccss
< Full Set ot commltment , oeclslons, ano actlons requlreo tor a tlrm to create value
ano earn above average returns
< value creatlon
< Wbat ls acbleveo wben a tlrm successtully tormulates ano lmplements a strategy tbat
otbers companles are unable to oupllcate or tlno too costly to lmltate
< verage return
< Returns tbat are equal to tbose an lnvestor e×pects to earn trom otber lnvestments wltb
slmllar amount ot rlsk.
< Opportunlty cost
< bove average return
< Return tbat are ln e×cess ot wbat an lnvestor e×pects to earn trom otber lnvestment wltb
a slmllar amount ot rlsk
Siraicgic Environmcni
< Competltlve lanoscape
< Hyper competltlve envlronment
< Dynamlcs ot strateglc maneuverlng among global ano lnnovatlve combatants
< Prlce-Ouallty posltlonlng, new know-bow, tlrst mover.
< Protect or lnvaoe establlsbeo prooucts or geograpblc markets
< Lmergence ot global economy
< Gooos, servlces, people, skllls ano loeas move treely across geograpblc boroers.
< Spreao ot economlc lnnovatlons arouno tbe worlo
< Polltlcal ano cultural aojustment are requlreo
< Raplo Lconomlcal Cbange
< ncreaslng rate ot tecbnologlcal cbange ano olttuslon
< Tbe lntormatlon age
< ncreaslng knowleoge lntenslty
E×icrnal Environmcni
< Tbe general envlronment
Tbe general envlronment ls composeo ot olmenslons ln tbe broaoer soclety tbat lntluences
lnoustry ano tlrms wltbln lt.
< Global
< Polltlcal/Legal
< Soclo-Cultural envlronment
< Lconomlc
< Tecbnologlcal
< Global
< Tbe noustry Lnvlronment
< Tbe set ot tactors tbat olrectly lntluences a tlrm ano lts competltlve responses.
< Tbreat ot new entrant
< Power ot buyers
< Power ot suppllers
< ntenslty ot rlvalry
< Proouct substltute
< Competltors envlronment
< Flrm's unoerstanolng ot lts current competltors
Assumpiion of I1 Modcl
< Tbe L×ternal envlronment possess pressures ano constralnts tbat
oetermlnes tbe strategles tbat woulo result ln above-average return
< Most competlng tlrms control slmllar strateglcally relevant resources
ano pursue slmllar strategles ln llgbt ot tbose resources
< Resources useo to lmplement strategles are blgbly moblle
< Declslon maker are ratlonal, acts ln tbe best lnterest ot tbe tlrm,
Protlt ma×lmlzlng bebavlor
Indusirial rganizaiion Modcl
< Tbe e×ternal envlronment
< Lconomles ot scale
< 8arrlers ot scale
< Dlversltlcatlon
< Proouct oltterentlatlon
< Concentratlon ot tlrms ln tbe lnoustry
< n attractlve lnoustry
< Hlgb potentlal tor above average returns
< Strategy Formulatlon
< oentlty tbe strategy to earn above average return
< sset ano skllls
< Develop or acqulre tbe asset ano skllls requlre to lmplement tbe strategy
< Strategy mplementatlon
< Use tlrm's strengtb to lmplement strategy
< 225
Superlor returns: bove average
returns
Indusirial rganizaiion Modcl
< bove average return wlll accrue to tlrm
< Tbat successtully lmplement strateglc actlons
< Lnabllng tbe tlrm to leverage lts strengtb (skllls ano resources)
< To meet oemano or pressure ano constralnt ot tbe lnoustry
< Researcb tlnolng
< 20° ot tbe tlrm protltablllty can be e×plalneo by lnoustry
cbaracterlstlcs
< 36° ot tbe tlrm protltablllty can be attrlbuteo to tlrm cbaracterlstlcs
ano tbe actlon taken by lt
Siraicgic inicni and siraicgic Mission
< Strateglc ntent
< nternally tocuseo
< Concerneo wltb leveraglng tlrm's lnternal resources, capabllltles ano core competencles.
< To accompllsb wbat at tlrst may appear attalnable goals ln competltlve envlronment.
< Uslng core competencles ln a unlque way to acbleve sustalnable competltlve aovantage
< Resultlng ln above average return
< Strateglc Mlsslon
< L×ternally tocuseo appllcatlon ot lt strateglc lntent.
< States tlrm's purpose an scope ot operatlon
< n proouct ano market term
7he stroteg|c m|ss|on prov|des genero|
descr|pt|ons o[ products to 5e
prov|ded ond morkets to 5e served
us|ng |ts un|oue sets o[ resources ond
copo5|||t|es ÷ |ts core competenc|es
Lnterprlse
Strateglst
Mlsslon ano
Objectlves
Tbe General
Lnvlronment
Tbe noustry & ntern.
Lnvlronment
nternal tactors
Generlc strategy
alternatlves
Strategy varlatlons
Strategy Cbolce
Resource ano Structure
Pollcy, Plans ano aomln.
Lvaluatlon ano Control
To deternine nission, goaIs
and vaIues of the firn and
key decision nakers
To search the
environnent and
diagnose the inpact of
threats and
opportunities
To exanine and
diagnose the firn's
strengths and
weaknesses
To consider various
aIternatives and assure
that the appropriate
strategy is chosen
To natch pIans,
poIicies, resources,
structure, and
adninistrative styIe
with strategy
To ensure strategy and
inpIenentation wiII
neet objectives
lnpIenentation
Choice
AnaIysis &
Diagnosis
Feed forward feedback
The strategic
Managenent Process
E×icrnal Environmcni Analysis
< Component ot e×ternal analysls
< Scannlng
< Flrms use tbe scannlng process to eltber oetect early warnlng slgnals
regarolng potentlal cbanges or to oetect cbanges tbat are alreaoy
unoerway.
< Monltorlng
< process wbereby analysts observe envlronmental cbanges (over tlme)
to see lt, ln tact, an lmportant treno beglns to emerge.
< Forecastlng
< tbe process wbere analysts oevelop teaslble projectlons ot wbat mlgbt
bappen ÷ ano bow qulckly ÷ as a result ot tbe cbanges ano trenos
oetecteo tbrougb scannlng ano monltorlng.
< ssesslng
< Tbe tlmlng ano slgnltlcance ot tbe ettects ot cbanges ano trenos ln tbe
general envlronment on tbe strateglc management ot a tlrm.
Indusirial rganizaiion Modcl
< noustrlal Organlzatlon(/O) Mooel ot above average return
Global
Tecbnologlcal
noustry
envlronment
Competltor
envlronment
L×ternal
envlronment
Strategy olctateo by tbe e×ternal
envlronment
(Opportunltles)
Development ot lnternal skllls to
e×plolt tbese opportunltles
Scgmcnis of gcncral cnvironmcni
< Populatlon slze
< ge structure
< Geograpblc olstrlbutlon
< Ltbnlc make up
< ncome olstrlbutlon
Global
Tecbnologlcal
noustry
envlronment
Competltor
envlronment
Scgmcnis of gcncral cnvironmcni
< Lconomlc Segment
< ntlatlon rates ano lnterest
rates
< Traoe oetlclts ano surpluses
< 8uoget oetlclts ano surpluses
< Personal savlngs rates
< 8uslness savlngs rates
< Gross oomestlc proouct
Global
Tecbnologlcal
noustry
envlronment
Competltor
envlronment
Scgmcnis of gcncral cnvironmcni
< Tecbnologlcal Segment
< Tbe scope ano speeo ot
proouct lnnovatlon
< Tbe scope ano appllcablllty ot
process lnnovatlon
< ppllcatlon ot knowleoge
< ovances ln communlcatlons
ano lntormatlon-management
tecbnology
Global
Tecbnologlcal
noustry
envlronment
Competltor
envlronment
Scgmcnis of gcncral cnvironmcni
< Polltlcal/Legal Segment
< ntl-trust regulatlons ano
entorcement
< Ta× laws
< noustry oeregulatlon
< labour tralnlng laws
< Commltments to eoucatlon
< Free traoe versus protectlonlsm
Global
Tecbnologlcal
noustry
envlronment
Competltor
envlronment
Scgmcnis of gcncral cnvironmcni
< Soclo-cultural Segment
< Worktorce composltlon
< Cbanges ln attltuoes about tbe quallty
ot work llte
< Lnvlronmental concerns
< Sbltts ln work ano career preterences,
lncluolng an lncrease ln new buslness
tormatlon by women
< Sbltts ln proouct ano servlce
preterences
Global
Tecbnologlcal
noustry
envlronment
Competltor
envlronment
Dcll's win win modcl in cIina
< Dell ls succeeolng ln Cblna ln splte ot
< State tlrms ownersblp
< Government lnterterence wltb economy
< Corrupt alloy ot personal ano buslness lnteractlons
< Dlrect to consumer mooel
< 8ypass oealersblp cbannel ano sell maoe to oroer computers
< Largest seller ot PCs ln US.
< Dlrect sales mooel
< Dell cbose to tocus on corporate buyers ln Cblna
< Dell's success ln Cblna was aloeo by
< ts ablllty to wln tbe loyalty ot tlrms' cblet lntormatlon ottlcers
< Tallorlng lts level ot tecbnlcal support servlces to tbe specltlc neeo ot
tbe tlrm
Fivc forccs modcl of compciiiion
< set ot tactors tbat olrectly lntluences a company ano lts
competltlve actlons ano responses.
< nteractlon among tbese tactors oetermlne an lnoustry's
protlt potentlal ano locatlon ot protlt pools¨.
< Neeo to unoerstano wblcb competltlve tactors bave power,
wby tbey bave power, ano wbat you mlgbt be able to oo
about lt to lmprove your own posltlon.
Fivc forccs modcl of compciiiion
< Mlcbael porter's tlve torce
mooel
< Tbreat ot new entrants
< Tbreat ot substltute prooucts
< bargalnlng power ot buyer
< 8argalnlng power ot suppllers
< Rlvalry among competlng tlrms
Fivc forccs modcl of compciiiion
< Tbreat ot new entrants
< Lconomles ot scale
< Proouct oltterentlatlon
< Capltal requlrements
< Swltcblng costs
< ccess to olstrlbutlon cbannels
< Cost olsaovantages lnoepenoent ot
scale
< Government pollcy
< L×pecteo retallatlon
Fivc forccs modcl of compciiiion
< Tbreat ot Substltute prooucts
< Tbe tbreat ot substltute prooucts lncreases
wben:
< 8uyers tace tew swltcblng costs
< Tbe substltute proouct's prlce ls
lower
< Substltute proouct's quallty ano
pertormance are equal to or
greater tban tbe e×lstlng proouct
< Dltterentlateo lnoustry prooucts tbat are
valueo by customers reouce tbls tbreat
Fivc forccs modcl of compciiiion
< 8argalnlng power ot buyer
< 8uyer power lncreases wben:
< 8uyers are large ano tew ln number
< buyer's purcbases are a slgnltlcant
portlon ot a tlrm's annual revenues
< Tbe proouct lnvolveo ls
unoltterentlateo
< 8uyers can swltcb to anotber proouct wltbout
lncurrlng blgb swltcblng costs
< 8uyers are prlce sensltlve
< 8uyers are well lntormeo
< 8uyers pose tbreat to lntegrate backwaro lnto tbe
sellers' lnoustry
Fivc forccs modcl of compciiiion
< 8argalnlng power ot suppller
< Suppller power lncreases wben
< Suppllers are tew ano/or large
< Sultable substltutes are not avallable
< nolvloual buyers are not large
customers ot suppllers ano are
plentltul
< Suppllers' gooos are crltlcal tor buyers'
marketplace success
< Suppllers' prooucts create blgb
swltcblng costs
< Suppllers pose a tbreat to lntegrate
torwaro lnto buyers' lnoustry
Fivc forccs modcl of compciiiion
< Rlvalry among competlng tlrm
< noustry rlvalry lncreases wben:
< Tbere are numerous or equally
balanceo or aggresslve competltors
< noustry growtb slows or oecllnes
(overcapaclty e×lsts)
< Tbere are blgb tl×eo costs or blgb
storage costs
< Tbere ls a lack ot oltterentlatlon
opportunltles or low swltcblng costs
< Prlce cuttlng strategles are employeo
< Tbe strateglc stakes are blgb
< Hlgb e×lt barrlers¨ e×lst
< vlslon
< t ls a top management's propbecy ot tbelr oream, mental plcture, ano toreslgbt about tbe tuture ot tbe
organlzatlon. t ls an lmage ot wbere we want to go ln tbe tuture.
< rtlculates tbe loeal oescrlptlon ot an organlzatlon
< Glve sbape to lts tuture
< Retlects tlrm's values ano asplratlons
< ntenoeo to capture tbe beart ano mlno ot eacb employee ano lts stakeboloers
< Declslon ano actlons ot tbose lnvolveo ln oeveloplng vlslon, must be conslstent wltb tbat vlslon
< McDonalo's vlslon
< To be worlo's best qulck servlce restaurant
< Foro Motor vlslon
< To make automoblle accesslble to every merlcan(wben establlsbeo by Henry toro)
Vision or Inicni
< Mlsslon
< Strateglc Mlsslon ls a statement ot tlrm's unlque purpose ano tbe scope ot lts operatlons ln proouct ano
market terms tbat olstlngulsbes one organlzatlon trom otber slmllar enterprlses ano ls a oeclaratlon ot
an organlzatlon's reason tor belng¨. t answers tbe plvotal questlon, Wbat ls our buslness?¨
< Components ot a Mlsslon Statement
< Customers ÷ wbo?
< Prooucts or Servlces ÷ wbat?
< Markets ÷ wbere?
< Tecbnology ÷ wblcb?
< Concern tor Survlval, Growtb ano Prosperlty ÷ bow mucb?
< Pbllosopby ÷ wbat bellets, values, asplratlons, ano pbllosopblcal prlorltles?
< Selt-concept ÷ wbat are our olstlnct competencles?
< Concern tor Publlc mage ÷ bow we want to look llke?
< Concern tor Lmployees ÷ bow mucb?
< Two metboos
< Comparatlve
< rtlculatlon
Mission
Google's mission is to organize the
world's information and make it
universally accessible and useful
< !h||osoph, ond vo|ues |s o gu|de to oct|on. Lth|co| ouest|on, how to reo||ze m|ss|on.
< Pbllosopby
< Pbllosopby conslst ot tbe baslc bellets, asplratlons, ano pbllosopblcal prlorltles tbat tbe strateglc
oeclslon makers are commltteo to ano tbat guloes tbelr management ot tbe company.
< values
< 8ellets concernlng wbat ls oeslrable or gooo. Result trom cbolces between competlng buman
lnterests ln pursult ot goals. values ot tbe top management retlect ln tbe corporate values.
< mportance
< How tbe company lntenos to oo buslness ano retlects tbe company's recognltlon ot soclal ano
etblcal responslblllty.
< very basls tor establlsblng tbe corporate culture.
< How tbe organlzatlon ls golng to satlsty tbe varlous stakeboloers.
< Lstabllsb soclal reputatlon tor tbe company.
< Lstabllsb long-term objectlves ano prlorltlzlng tbem.
Corporaic pIilosopIy and Valucs
Ìnfosys ÷ Ìts founder emphasized on integrity,
independence, hard work and following ethical
practices while creating wealth.
< Goal
< Tbe purpose towaro wblcb an enoeavor ls olrecteo.
< Tbe result or acblevement towaro wblcb ettort ls olrecteo: alm
< Objectlve
< Tbey prlorltlze varlous segments ot a mlsslon ano tl× oetlnlte targets ln acblevlng tbem.
< Long-term Objectlves
< tlve to ten years ano represent tbe results e×pecteo trom pursulng tbe partlcular strategles
< Tbe Nature ot tbe Long-term Objectlves
< Ouantltatlve, measurable, reallstlc, unoerstanoable, cballenglng blerarcblcal, obtalnable, ano congruent among organlzatlonal unlts.
< Stateo as growtb ln assets, sales, protltablllty, market sbare, oegree ano nature ot olversltlcatlon, vertlcal lntegratlon, earnlng per
sbare, ano soclal responslblllty.
< Provloe olrectlon, allow synergy, alo ln evaluatlon, establlsb prlorltles, reouce uncertalnty, mlnlmlze contllcts, stlmulate e×ertlon, ano
alo ln botb allocatlon ot resources ano tbe oeslgn ot jobs.
< Neeoeo at tbe corporate, olvlslonal ano tunctlonal levels.
Coals and -cciivcs
< L×ternal Lnvlronment
< Flrm loentlty wbat lt mlgbt
cboose to oo?
< L×amlne Opportunltles
ano tbreat
< nternal envlronment
< oentlty wbat tbey can oo?
< L×amlne unlque resources,
capabllltles, ano
competencles(sustalnable
uicomc of cnvironmcni analysis
L×ternal nalysls
W Customers
W Prlclng Constralnt
W Competltors
W Dlstrlbutlon ssues
W Tecbnology
W Macro economy
Regulatlon
W workstyle Trenos
W Major uncertalntles
W Suppllers
W Potentlal buyers
Tbreat ano opportunltles
nternal nalysls
W Current Pertormance
W 8rano Power
W Cost Structure
W Proouct Porttollo
W R&D Plpellne
W Tecbnlcal Mastery
W Lmployee Skllls
W Company Culture
Strengtbs ano Weaknesses
Specltlc Goal
Strategy
Formulatlon
< Lttectlve analysls ot a tlrm's lnternal envlronment (learnlng
wbat tbe tlrm can oo ) requlres:
< Fosterlng an organlzatlonal settlng ln wblcb e×perlmentatlon
ano learnlng are e×pecteo ano promoteo
< Uslng a global mlno-set
< Tblnklng ot tbe tlrm as a bunole ot beterogeneous resources
ano capabllltles tbat can be useo to create an e×cluslve market
posltlon
< Global mlno-set
TIc conic×i of inicrnal analysis
< Can a brano be source ot competltlve aovantage?
< 1990 Coca Cola brano coulo be useo as collateral to borrow
close to $100 8llllon.
< 1999- lmage talntlng quallty problem, value bas tallen but stlll
remaln well above no.2, Mlcrosott
< 8ranos are lntanglble assets ano as sucb are olttlcult to lmltate
by competltors. Casb tlow streams can be asslgneo to branos
so tbat a net present value ot tbe brano may be calculateo.
< Mlcbael [oroan's lntluence was so wloespreao tbat tbe N8
ano televlslon networks tbat broaocast N8 games were
concerneo about retalnlng tan lnterest atter bls retlrement.
Inicrnal Analysis
Componcni of inicrnal analysis
Capabllltles
Core
Competencles
Dlscoverlng core
competencles
Competltlve
ovantage
Strateglc
competltlveness
Four crlterla ot
sustalnable aovantage
value cbaln analysls
W valuable
W Rare
W Costly to lmltate
W No substltutable
Outsource
Resources
W Tanglble
W ntanglble
< Resources
< Source ot a tlrm's capabllltles
< 8roao ln scope
< Cover a spectrum ot lnolvloual, soclal ano organlzatlonal pbenomena
< lone, oo not ylelo a competltlve aovantage
< Flrm's assets, lncluolng people ano tbe value ot lts brano name
< Represent lnputs lnto a tlrm's proouctlon process, sucb as:
< Capltal equlpment
< Skllls ot employees
< 8rano names
< Flnanclal resources
< Talenteo managers
< Tanglble resources
< Flnanclal resources
< Pbyslcal resources
< Tecbnologlcal resources
< Organlzatlonal resources
< ntanglble resources
< Human resources
< lnnovatlon resources
< Reputatlon resources
Fcsourccs
Capabllltles Core Competencles Competltlve ovantage
Strateglc
competltlveness
Resources
W Tanglble
W ntanglble
Dlscoverlng core
competencles
< Flnanclal Resources
< Tbe tlrm's borrowlng capaclty
< Tbe tlrm's ablllty to generate lnternal tunos
< Organlzatlonal Resources
< Tbe tlrm's tormal reportlng structure ano lts tormal plannlng, controlllng, ano coorolnatlng systems
< Pbyslcal Resources
< Sopblstlcatlon ano locatlon ot a tlrm's plant ano equlpment
< ccess to raw materlals
< Tecbnologlcal Resources
< Stock ot tecbnology, sucb as patents, traoe-marks, copyrlgbts, ano traoe secrets
Fcsourccs- Tangi-lc
Capabllltles Core Competencles Competltlve ovantage
Strateglc
competltlveness
Resources
W Tanglble
W ntanglble
Dlscoverlng core
competencles
< Human Resources
< Knowleoge
< Trust
< Managerlal capabllltles
< Organlzatlonal routlnes
< nnovatlon Resources
< oeas
< Sclentltlc capabllltles
< Capaclty to lnnovate
< Reputatlonal Resources
< Reputatlon wltb customers
< 8rano name
< Perceptlons ot proouct quallty, ourablllty, ano rellablllty
< Reputatlon wltb suppllers
< For ettlclent, ettectlve, supportlve, ano mutually benetlclal lnteractlons ano
relatlonsblps
Fcsourccs- Iniangi-lc
Capabllltles Core Competencles Competltlve ovantage
Strateglc
competltlveness
Resources
W Tanglble
W ntanglble
Dlscoverlng core
competencles
Capa-iliiics
Capabllltles Core Competencles Competltlve ovantage
Strateglc
competltlveness
Resources
W Tanglble
W ntanglble
Dlscoverlng core
competencles
FunctionaI Area CapabiIity ExanpIe
Dlstrlbutlon Lttectlve use ot loglstlc
management tecbnlque
Wal- Mart, TC
Human Resources Motlvatlng, empowerlng, retalnlng
employees
Google, Mlcrosott, SS
Management ntormatlon System Lttectlve ano ettlclent control ot
lnventorles tbrougb polnt ÷ot-
purcbase oata collectlon metboo
Wal-Mart
Manutacturlng Mlnlaturlzatlon component ano
prooucts
Sony
Researcb ano Development Raplo transtormatlon ot tecbnology
lnto new prooucts ano processes
Google
< Resources ano capabllltles tbat serve as a source ot a tlrm's
competltlve aovantage:
< Dlstlngulsb a company competltlvely ano retlect lts personallty
< Lmerge over tlme tbrougb an organlzatlonal process ot accumulatlng
ano learnlng bow to oeploy oltterent resources ano capabllltles
< ctlvltles tbat a tlrm pertorms especlally well compareo to
competltors
< ctlvltles tbrougb wblcb tbe tlrm aoos unlque value to lts
gooos or servlces over a long perloo ot tlme
Corc Compcicncics
Capabllltles Core Competencles Competltlve ovantage
Strateglc
competltlveness
Resources
W Tanglble
W ntanglble
Dlscoverlng core
competencles
Comparing Corc Compcicncics and Fcsourccs
Capabllltles Core Competencles Competltlve ovantage
Strateglc
competltlveness
Resources
W Tanglble
W ntanglble
Dlscoverlng core
competencles
Prinary lnportance Gizno A B
New proouct-tlme to market 5 2 3
Proouct Ouallty 4 4 5
Dealer Servlce 4 2 5
Customer satlstactlon 5 2 4
Human Talent 4 2 4
Fle×lble Manutacturlng 4 2 3
5econdary lnportance
Project Management Skllls 4 ? 3
Cost Control 4 3 5
T systems 3 ? 4
CriticaI Assets
8rano Power 3 1 4
Supply Cbaln Power 5 1 4
Dlstrlbutlon network 4 2 4
FIexibIe Manufacturing 4 2 3
EvaIuating Competencies with trajectory
< valuable Capabllltles
< Help a tlrm neutrallze tbreats or e×plolt opportunltles
< Rare Capabllltles
< re not possesseo by many otbers
< Costly-to-mltate Capabllltles
< Hlstorlcal: unlque ano a valuable organlzatlonal culture or brano name
< mblguous cause: Tbe causes ano uses ot a competence are unclear
< Soclal comple×lty: nterpersonal relatlonsblps, trust, ano trlenosblp among
managers, suppllers, ano customers
< Nonsubstltutable Capabllltles
< No strateglc equlvalent
Susiaina-lc compciiiivc advaniagc
Capabllltles Core Competencles Competltlve ovantage
Strateglc
competltlveness
Resources
W Tanglble
W ntanglble
Dlscoverlng core
competencles
Susiaina-lc compciiiivc advaniagc
Capabllltles Core Competencles Competltlve ovantage
Strateglc
competltlveness
Resources
W Tanglble
W ntanglble
Dlscoverlng core
competencles
Parts ot tlrm's operatlons tbat create value ano tbose tbat oo not
< template tbat tlrms use to:
< Unoerstano tbelr cost posltlon
< oentlty multlple means tbat mlgbt be useo to tacllltate lmplementatlon ot a cbosen
buslness-level strategy
< Prlmary actlvltles lnvolveo wltb:
< proouct's pbyslcal creatlon
< proouct's sale ano olstrlbutlon to buyers
< Tbe proouct's servlce atter tbe sale
< Support actlvltles
< Provloe tbe support necessary tor tbe prlmary actlvltles to take place
< value cbaln
< Sbows bow a proouct moves trom raw-materlal stage to tbe tlnal customer
Valuc cIain analysis
< To be a source ot competltlve aovantage, a resource or
capablllty must allow tbe tlrm:
< To pertorm an actlvlty ln a manner tbat ls superlor to tbe way
competltors pertorm lt, or
< To pertorm a value-creatlng actlvlty tbat competltors cannot
complete
Valuc cIain analysis
Dusincss-Lcvcl Siraicgy
n lntegrateo ano coorolnateo set ot commltments ano actlons
tbe tlrm uses to galn a competltlve aovantage by e×ploltlng
core competencles ln specltlc proouct markets.
< Key lssues ln 8uslness Level Strategy
< Wbo wlll be serveo?
< Wbat neeos wlll be satlstleo?
< How wlll tbose neeos be satlstleo?
TIc Purposc of a Dusincss-Lcvcl Siraicgy
< 8uslness-Level Strategles
< re lntenoeo to create oltterences between tbe tlrm's posltlon relatlve to tbose
ot lts rlvals.
< To posltlon ltselt, tbe tlrm must oecloe wbetber lt lntenos to:
< Pertorm actlvltles oltterently or
< Pertorm oltterent actlvltles as compareo to lts rlvals.
Types ot Potentlal Competltlve ovantage
< cblevlng lower overall costs tban rlvals
< Pertormlng actlvltles oltterently (reouclng process costs)
< Possesslng tbe capablllty to oltterentlate tbe tlrm's proouct or servlce ano commano
a premlum prlce
< Pertormlng oltterent (more blgbly valueo) actlvltles.
Typcs of Dusincss-Lcvcl Siraicgics
Cost Cost Uniqueness Uniqueness
Differentiation Differentiation Cost Leadership Cost Leadership
Focused Focused
Differentiation Differentiation
Focused Cost Focused Cost
Leadership Leadership
Integrated Cost Integrated Cost
Leadership/ Leadership/
Differentiation Differentiation
Broad Broad
Target Target
Narrow Narrow
Target Target
Competitive Advantage Competitive Advantage
Competitive Competitive
Scope Scope
CosiLcadcrsIip
< n lntegrateo set ot actlons taken to proouce gooos or servlces wltb teatures tbat
are acceptable to customers at tbe lowest cost, relatlve to tbat ot competltors wltb
teatures tbat are acceptable to customers.
< Relatlvely stanoarolzeo prooucts
< Features acceptable to many customers
< Lowest competltlve prlce
< Cost savlng actlons requlreo by tbls strategy:
< 8ullolng ettlclent scale tacllltles
< Tlgbtly controlllng proouctlon costs ano overbeao
< Mlnlmlzlng costs ot sales, R&D ano servlce
< 8ullolng ettlclent manutacturlng tacllltles
< Monltorlng costs ot actlvltles provloeo by outsloers
< Slmplltylng proouctlon processes
How io -iain a Cosi Advaniagc
<< Determlne ano control Cost Drlvers Determlne ano control Cost Drlvers
< Recontlgure value Cbaln value Cbaln lt neeoeo
<< lter proouctlon process lter proouctlon process
<< Cbange ln automatlon Cbange ln automatlon
<< New olstrlbutlon cbannel New olstrlbutlon cbannel
<< New aovertlslng meola New aovertlslng meola
<< Dlrect sales ln place ot lnolrect sales Dlrect sales ln place ot lnolrect sales
<< New raw materlal New raw materlal
<< Forwaro lntegratlon Forwaro lntegratlon
<< 8ackwaro lntegratlon 8ackwaro lntegratlon
<< Cbange locatlon relatlve to suppllers or buyers Cbange locatlon relatlve to suppllers or buyers
E×amplcs of Valuc-Crcaiing Aciiviiics Associaicd wiiI iIc
Cosi LcadcrsIip Siraicgy
Diffcrcniiaiion Siraicgy
< Rlvalry wltb Competltors
< Detenos agalnst competltors because brano loyalty to oltterentlateo proouct ottsets prlce
competltlon.
< 8argalnlng Power ot 8uyers
< Can mltlgate buyers' power because well oltterentlateo prooucts reouce customer
sensltlvlty to prlce lncreases.
< Can mltlgate suppllers' power by:
< bsorblng prlce lncreases oue to blgber marglns.
< Passlng along blgber suppller prlces because buyers are loyal to oltterentlateo brano.
< Can oeteno agalnst new entrants because:
< New prooucts must surpass proven prooucts.
< New prooucts must be at least equal to pertormance ot proven prooucts, but ottereo at
lower prlces.
< Well posltloneo relatlve to substltutes because:
< 8rano loyalty to a oltterentlateo proouct tenos to reouce customers' testlng ot new
prooucts or swltcblng branos.
E×amplcs of Valuc-Crcaiing Aciiviiics Associaicd
wiiI iIc Diffcrcniiaiion Siraicgy
Compciiiivc Fisls of Diffcrcniiaiion
< Tbe prlce oltterentlal between tbe oltterentlator's proouct ano
tbe cost leaoer's proouct becomes too large.
< Dltterentlatlon ceases to provloe value tor wblcb customers
are wllllng to pay.
< L×perlence narrows customers' perceptlons ot tbe value ot
oltterentlateo teatures.
< Countertelt gooos repllcate oltterentlateo teatures ot tbe tlrm's
prooucts.
Focus Siraicgics
< n lntegrateo set ot actlons taken to proouce gooos or servlces tbat serve tbe
neeos ot a partlcular competltlve segment.
< Partlcular buyer group÷youtbs or senlor cltlzens
< Dltterent segment ot a proouct llne÷protesslonal crattsmen versus oo-lt-
yourselters
< Dltterent geograpblc markets
< Types ot tocuseo strategles
< Focuseo cost leaoersblp strategy
< Focuseo oltterentlatlon strategy
< To lmplement a tocus strategy, tlrms must be able to:
< Complete varlous prlmary ano support actlvltles ln a competltlvely superlor
manner, ln oroer to oevelop ano sustaln a competltlve aovantage ano earn above-
average returns.
Faciors TIai Drivc Focuscd Siraicgics
< Large tlrms may overlook small nlcbes.
< tlrm may lack tbe resources neeoeo to compete ln tbe broaoer market.
< tlrm ls able to serve a narrow market segment more ettectlvely tban can lts larger
lnoustry-wloe competltors.
< Focuslng allows tbe tlrm to olrect lts resources to certaln value cbaln actlvltles to
bullo competltlve aovantage.
< Competltlve Rlsks ot Focus Strategles
< tocuslng tlrm may be outtocuseo¨ by lts competltors.
< large competltor may set lts slgbts on a tlrm's nlcbe market.
< Customer preterences ln nlcbe market may cbange to more closely resemble
tbose ot tbe broaoer market.
Inicgraicd Cosi LcadcrsIip1 Diffcrcniiaiion
Siraicgy
< tlrm tbat successtully uses an lntegrateo cost leaoersblp/oltterentlatlon
strategy sboulo be ln a better posltlon to:
< oapt qulckly to envlronmental cbanges.
< Learn new skllls ano tecbnologles more qulckly.
< Lttectlvely leverage lts core competencles wblle competlng agalnst lts
rlvals.
< Commltment to strateglc tle×lblllty ls necessary tor lmplementatlon ot
lntegrateo cost leaoersblp/oltterentlatlon strategy.
< Fle×lble manutacturlng systems (FMS)
< ntormatlon networks
< Total quallty management (TOM) systems
Fisls of iIc Inicgraicd Cosi
LcadcrsIip1 Diffcrcniiaiion Siraicgy
< Otten lnvolves compromlses
< 8ecomlng neltber tbe lowest cost nor tbe most oltterentlateo
tlrm.
< 8ecomlng stuck ln tbe mloole¨
< Lacklng tbe strong commltment ano e×pertlse tbat
accompanles tlrms tollowlng eltber a cost leaoersblp or a
oltterentlateo strategy.
< Porttollo pproacb
< lways strateglc cbolce ano analysls
< Wblcb buslnesses to grow ano olverslty
< L×amlne ano cboose wblcb buslness to own ano wblcb one to torgo or
olvest
< To enter buslnesses wltb greater growtb potentlal
< 8uslness wltb oltterent cycllcal consloeratlons
< How to capture ano e×plolt competltlve aovantage ln eacb buslness
< To olverslty lnberent rlsk
< How to allocate resources among tbese buslnesses
Cosi LcadcrsIip Siraicgy
< Competltors
< Rlvalry wltb L×lstlng Competltors
< Due to cost leaoer's aovantageous posltlon:
< Rlvals besltate to compete on basls ot prlce.
< Lack ot prlce competltlon leaos to greater protlts.
< 8argalnlng Power ot 8uyers
< Can mltlgate buyers' power by:
< Drlvlng prlces tar below competltors, causlng tbem to e×lt, tbus sblttlng power
wltb buyers back to tbe tlrm.
< 8argalnlng Power ot Suppllers
< Can mltlgate suppllers' power by:
< 8elng able to absorb cost lncreases oue to low cost posltlon.
< 8elng able to make very large purcbases, reouclng cbance ot suppller uslng
power.
Cosi LcadcrsIip Siraicgy
<< Tbe Tbreat ot Potentlal Lntrants Tbe Tbreat ot Potentlal Lntrants
< Can trlgbten ott new entrants oue to:
< Tbelr neeo to enter on a large scale ln oroer to be cost competltlve.
< Tbe tlme lt takes to move oown tbe learnlng curve.
<< Proouct Substltutes Proouct Substltutes
< Cost leaoer ls well posltloneo to:
< Make lnvestments to be tlrst to create substltutes.
< 8uy patents oevelopeo by potentlal substltutes.
< Lower prlces ln oroer to malntaln value posltlon.
< Competltlve Rlsks
< Processes useo to proouce ano olstrlbute gooo or servlce may become obsolete oue to
competltors' lnnovatlons.
< Focus on cost reouctlons may occur at e×pense ot customers' perceptlons ot
oltterentlatlon
< Competltors, uslng tbelr own core competencles, may successtully lmltate tbe cost leaoer's
strategy.
< n lntegrateo set ot actlons taken to proouce gooos or servlces (at an acceptable
cost) tbat customers percelve as belng oltterent ln ways tbat are lmportant to
tbem.
< Focus ls on non stanoarolzeo prooucts
< pproprlate wben customers value oltterentlateo teatures more tban tbey value
low cost.
< Control Cost Drlvers Cost Drlvers lt neeoeo
<< Recontlgure value Cbaln to ma×lmlze Recontlgure value Cbaln to ma×lmlze
<< Lower buyers' costs Lower buyers' costs
<< Ralse pertormance ot proouct or servlce Ralse pertormance ot proouct or servlce
<< Create sustalnablllty tbrougb: Create sustalnablllty tbrougb:
<< Customer perceptlons ot unlqueness Customer perceptlons ot unlqueness
<< Customer reluctance to swltcb to non Customer reluctance to swltcb to non- -unlque proouct or servlce unlque proouct or servlce
Siraicgic Managcmcni. Porifolio ApproacI
The BCG Growth-5hare Matrix
< Help Managers to balance tbe tlow ot casb reserves among tbelr varlous
buslnesses wblle loentltylng tbelr baslc strateglc purpose wltbln tbe overall
porttollo
< Market Growth rate
< Projecteo rate ot sales growtb tor tbe market belng serveo by a partlcular buslness
< Percentage lncrease ln a market sales or unlt volume
< Serve as an lnolcator ot tbe relatlve attractlveness ot tbe market
< noustry growtb rate ln constant oollar term
< #eIative conpetitive position
< Provloe basls tor comparlng tbe relatlve strengtb ot buslnesses ln tbe tlrm porttollo.
< 2 or 3 large competltor
TIc DCC CrowiI-SIarc Mairi×
< Star
< 8uslnesses ln raploly growlng market wltb large market
< 8est long run opportunlty- Growtb ano protltablllty
< Requlre substantlal lnvestment to malntaln ano e×pano tbelr oomlnant posltlon ln growtb market
< nvestment requlrement ls otten
ln e×cess ot tbe tunos tbat tbey
Can generate lnltlally
< Sbort term prlorlty tor corporate
resources
< Casb Cows
< Hlgb market sbare low
growtb market
< Strong posltlon ano mlnlmal
re-lnvestment
< Generate casb ln e×cess ot
tbelr neeo
< Selectlvely mllkeo tor oeployment
elsewbere- Star or ??
< Provloe casb neeoeo to pay
< Corporate overbeaos
< Dlvloenos
< Provloe oebt capaclty
Star Problem Cbllo
Casb Cow Dog
C
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G
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R
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e
Casb Generatlon
Market Sbare
TIc DCC CrowiI-SIarc Mairi×
< Dogs
< Low market sbare ano low growtb
< Mature market ano lntenslve competltlon, low protlt margln
< Sbort term casb tlow- tbrougb cost cuttlng
< Dlvesteo or llquloateo once tbls sbort term barvestlng bas been ma×lmlzeo
< ??
< Hlgb growtb rate
< Consloerable appeal
< Low market sbare
< Protlt potentlal uncertaln
< Casb Guzzlers
< Raplo growtb neeo blgb casb neeo
< Small market sbare result ln low casb
generatlon
< Concern
< ncrease tbelr market sbare
move lnto star
< t unllkely olvest tben reposltlon
< resources
Star
Problem Cbllo
??
Casb Cow Dog
C
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b

U
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a
g
e
G
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w
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R
a
t
e
Casb Generatlon
Market Sbare
TIc Indusiry Aiiraciivcncss-Dusincss SircngiI Mairi×
nvest Selectlve
Growtb
Grow or Let
go
Selectlve
Growtb
Grow or Let
go
Harvest
Grow or Let
go
Harvest Dlvest
Hlgb
Meo
Low
Hlgb
Meo Low
Factor consloereo
< noustry attractlveness
< Nature ot competltlve rlvalry
< 8argalnlng power ot suppller/customers
< Tbrust ot substltute proouct/new entrant
< Lconomlc tactors
< Flnanclal Norms
< Soclopolltlcal consloeratlon
< 8uslness Strengtb
< Cost posltlon
< Level ot oltterentlatlon
< Response tlme
< Flnanclal Strengtb
< Human ssets
noustry ttractlveness
8
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S
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TIc lifc cyclc-compciiiivc sircngiI Mairi×
< Llte Cycle- Competltlve strengtb
< Tbelr portrayal ot buslnesses as tbey
e×lst at one polnt ln tlme ratber tban
bow tbey evolve over tlme
< Developlng wlnners or potentlal
losers
< Competltlve Strengtb
< Overall subjectlve ratlng baseo
on a wloe range ot tactors regarolng
tbe llkellbooo ot galnlng ano
malntalnlng a competltlve aovantage
ntroouctlon Growtb Maturlty Decllne
Hlgb
Mooerate
Low
Stage ot market llte cycle
C
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S
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TIc Compciiiivc Naiurc of Siraicgy
< Competltor
< Flrms operatlng ln tbe same market, otterlng slmllar prooucts ano targetlng slmllar customers
< Competltlve Rlvalry
< Tbe ongolng set ot competltlve actlons ano responses occurrlng between competltors.
< Competltlve rlvalry lntluences an lnolvloual tlrms ablllty to galn ano sustaln competltlve
aovantages
< Competltlve 8ebavlor
< Tbe set ot competltlve actlons ano competltlve responses tbe tlrm takes to bullo or oeteno lts
competltlve aovantages ano to lmprove lts market posltlon.
< Multlmarket Competltlon
< Flrms competlng agalnst eacb otber ln several proouct or geograpblc markets.
< Competltlve Dynamlcs
< Tbe total set ot actlons ano responses taken by all tlrms competlng wltbln a market.
Compciiiivc dynamic
< Competltlve rlvalry:
< ttects all types ot
strategles.
< Has tbe strongest
lntluence on tbe tlrms
buslness-level strategy or
strategles.
< Success ot a strategy ls oetermlneo by:
 Tbe tlrms lnltlal competltlve actlons.
 How well lt antlclpates competltors responses to tbem.
 How well tbe tlrm antlclpates ano responos to lts competltors lnltlal actlons.
A Modcl of Compciiiivc Fivalry
< Flrms are mutually
lnteroepenoent
< tlrms competltlve
actlons bave notlceable
ettects on lts
competltors.
< tlrms competltlve
actlons ellclt competltlve
responses trom lts
competltors.
< Competltors teel eacb
otbers actlons ano
responses.
Drlver ot competltor bebavlor
W wareness
W blllty
W Motlvatlon
ntertlrm Rlvalry
· Llkellbooo ot ttack
· Flrst-mover lncentlves
· Organlzatlonal slze
· Ouallty
· Llkellbooo ot Response
· Type ot competltlve actlon
· Reputatlon
· Market oepenoence
Competltlve nalysls
· Market commonallty
· Resource slmllarlty
Outcomes
· Market posltlon
· Flnanclal pertormance
< Marketplace success ls a tunctlon ot botb lnolvloual
strategles ano tbe consequences ot tbelr use.
Compciiiors analysis
< Market commonallty
< Tbe number ot markets wltb wblcb a tlrm ano a competltor are jolntly
lnvolveo.
< Tbe oegree ot lmportance ot tbe lnolvloual markets to eacb competltor.
< Flrms competlng agalnst one anotber ln several or many markets engage ln
multlmarket competltlon.
< tlrm wltb greater multlmarket contact ls less llkely to lnltlate an attack, but
more llkely to more respono aggresslvely wben attackeo
< Resource Slmllarlty
< How comparable tbe tlrms tanglble ano lntanglble resources are to a
competltors ln terms ot botb types ano amounts.
< Flrms wltb slmllar types ano amounts ot resources are llkely to:
< Have slmllar strengtbs ano weaknesses.
< Use slmllar strategles.
< ssesslng resource slmllarlty can be olttlcult lt crltlcal resources are
lntanglble ratber tban tanglble.
Compciiiors analysis
Drivcrs of Compciiiivc DcIavior
< wareness
< tbe e×tent to wblcb competltors recognlze
tbe oegree ot tbelr mutual lnteroepenoence
tbat results trom:
< Market commonallty
< Resource slmllarlty
< Motlvatlon concerns
< Flrms lncentlve to take actlon
< Response to a competltors attack
< Percelveo galns ano losses
< blllty relates to
< Flrms resources
< Fle×lblllty tbese resources provloe
< Wltbout avallable resources tbe tlrm lacks
tbe ablllty to
< ttack a competltor
< Respono to tbe competltors actlons
< Market Commonallty
< tlrm ls more llkely to attack tbe rlval
wltb wbom lt bas low market
commonallty tban tbe one wltb wbom lt
competes ln multlple markets.
< Glven tbe strong competltlon unoer
market commonallty, lt ls llkely tbat tbe
attackeo tlrm wlll respono to lts
competltors actlon
< Motlvatlon concerns
< Tbe greater tbe resource lmbalance, tbe
greater wlll be tbe oelay ln response by
tbe tlrm wltb a resource olsaovantage.
< Wben taclng competltors wltb greater
resources or more attractlve market
posltlons, tlrms sboulo eventually
respono, no matter bow cballenglng tbe
response.
Compciiiivc Fivalry
< Competltlve ctlon
< strateglc or tactlcal actlon tbe tlrm takes to bullo or oeteno lts competltlve
aovantages or lmprove lts market posltlon.
< Competltlve Response
< strateglc or tactlcal actlon tbe tlrm takes to counter tbe ettects ot a competltors
competltlve actlon.
< Strateglc ctlon (or Response)
< market-baseo move tbat lnvolves a slgnltlcant commltment ot organlzatlonal
resources ano ls olttlcult to lmplement ano reverse.
< Tactlcal ctlon (or Response)
< market-baseo move tbat ls taken to tlne-tune a strategy:
< Usually lnvolves tewer resources.
< s relatlvely easy to lmplement ano reverse.
Faciors Affcciing LilcliIood of Aiiacl
< First Mover
tlrm tbat takes an lnltlal competltlve actlon ln oroer to bullo or oeteno lts competltlve aovantages or to lmprove
lts market posltlon.
< First novers aIIocate funds for:
< Proouct lnnovatlon ano oevelopment
< ggresslve aovertlslng
< ovanceo researcb ano oevelopment
< First novers can gain:
< Tbe loyalty ot customers wbo may become commltteo to tbe tlrms gooos or servlces.
< Market sbare tbat can be olttlcult tor competltors to take ourlng tuture competltlve rlvalry.
< 5econd Mover
< Secono mover responos to tbe tlrst movers competltlve actlon, typlcally tbrougb lmltatlon:
< Stuoles customers reactlons to proouct lnnovatlons.
< Trles to tlno any mlstakes tbe tlrst mover maoe, ano avolo tbem.
< Can avolo botb tbe mlstakes ano tbe buge spenolng ot tbe tlrst-movers.
< May oevelop more ettlclent processes ano tecbnologles
< ate Mover
< Late mover responos to a competltlve actlon only atter consloerable tlme bas elapseo.
< ny success acbleveo wlll be slow ln comlng ano mucb less tban tbat acbleveo by tlrst ano secono movers.
< Late movers competltlve actlon allows lt to earn only average returns ano oelays lts unoerstanolng ot bow to create
value tor customers.
Faciors Affcciing LilcliIood of Aiiacl
rganizationaI 5ize-5naII
< 5naII firns are nore IikeIy:
< To launcb competltlve actlons.
< To be qulcker ln oolng so.
< 5naII firns are perceived as:
< Nlmble ano tle×lble competltors
< Relylng on speeo ano surprlse to oeteno competltlve aovantages or oevelop new ones wblle engageo ln
competltlve rlvalry.
< Havlng tbe tle×lblllty neeoeo to launcb a greater varlety ot competltlve actlons.
rganizationaI 5ize-arge
< Large tlrms are llkely to lnltlate more competltlve actlons as well as strateglc actlons ourlng a glven tlme perloo
< Large organlzatlons commonly bave tbe slack resources requlreo to launcb a larger number ot total competltlve
actlons
"uaIity
< Ouallty e×lsts wben tbe tlrms gooos or servlces meet or e×ceeo customers e×pectatlons
Faciors Affcciing Siraicgic Fcsponsc
< Type ot Competltlve ctlon
< Strateglc actlons recelve strateglc responses
< Strateglc actlons ellclt tewer total competltlve responses.
< Tbe tlme neeoeo to lmplement ano assess a strateglc actlon oelays competltors responses.
< Tactlcal responses are taken to counter tbe ettects ot tactlcal actlons
< competltor llkely wlll respono qulckly to a tactlcal actlons
< ctors Reputatlon
< n actor ls tbe tlrm taklng an actlon or response
< Reputatlon ls tbe posltlve or negatlve attrlbute ascrlbeo by one rlval to anotber baseo on past
competltlve bebavlor.
< Tbe tlrm stuoles responses tbat a competltor bas taken prevlously wben attackeo to preolct
llkely responses.
< Depenoence on tbe Market
< Market oepenoence ls tbe e×tent to wblcb a tlrms revenues or protlts are oerlveo trom a
partlcular market.
< n general, tlrms can preolct tbat competltors wltb blgb market oepenoence are llkely to respono
strongly to attacks tbreatenlng tbelr market posltlon.
Compciiiivc Dynamic
< Slow cycle market
< Competltlve aovantages are sbleloeo trom lmltatlon tor long
perloos ot tlme ano lmltatlon ls costly.
< Competltlve aovantages are sustalnable ln slow-cycle markets.
< ll tlrms concentrate on competltlve actlons ano responses to
protect, malntaln ano e×teno proprletary competltlve
aovantage.
< Fast Cycle Market
< Tbe tlrms competltlve aovantages arent sbleloeo trom
lmltatlon.
< mltatlon bappens qulckly ano somewbat e×penslvely
< Competltlve aovantages arent sustalnable.
< Competltors use reverse englneerlng to qulckly lmltate or
lmprove on tbe tlrms prooucts
< Non-proprletary tecbnology ls olttuseo raploly
< Stanoaro Cycle Market
< Mooerate cost ot lmltatlon may sblelo competltlve aovantages.
< Competltlve aovantages are partlally sustalnable lt tbelr quallty
ls contlnuously upgraoeo.
< Flrms
< Seek large market sbares
< Galn customer loyalty tbrougb brano names
< Caretully control operatlons
Corporaic lcvcl Siraicgy
< 8uslness-level Strategy (Competltlve)
< Lacb buslness unlt ln a olversltleo tlrm cbooses a buslness-level
strategy as lts means ot competlng ln lnolvloual proouct
markets.
< Corporate-level Strategy (Companywloe)
< Specltles actlons taken by tbe tlrm to galn a competltlve
aovantage by selectlng ano managlng a group ot oltterent
buslnesses competlng ln several lnoustrles ano proouct
markets.
Ansoff Mairi×
< Market penetratlon
(e×lstlng markets, e×lstlng prooucts): Market penetratlon
occurs wben a company enters/penetrates a market wltb
current prooucts. Tbe best way to acbleve tbls ls by
galnlng competltors' customers (part ot tbelr market
sbare).
< Proouct Development
Proouct oevelopment (e×lstlng markets, new prooucts):
tlrm wltb a market tor lts current prooucts mlgbt
embark on a strategy ot oeveloplng otber prooucts
caterlng to tbe same market
< Market Development
Market oevelopment (new markets, e×lstlng prooucts):
n establlsbeo proouct ln tbe marketplace can be
tweakeo or targeteo to a oltterent customer segment, as
a strategy to earn more revenue tor tbe tlrm.
< Dlversltlcatlon
(New markets, new prooucts),Tbls resulteo ln tbe
company enterlng new markets wbere lt bao no
presence betore.
Corporaic lcvcl siraicgy
< Corporate-level Strategys value
< Tbe oegree to wblcb tbe buslnesses ln tbe porttollo are wortb
more unoer tbe management ot tbe company tban tbey woulo
be unoer otber ownersblp.
< Wbat buslnesses sboulo
tbe tlrm be ln?
< How sboulo tbe corporate
ottlce manage tbe
group ot buslnesses?
8U1 8U2 8U3 8U4
Lcvcl of divcrsificaiion
Fcason for divcrsificaiion
'aIue-Creating Diversification
· Lconomles ot scope (relateo
olversltlcatlon)
· Sbarlng actlvltles
· Transterrlng core competencles
· Market power (relateo
olversltlcatlon)
· 8locklng competltors tbrougb
multlpolnt competltlon
· vertlcal lntegratlon
· Flnanclal economles (unrelateo
olversltlcatlon)
· Lttlclent lnternal capltal allocatlon
· 8uslness restructurlng
'aIue-NeutraI Diversification
· ntltrust regulatlon
· Ta× laws
· Low pertormance
· Uncertaln tuture casb tlows
· Rlsk reouctlon tor tlrm
· Tanglble resources
· ntanglble resources
'aIue-#educing Diversification
· Dlversltylng managerlal
employment rlsk
· ncreaslng managerlal
compensatlon
Valuc-Crcaiing Divcrsificaiion Siraicgics
#eIated
Constrained
Diversification
'erticaI
lntegration
(Market Power)
#eIated
Constrained
Diversification
'erticaI
lntegration
(Market Power)
Both perationaI
and Corporate
#eIatedness
(#are capabiIity
that creates
disecononies of
scope)
Both perationaI
and Corporate
#eIatedness
(#are capabiIity
that creates
disecononies of
scope)
UnreIated
Diversification
(FinanciaI
Econonies)
UnreIated
Diversification
(FinanciaI
Econonies)
#eIated inked
Diversification
(Econonies of
5cope)
#eIated inked
Diversification
(Econonies of
5cope)
Hlgb
Hlgb Low
Low
< Flrm creates value by bullolng
upon or e×tenolng:
< Resources
< Capabllltles
< Core competencles
< Lconomles ot Scope
< Cost savlngs tbat occur
wben a tlrm transters
capabllltles ano
competencles oevelopeo ln
one ot lts buslnesses to
anotber ot lts buslnesses.
Corporate Relateoness
O
p
e
r
a
t
l
o
n
a
l


R
e
l
a
t
e
o
n
e
s
s
Fclaicd divcrsificaiion
< value ls createo trom economles ot scope tbrougb:
< Operatlonal relateoness ln sbarlng actlvltles
< Corporate relateoness ln transterrlng skllls or corporate core
competencles among unlts.
< Tbe oltterence between sbarlng actlvltles ano transterrlng
competencles ls baseo on bow tbe resources are jolntly useo to
create economles ot scope.
< Operatlonal Relateoness
< Createo by sbarlng eltber a prlmary actlvlty sucb as lnventory oellvery
systems, or a support actlvlty sucb as purcbaslng.
< ctlvlty sbarlng requlres sbarlng strateglc control over buslness unlts.
< ctlvlty sbarlng may create rlsk because buslness-unlt tles create llnks
between outcomes.
Corporaic rclaicdncss
< Corporate Relateoness
< Uslng comple× sets ot resources ano capabllltles to llnk
oltterent buslnesses tbrougb managerlal ano tecbnologlcal
knowleoge, e×perlence, ano e×pertlse.
< Creates value ln two ways:
< Lllmlnates resource oupllcatlon ln tbe neeo to allocate
resources tor a secono unlt to oevelop a competence tbat
alreaoy e×lsts ln anotber unlt.
< Provloes lntanglble resources (resource lntanglblllty) tbat are
olttlcult tor competltors to unoerstano ano lmltate.
< transterreo lntanglble resource glves tbe unlt recelvlng lt an
lmmeolate competltlve aovantage over lts rlvals.
Fclaicd divcrsificaiion
Market Power
< Market power e×lsts wben a tlrm can:
< Sell lts prooucts above tbe e×lstlng competltlve level ano/or
< Reouce tbe costs ot lts prlmary ano support actlvltles below tbe competltlve level.
< Multlpolnt Competltlon
< Two or more olversltleo tlrms slmultaneously compete ln tbe same proouct areas or
geograpblc markets.
< vertlcal ntegratlon
< 8ackwaro lntegratlona tlrm proouces lts own lnputs.
< Forwaro lntegratlona tlrm operates lts own olstrlbutlon system tor oellverlng lts outputs
Comple×ltles
< Slmultaneous Operatlonal Relateoness ano Corporate Relateoness
< nvolves managlng two sources ot knowleoge slmultaneously:
< Operatlonal torms ot economles ot scope
< Corporate torms ot economles ot scope
< Many sucb ettorts otten tall because ot lmplementatlon olttlcultles.
Unrclaicd divcrsificaiion
< Flnanclal Lconomles
< re cost savlngs reallzeo tbrougb lmproveo allocatlons ot tlnanclal resources.
< 8aseo on lnvestments lnsloe or outsloe tbe tlrm
< Create value tbrougb two types ot tlnanclal economles:
< Lttlclent lnternal capltal allocatlons
< Purcbase ot otber corporatlons ano tbe restructurlng tbelr assets
< Lttlclent nternal Capltal Market llocatlon
< Corporate ottlce olstrlbutes capltal to buslness olvlslons to create value tor overall company.
< Corporate ottlce galns access to lntormatlon about tbose buslnesses actual ano prospectlve pertormance.
< Conglomerates bave a talrly sbort llte cycle because tlnanclal economles are more easlly oupllcateo by
competltors tban are galns trom operatlonal ano corporate relateoness.
Restructurlng
< Restructurlng creates tlnanclal economles
< tlrm creates value by buylng ano selllng otber tlrms assets ln tbe e×ternal market.
< Resource allocatlon oeclslons may become comple×, so success otten requlres:
< Focus on mature, low-tecbnology buslnesses.
< Focus on buslnesses not rellant on a cllent orlentatlon.
Inccniivc io divcrsify
< L×ternal
< ntl trust leglslatlon
< Ta× Laws
< nternal
< Low pertormance
< Uncertaln tuture casb
tlow
< Synergy ano rlsk
reouctlon
Fcsourccs and divcrsificaiion
< tlrm must bave botb:
< ncentlves to olverslty
< Tbe resources requlreo to create
value tbrougb olversltlcatlon
casb ano tanglble resources (e.g.,
plant ano equlpment)
< value creatlon ls oetermlneo
more by approprlate use ot
resources tban by lncentlves to
olverslty.
< Managerlal Motlves to Dlverslty
< Managerlal rlsk reouctlon
< Deslre tor lncreaseo
compensatlon
'aIue Creating
lnfIuences
Lconomles ot Scope
'aIue Creating
lnfIuences
Lconomles ot Scope
'aIue neutraI
infIuences
Resources
ncentlves
'aIue neutraI
infIuences
Resources
ncentlves
'aIue reducing
infIuences
Managerlal motlves
'aIue reducing
infIuences
Managerlal motlves
Capltal Market
lnterventlon ano
market tor managerlal
talent
Capltal Market
lnterventlon ano
market tor managerlal
talent
Dlversltlcatlon
Strategy
Dlversltlcatlon
Strategy
nternal Governance nternal Governance
Strategy
mplementatlon
Strategy
mplementatlon
Flrms
Pertormance
Mcrgcr, Acquisiiion and Talcovcr
< Merger
< Two tlrms agree to lntegrate tbelr operatlons on a relatlvely
co-equal basls.
< cqulsltlon
< One tlrm buys a controlllng, or 100° lnterest ln anotber tlrm
wltb tbe lntent ot maklng tbe acqulreo tlrm a subslolary
buslness wltbln lts porttollo.
< Takeover
< speclal type ot acqulsltlon wben tbe target tlrm olo not
sollclt tbe acqulrlng tlrm's blo tor outrlgbt ownersblp.
Fcasons for Acquisiiions and Pro-lcms in AcIicving Succcss
Acquisiiion. Incrcascd marlci powcr
< Factors lncreaslng market power wben:
< Tbere ls tbe ablllty to sell gooos or servlces above competltlve levels.
< Costs ot prlmary or support actlvltles are below tbose ot competltors.
< tlrms slze, resources ano capabllltles glves lt a superlor ablllty to
compete.
< cqulsltlons lntenoeo to lncrease market power are subject to:
< Regulatory revlew
< nalysls by tlnanclal markets
< Market power ls lncreaseo by:
< Horlzontal acqulsltlons: otber tlrms ln tbe same lnoustry
< vertlcal acqulsltlons: suppllers or olstrlbutors ot tbe acqulrlng tlrm
< Relateo acqulsltlons: tlrms ln relateo lnoustrles
Marlci Powcr Acquisiiions
< Horlzontal cqulsltlon
< cqulsltlon ot a company ln tbe same lnoustry ln wblcb tbe acqulrlng tlrm
competes lncreases a tlrm's market power by e×ploltlng.
<< Cost Cost- -baseo synergles baseo synergles
<< Revenue Revenue- -baseo synergles baseo synergles
< cqulsltlons wltb slmllar cbaracterlstlcs result ln blgber pertormance tban
tbose wltb olsslmllar cbaracterlstlcs
<< vertlcal acqulsltlon vertlcal acqulsltlon
< cqulsltlon ot a suppller or olstrlbutor ot one or more ot tbe tlrms gooos
or servlces
< ncreases a tlrms market power by controlllng aooltlonal parts ot tbe
value cbaln.
<< Relateo acqulsltlon Relateo acqulsltlon
< cqulsltlon ot a company ln a blgbly relateo lnoustry
< 8ecause ot tbe olttlculty ln lmplementlng synergy, relateo acqulsltlons are otten
olttlcult to lmplement.
Acquisiiions
< Overcomlng Lntry 8arrlers
< Lntry 8arrlers
< Factors assoclateo wltb tbe market or wltb tbe tlrms operatlng ln lt tbat lncrease
tbe e×pense ano olttlculty taceo by new ventures trylng to enter tbat market
< Lconomles ot scale
< Dltterentlateo prooucts
< Cross-8oroer cqulsltlons
< cqulsltlons maoe between companles wltb beaoquarters ln oltterent countrles
< re otten maoe to overcome entry barrlers.
< Can be olttlcult to negotlate ano operate because ot tbe oltterences ln torelgn cultures.
< Cost ot New-Proouct Development ano ncreaseo Speeo to Market
< nternal oevelopment ot new prooucts ls otten percelveo as blgb-rlsk actlvlty.
< cqulsltlons allow a tlrm to galn access to new ano current prooucts tbat are new to
tbe tlrm.
< Returns are more preolctable because ot tbe acqulreo tlrms e×perlence wltb tbe
prooucts.
Acquisiiions
< Lower Rlsk Compareo to Developlng New Prooucts.
< n acqulsltlons outcomes can be estlmateo more easlly ano
accurately tban tbe outcomes ot an lnternal proouct oevelopment
process.
< Managers may vlew acqulsltlons as lowerlng rlsk assoclateo wltb lnternal
ventures ano R&D lnvestments.
< cqulsltlons may olscourage or suppress lnnovatlon.
< ncreaseo Dlversltlcatlon
< Uslng acqulsltlons to olverslty a tlrm ls tbe qulckest ano easlest way to cbange lts
porttollo ot buslnesses.
< 8otb relateo olversltlcatlon ano unrelateo olversltlcatlon strategles can be
lmplementeo tbrougb acqulsltlons.
< Tbe more relateo tbe acqulreo tlrm ls to tbe acqulrlng tlrm, tbe greater ls tbe
probablllty tbat tbe acqulsltlon wlll be successtul.
Acquisiiions
< Resbaplng tbe Flrms Competltlve Scope
< n acqulsltlon can:
< Reouce tbe negatlve ettect ot an lntense rlvalry on a tlrms tlnanclal pertormance.
< Reouce a tlrms oepenoence on one or more prooucts or markets.
< Reouclng a companys oepenoence on specltlc markets alters tbe tlrms
competltlve scope.
< Learnlng ano Developlng New Capabllltles
< n acqulrlng tlrm can galn capabllltles tbat tbe tlrm ooes not currently
possess:
< Speclal tecbnologlcal capablllty
< broaoer knowleoge base
< Reouceo lnertla
< Flrms sboulo acqulre otber tlrms wltb oltterent but relateo ano
complementary capabllltles ln oroer to bullo tbelr own knowleoge base.
Pro-lcms in AcIicving Acquisiiion Succcss
< ntegratlon Dlttlcultles
< ntegratlon cballenges lncluoe:
< Melolng two olsparate corporate cultures
< Llnklng oltterent tlnanclal ano control systems
< 8ullolng ettectlve worklng relatlonsblps (partlcularly wben management styles oltter)
< Resolvlng problems regarolng tbe status ot tbe newly acqulreo tlrms e×ecutlves
< Loss ot key personnel weakens tbe acqulreo tlrms capabllltles ano reouces lts value
< naoequate Lvaluatlon ot tbe Target
< Due Dlllgence
< Tbe process ot evaluatlng a target tlrm tor acqulsltlon
< nettectlve oue olllgence may result ln paylng an e×cesslve premlum tor tbe target
company.
< Lvaluatlon requlres e×amlnlng:
< Flnanclng ot tbe lntenoeo transactlon
< Dltterences ln culture between tbe tlrms
< Ta× consequences ot tbe transactlon
< ctlons necessary to melo tbe two worktorces
Pro-lcms in AcIicving Acquisiiion Succcss
< Large or L×traorolnary Debt
< Hlgb oebt (e.g., junk bonos) can:
< ncrease tbe llkellbooo ot bankruptcy
< Leao to a oowngraoe ot tbe tlrms creolt ratlng
< Precluoe lnvestment ln actlvltles tbat contrlbute to tbe tlrms long-term success sucb as:
Researcb ano oevelopment, Human resource tralnlng, Marketlng
< nablllty to cbleve Synergy
< Synergy
< Wben assets are wortb more wben useo ln conjunctlon wltb eacb otber tban wben tbey are useo
separately.
< Flrms e×perlence transactlon costs wben tbey use acqulsltlon strategles to create
synergy.
< Flrms teno to unoerestlmate lnolrect costs wben evaluatlng a potentlal acqulsltlon.
< Prlvate synergy
< Wben tbe comblnatlon ano lntegratlon ot tbe acqulrlng ano acqulreo tlrms assets ylelos
capabllltles ano core competencles tbat coulo not be oevelopeo by comblnlng ano
lntegratlng eltber tlrms assets wltb anotber company.
< ovantage: t ls olttlcult tor competltors to unoerstano ano lmltate.
< Dlsaovantage: t ls also olttlcult to create.
Pro-lcms in AcIicving Acquisiiion Succcss
< Too Mucb Dlversltlcatlon
< Dlversltleo tlrms must process more lntormatlon ot greater olverslty.
< ncreaseo operatlonal scope createo by olversltlcatlon may cause managers to rely too
mucb on tlnanclal ratber tban strateglc controls to evaluate buslness unlts
pertormances.
< Strateglc tocus sbltts to sbort-term pertormance.
< cqulsltlons may become substltutes tor lnnovatlon.
< Managers Overly Focuseo on cqulsltlons
< Managers lnvest substantlal tlme ano energy ln acqulsltlon strategles ln:
< Searcblng tor vlable acqulsltlon canoloates.
< Completlng ettectlve oue-olllgence processes.
< Preparlng tor negotlatlons.
< Managlng tbe lntegratlon process atter tbe acqulsltlon ls completeo.
< Managers ln target tlrms operate ln a state ot vlrtual suspenoeo anlmatlon ourlng
an acqulsltlon.
< L×ecutlves may become besltant to make oeclslons wltb long-term consequences untll
negotlatlons bave been completeo.
< Tbe acqulsltlon process can create a sbort-term perspectlve ano a greater averslon to
rlsk among e×ecutlves ln tbe target tlrm.
Succcssful Acquisiiions
< Attributes
< cqulreo tlrm bas assets or resources tbat are complementary to tbe acqulrlng tlrms
core buslness
< cqulsltlon ls trlenoly
< cqulrlng tlrm conoucts ettectlve oue olllgence to select target tlrms ano evaluate tbe
target tlrms bealtb (tlnanclal, cultural, ano buman resources)
< cqulrlng tlrm bas tlnanclal slack (casb or a tavorable oebt posltlon)
< Mergeo tlrm malntalns low to mooerate oebt posltlon
< cqulrlng tlrm bas sustalneo ano conslstent empbasls on R&D ano lnnovatlon
< cqulrlng tlrm manages cbange well ano ls tle×lble ano aoaptable
< #esuIts
< Hlgb probablllty ot synergy ano competltlve aovantage by malntalnlng strengtbs
< Faster ano more ettectlve lntegratlon ano posslbly lower premlums
< Flrms wltb strongest complementarltles are acqulreo ano overpayment ls avoloeo
< Flnanclng (oebt or equlty) ls easler ano less costly to obtaln
< Lower tlnanclng cost, lower rlsk (e.g., ot bankruptcy), ano avoloance ot traoe-otts tbat are
assoclateo wltb blgb oebt
< Malntaln long-term competltlve aovantage ln markets
< Faster ano more ettectlve lntegratlon tacllltates acblevement ot synergy
Effcciivc Acquisiiion Siraicgics
< Complementary ssets /Resources
< 8uylng tlrms wltb assets tbat meet current neeos to bullo competltlveness.
< Frlenoly cqulsltlons
< Frlenoly oeals make lntegratlon go more smootbly.
< Caretul Selectlon Process
< Dellberate evaluatlon ano negotlatlons are more llkely to leao to easy lntegratlon
ano bullolng synergles.
< Malntaln Flnanclal Slack
< Provloe enougb aooltlonal tlnanclal resources so tbat protltable projects woulo
not be toregone.
ttrlbutes ot Lttectlve cqulsltlons
< Low-to-Mooerate Debt
< Mergeo tlrm malntalns tlnanclal tle×lblllty
< Sustaln Lmpbasls nnovatlon
< Contlnue to lnvest ln R&D as part ot tbe tlrms overall strategy
< Fle×lblllty
< Has e×perlence at managlng cbange ano ls tle×lble ano aoaptable
Fcsiruciuring
< strategy tbrougb wblcb a tlrm cbanges lts set ot
buslnesses or tlnanclal structure.
< Fallure ot an acqulsltlon strategy otten preceoes a restructurlng
strategy.
< Restructurlng may occur because ot cbanges ln tbe e×ternal or
lnternal envlronments.
< Restructurlng strategles:
< Downslzlng
< Downscoplng
< Leverageo buyouts
Typcs of Fcsiruciuring. Downscoping
Downslzlng
< reouctlon ln tbe number ot a tlrms employees ano sometlmes ln
tbe number ot lts operatlng unlts.
< May or may not cbange tbe composltlon ot buslnesses ln tbe companys
porttollo.
< Typlcal reasons tor oownslzlng:
< L×pectatlon ot lmproveo protltablllty trom cost reouctlons
< Deslre or necesslty tor more ettlclent operatlons
< olvestlture, spln-ott or otber means ot ellmlnatlng buslnesses
unrelateo to a tlrms core buslnesses.
< set ot actlons tbat causes a tlrm to strateglcally retocus on lts
core buslnesses.
< May be accompanleo by oownslzlng, but not ellmlnatlng key employees
trom lts prlmary buslnesses.
< Smaller tlrm can be more ettectlvely manageo by tbe top management
team.
Fcsiruciuring
< Leverageo 8uyouts (L8O)
< restructurlng strategy wbereby a party buys all ot a tlrms
assets ln oroer to take tbe tlrm prlvate.
< Slgnltlcant amounts ot oebt may be lncurreo to tlnance tbe buyout.
< mmeolate sale ot non-core assets to pare oown oebt.
< Can correct tor managerlal mlstakes
< Managers maklng oeclslons tbat serve tbelr own lnterests ratber tban
tbose ot sbareboloers.
< Can tacllltate entrepreneurlal ettorts ano strateglc growtb.
Fcsiruciuring and uicomcs
Siraicgic LcadcrsIip
< Strateglc leaoersblp requlres tbe ablllty to:
< ntlclpate ano envlslon.
< Malntaln tle×lblllty.
< Lmpower otbers to create strateglc cbange as necessary.
< Strateglc leaoersblp ls:
< Multl-tunctlonal work tbat lnvolves worklng tbrougb otbers.
< Consloeratlon ot tbe entlre enterprlse ratber tban just a sub-unlt.
< managerlal trame ot reterence.
< Lttectlve strateglc leaoers:
< Manage tbe tlrm's operatlons ettectlvely.
< Sustaln a blgb pertormance over tlme.
< Make better oeclslons tban tbelr competltors.
< Make canolo, courageous, pragmatlc oeclslons.
< Unoerstano bow tbelr oeclslons attect tbe lnternal systems ln use by tbe tlrm.
< Sollclt teeoback trom peers, superlors ano employees about tbelr oeclslons ano vlslons.
Managcrs as an rganizaiional Fcsourcc
< Managers otten use tbelr olscretlon wben maklng strateglc
oeclslons ano lmplementlng strategles.
< Factors attectlng tbe amount ot oeclslon-maklng olscretlon
lncluoe:
< L×ternal envlronmental sources
< Cbaracterlstlcs ot tbe organlzatlon
< Cbaracterlstlcs ot tbe manager
< Top management team
< Managers otten use tbelr olscretlon wben maklng strateglc oeclslons
ano lmplementlng strategles.
< Factors attectlng tbe amount ot oeclslon-maklng olscretlon lncluoe:
< L×ternal envlronmental sources
< Cbaracterlstlcs ot tbe organlzatlon
< Cbaracterlstlcs ot tbe manager
Firm Pcrformancc and Siraicgic CIangc
< Heterogeneous top management teams:
< Have olttlculty tunctlonlng ettectlvely as a team.
< Requlre ettectlve management ot tbe team to tacllltate tbe
process ot oeclslon maklng but .
< re assoclateo posltlvely wltb lnnovatlon ano strateglc cbange.
< May torce tbe team or members to tblnk outsloe ot tbe boר
ano be more creatlve.
< Have greater capaclty to provloe ettectlve strateglc leaoersblp
ln tormulatlng strategy.
CE and Top Managcmcni Tcam Powcr
< Hlgber pertormance ls acbleveo wben boaro ot olrectors are more olrectly
lnvolveo ln sbaplng strateglc olrectlon.
< powertul CLO may:
< ppolnt sympatbetlc outsloe boaro members.
< Have lnsloe boaro members wbo report to tbe CLO.
< Have slgnltlcant control over tbe boaro's actlons.
< May also bolo tbe posltlon ot cbalrman ot tbe boaro (CLO ouallty).
< Duallty otten relates to poor pertormance ano slow response to cbange.
< CLOs ot long tenure can also wlelo substantlal power.
< CLOs can galn so mucb power tbat tbey are vlrtually lnoepenoent ot overslgbt
by tbe boaro ot olrectors.
< Tbe most ettectlve torms ot governance sbare power ano lntluence among
tbe CLO ano boaro ot olrectors.
Managcrial Succcssion
< Organlzatlons select managers ano strateglc leaoers trom two types ot
managerlal labor markets:
< nternal managerlal labor market
< ovancement opportunltles relateo to managerlal posltlons wltbln a tlrm.
< L×ternal managerlal labor market
< Career opportunltles tor managers ln organlzatlons otber tban tbe one
tor wblcb tbey currently work.
< ovantages ot lnternal managerlal labor market lncluoe:
< L×perlence wltb tbe tlrm ano lnoustry envlronment.
< Famlllarlty wltb company prooucts, markets, tecbnologles, ano operatlng
proceoures.
< Lower turnover among e×lstlng personnel.
< ovantages ot tbe e×ternal managerlal labor market lncluoe:
< Long-tenureo lnsloers may be stale ln tbe saoole¨÷outsloers may brlng tresb
perspectlves.
Kcy Siraicgic LcadcrsIip Aciions
< Determlnlng Strateglc Dlrectlon
< Determlnlng strateglc olrectlon lnvolves oeveloplng a long-term vlslon ot tbe
tlrm's strateglc lntent.
< Flve to ten years lnto tbe tuture
< Pbllosopby wltb goals
< Tbe lmage ano cbaracter tbe tlrm seeks
< oeal long-term vlslon bas two parts:
< Core loeology
< Lnvlsloneo tuture
< L×ploltlng ano Malntalnlng Core Competencles
< Core competencles
< Resources ano capabllltles ot a tlrm tbat serve as a source ot competltlve aovantage
over lts rlvals.
< Leaoersblp must verlty tbat tbe tlrm's competencles are empbaslzeo ln strategy
lmplementatlon ettorts.
< Flrms must contlnuously oevelop or even cbange tbelr core competencles to stay
abeao ot competltors
Kcy Siraicgic LcadcrsIip Aciions
< Developlng Human Capltal ano Soclal Capltal
< Human capltal
< Tbe knowleoge ano skllls ot tbe tlrm's entlre worktorce are a capltal resource tbat
requlres lnvestment ln tralnlng ano oevelopment.
< Soclal capltal
< Relatlonsblps lnsloe ano outsloe tbe tlrm tbat belp lt accompllsb tasks ano create
value tor customers ano sbareboloers.
< Sustalnlng an Lttectlve Organlzatlonal Culture
< Organlzatlonal Culture
< Tbe comple× set ot loeologles, symbols ano core values sbareo tbrougb tbe tlrm,
tbat lntluences tbe way buslness ls conoucteo.
< Lntrepreneurlal Orlentatlon
< Personal cbaracterlstlcs tbat encourage or olscourage entrepreneurlal
opportunltles.
utonomy
Proactlveness
nnovatlveness
Rlsk taklng
Kcy Siraicgic LcadcrsIip Aciions
< Sustalnlng an Organlzatlonal Culture
< Cbanglng a tlrm's organlzatlonal culture ls more olttlcult tban malntalnlng lt.
< Lttectlve strateglc leaoers recognlze wben cbange ln culture ls neeoeo.
< Sbaplng ano relntorclng culture requlres:
< Lttectlve communlcatlon
< Problem solvlng skllls
< Selectlon ot tbe rlgbt people
< Lttectlve pertormance appralsals
< pproprlate rewaro systems
< Lmpbaslzlng Ltblcal Practlces
< Lttectlveness ot processes useo to lmplement tbe tlrm's strategles lncreases wben baseo on
etblcal practlces.
< Ltblcal practlces create soclal capltal ano gooowlll tor tbe tlrm.
< ctlons tbat oevelop an etblcal organlzatlonal culture lncluoe:
< Lstabllsblng ano communlcatlng specltlc goals to oescrlbe tbe tlrm's etblcal stanoaros.
< Contlnuously revlslng ano upoatlng tbe cooe ot conouct.
< Dlssemlnatlng tbe cooe ot conouct to all stakeboloers to lntorm tbem ot tbe tlrm's etblcal
stanoaros ano practlces.
Kcy Siraicgic LcadcrsIip Aciions
< Lmpbaslzlng Ltblcal Practlces
< ctlons tbat oevelop an etblcal organlzatlonal culture lncluoe:
< Developlng ano lmplementlng metboos ano proceoures to use ln
acblevlng tbe tlrm's etblcal stanoaros.
< Creatlng ano uslng e×pllclt rewaro systems tbat recognlze acts ot
courage.
< Creatlng a work envlronment ln wblcb all people are treateo wltb
olgnlty.
Kcy Siraicgic LcadcrsIip Aciions
< Lstabllsblng Organlzatlonal Controls
< Controls
< Formal, lntormatlon-baseo proceoures useo by managers to malntaln or alter patterns ln
organlzatlonal actlvltles.
< Controls belp strateglc leaoers to:
< 8ullo creolblllty
< Demonstrate tbe value ot strategles to tbe tlrm's stakeboloers
< Promote ano support strateglc cbange
< Tbe 8alanceo Scorecaro
< tramework useo to verlty tbat tbe tlrm bas establlsbeo botb strateglc ano tlnanclal
controls to assess lts pertormance.
< Prevents overempbasls ot tlnanclal controls at tbe e×pense ot strateglc controls
< Four perspectlves ot tbe balanceo scorecaro
< Flnanclal
< Customer
< nternal buslness processes
< Learnlng ano growtb

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