business management a.y. 2010 -2011 prof. francesco polesewebuser.unicas.it/madi/polese/uploads/bm -...
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University of Cassino
Faculty of Economy
BUSINESS MANAGEMENT
A.Y. 2010 -2011Prof. Francesco Polese
Business Management and Strategies
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Strategies
Intruments and models
Value creation
Value constellation (Normann-Ramirez)
Value system (Porter)
Value chain (Porter)
Value networks
Business Plan Balanced Scorecard BCG Matrix IndexASA (Abell)
Controll Strategic decisions Analysis
B.E.P.5 strenght (Porter)
Business management and strategies
Strategic planning Politics Competitive advantage
Principles Objectives Competitive ConceptGrowth Fonts Mnagement
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Business management and strategies
Strategies
Strategic planning Politics Competitive advantage
Principles Objectives Competitive ConceptGrowth Fonts Mnagement
Every business is a structure composed by manyresources, organized in various parts in order toaccomplish, through value creation processes,finalities and objectives cohetrent to its own scopeas it results from business vision.
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In defining itsmission the enterprise defines:• Its own social role;• The system boundaries;• The ethics principles of its behaviour (mission).
Premise
Business management and strategiesStrategic Planning
The fulfillment of institutional interestsmay be realized only if business iscapable of economic balance.
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Objectives
The sustainability of this equilibrium in related tobusiness capacity to increase its own econmic value.
Strategic Planning
Business management and strategies
The econimic principle and the value principlerepresent what stakeholders expect and needfrom business behaviour, thus affect everyproduction and business strategy.
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These principles affect business relationships with its context.This implies that decisions and actions performed by top government have tobalance production efficiency with stakeholders’, and particularly clients’,satisfaction.
Principles
Business management and strategiesStrategic Planning
Thus, businesses have to be effective and efficient,and have to fulfll context and market requirementsand expectations through a wise availableresources use.
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Sinthesis
OBJECTIVES RESULTSACTIONSDECISIONS
Business management and strategiesStrategic Planning
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VISION(GOAL & domiAINS)
MISSION(principles)
OBJECTIVESquantitative goals)
ProfitsValue
FINALITIES’(qualitative goals)
Technology
Dimensional growth
Know how, cohesion and motivation
Relational and informative capacity growth
CONTROLL STRATEGY IDENTIFICATION
Business management and strategiesStrategic Planning
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Sistematic
Strategic content Formalism
Time perspective:mid-long term
Organization connection
Business Planning
Platform for operative decisions
The characterizing conceptual elements
Business management and strategiesStrategic Planning
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The content
Business planning:
• Formalizes business strategic orientation;
• Allows the definition of long term objectives, of related actions based upon internaland external conditions analysis, of the organizational units involved, of resourcesalocation for actions and operative tasks;
• Represents a platform for operative decisions and for the evaluation of their efficacy.
Business management and strategiesStrategic Planning
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Functions
Effects
Razionalization of strategic problems
Internal integrationAction options Communication tool Controll tool
Homogeneous and integrated behavious
Integration development among
business units
Long term orientation and results evaluation
Identification and integration of
Business Units
Business management and strategiesStrategic Planning
Planning functions for strategic decisions
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Razionalization of strategic instances
External and internal conditions analysis Strategic drivers
identification
Formal exploitation of strategic decision
Transfer of strategic decision into sequences of actions
Reference and directions to operative decisions
Strategic Decisions
Preparation
Expoitation
Input to Action
Business management and strategies
Iterative logics of planning process
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Results
Experiences
Planned decisions Actions
Business management and strategiesStrategic Planning
Elements and attributes of strategic plan
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Degree of Complexity
Degree of Flexibility
Strategic Plan
Time span
Cyclicity
Actions
Resources
Mission, Objectives, Target
Strategies
Scenario
AttributesElements
Business management and strategiesStrategic Planning
Logic scheme of growth models
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Actual business expansion
Diversification in new businesses
New geographical areas development
Extension of products
Value chain extension
IDE
Partnerships
Direct Export
Development of product-market relation
Supply side
Demand side
Lateral
DomandaCanali distributiviServizi IntegratiProcessi produttiviTecnologie di processo o di prodottoMaterie prime o componentiRisorse distintive
Business management and strategiesStrategic Planning
Determinants and characteristics of a Business Strategic Area
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Planning
Product and services variety Concurrents
Organizational autonomy
Strategy determination and development
Specific objectives determination
Business Strategic Area
Market area
Business management and strategiesStrategic Planning
Relation between global strategy and single business area strategy
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Business performance evolution
Business visione and mission
Enterprise Vision and Mission
Business strategic orientation
Business management and strategiesStrategic Planning
Business unit strategy articulation
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Resources Development Strategy
Business unit Objectives
Key competitive elements
Production StrategyMarket Strategy
Global competitive strategy
Business Unit Strategy
Business management and strategiesStrategic Planning
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Basilar strategic orientation
Basilar strategic orientation is represented by the complex of values of businesslife. Every business, in fact, may follow different basilar values depending ofbusiness relation with social context, with market, with stakeholders, with eticalinstances, envinronment, etc..
Business management and strategiesStrategic Planning
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Entrepreneurial behaviours in relation with business context
Action in response to context changes
Anticipated action with respect to context changes
Induction of changes into context
Follower
Early mover
Pro-active
Strategic Politics
Business management and strategies
21
STRATEGY POLITICS
Global and general designthat identifies directions anddevelopment paths in order toreach goals and objectives
Functional choices in relationwith global strategy affectingoperations and managementdecisions
Strategic Politics
Business management and strategies
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Business Strategies Hierarchy
Strategic Politics
Business management and strategies
’
STRATEGIE COMPETITIVE(strategie d ’area d ’affari)
STRATEGIE FUNZIONALI
Area
BV
endi
ta
Fina
nza
STRATEGYSTRUCTURAL
(Business Strategy)’
COMPETITIVE STRATEGIES’ ’
STRATEGIESFUNCTIONAL
Area
B
Mar
ketin
g
Fina
nce
Area
A
Area
C
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Business Strategical Goals
DIMENSIONAL DEVELOPMENT
NEW MANAGERIAL SETTING
RISKS REDUCTION
OWN MARKET-POSITION DEFENCE
MARKET ABANDON
Structural Strategies
Strategic Politics
Business management and strategies
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Business Strategies categories for dimensional development
1. Mono-sectorial 1.1. Horizontal Integration
1.2. Vertical Integration
2.1. Lateral Diversification
3.1. International Market development
3.2. Multinational Managerial Development
2. Poli-sectorial
3. International
Market sideSupplier side
Kind of Development Kind of Strategies
Strategic Politics
Business management and strategies
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Growth Opportunity – Intra-SECTORIAL Development
Known Business Area Extension
Modifications in product-market relation and geographical extension
Vertical Integration (value chain extension)
Known Products and Known Market:- geographical extension(national, international);- market penetration
Known Products and New Market :- uses and applications increase
New Products and Known Market :- production line increase
Market side
Supplier side
Strategic Politics
Business management and strategies
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Integrated Business
Ent
erpr
ise
Main Productions
…………..
Middle Productions
………..
Final Productions
…………
Mar
ket
Strategic Politics
Business management and strategies
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Diversified Business
Market
Automotive
Market
Tools Machines
Market
Marine Motors
Market
Electrical Products
Enterprise
Strategic Politics
Business management and strategies
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Business Strategies for Dimensional Develpment
Horizontal Development
Vertical Integrations
Diversification
International exporting
Short-run
Medium-run
Long-run
Long-run
Qm Increase
Value added increse
Resource Sharing
Business Area Expansion
Marketing
Finance
Management and Finance
Technology and Finance
No relevant
Risks reduction (about supply and sale)
Commercial and Productive Risk Diversification
GeographicalRisk Diversification
Develpment Strategies
Action TimingSub-findings Key Resources Main Effects
Strategic Politics
Business management and strategies
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Business Dimensional Development
Costs Disadvantages
Rigidity
Controll loss
Market Visibility
BenefitsRevenue Increase in terms of:
- volumes- prices
EFFECTS Disadvantages
Costs reduction:- Costs benefits (of “Scale”)- Learning improuvement
Internal LIMITS ExternalManagerial ResourcesOperating StructureFinancial Resources
Demand IncreaseCompetitors inluence
Internal CASES ExternalLack or bad using of Business Resources Business opportunities
Strategic Politics
Business management and strategies
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Business dimensional development Politics
Organizational development
Fusions and takeover
Joint venture
Internal Growth
Business Acquisitions
Business Alliances
Strategic Politics
Business management and strategies
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Renovation Process
Dimensional Development (Increase or Decrease)
New mktg mixNew Market positioning
Technological re-thinkingStrategical re-thinking
Re-construction
Crisis Factors
Dimensione dell’attività
Market Share Loss
Inadeguatezza tecnologica
Organizational problems
Business renovation Processes
Re-definition of System Organizational Scheme
Lack of Strategical Efficiency
Strategic PoliticsBusiness management and strategies
32
Competitive advantage
• What is competitive advantage?
• Where the competitive advantage comes from?
• What are the competitive strategies?
Business management and strategiesCompetitive advantage
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What is competitive advantage
• The competitive advantage is the result of a strategythat leads the enterprises to gain and maintain afavorable position in the market (in which theyoperate)
• This position enables it to achieve sustainable higherprofitability than its average direct competitors.
Business management and strategiesCompetitive advantage
34
SUPPLY SIDE POINT OF VIEW:
The competitive advantage is an opportunity for sustainable profitabilityagainst the competitors, distinguishing themselves from the situations oferosion in the competitiveness of products from enterprises that, attested totheir positions, contend sales volume and market share
The competitive advantage comes from the business ability to do something,or manage a specific functions better than its direct competitors
An enterprise has a competitive advantage if it is able to offer more value tocustomers comparing to own competitors
Business management and strategiesCompetitive advantage
35
DEMAND SIDE POINT OF VIEW :
An enterprise has a competitive advantage if the spread offered is perceivedby customers as a greater benefit
So we can deliver competitive advantage:
The clients will prefer the offer which gives them a DBp > 1
DBp =DSp
DVp DBp = Differential benefit perceived
DVp = Differential value perceived
DSp = Differential sacrifice perceived to acquire the product offered
Business management and strategiesCompetitive advantage
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DEMAND SIDE POINT OF VIEW :
The enterprise follows a competitive advantage against competitors whenthe difference between the highest price and the total cost, incurred toprovide the differential value, is greater than what is achieved bycompetitors :
Pr a – Co a > Pr b – Co b
Pr a = price charged by the enterprise a
Co a = total cost by enterprise a
Pr b = price charged by competitor b
Co b = total cost borne by the competitor b
Business management and strategiesCompetitive advantage
37
The source of competitive advantage
How the competitive advantage was created?
External sources of exchange
Consumer demand
Prices
Technology
Internal sources of exchange
The heterogeneity of resources between enterprisesleads to different results
Some enterprises are able to adapt more rapidly to externalexchange
Some enterprises are more creative and innovative
Business management and strategiesCompetitive advantage
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The source of competitive advantage
A strategy to create competitive advantage
Ability to identify and exploit innovative opportunities better than competitors
Ability to produce a value for customers higher than what is provided by competitors
Critical resources and expertises
Strategic, organizativeand environmental fits
Rank distinctive Operational Excellence
Competitive advantage is understood as profitabilityabove the average of competitors
Business management and strategiesCompetitive advantage
39
TYPES OF COMPETITIVE ADVANTAGE
The enterprise can pursue a competitive advantage through different paths:
Competitive advantage
Enterprises will choose inside a set of results deriving by several factors thatcharacterize and often lead to choose combinations of the two benefits.
DIFFERENTIATION ADVANTAGE
COST ADVANTAGE
Business management and strategiesCompetitive advantage
40
SOURCES OF COMPETITIVE ADVANTAGE
The competitive advantage is due to a variety of activities, called SOURCES
TRADITIONAL SOURCES:
- Technological innovation of product;
- Product Promotion;
- Research and Development;
- Brands;
- Dimensional advantages;
- Production Techniques;
- Privileges Availability;
- Adapt to demand fluctuations.
Business management and strategies
NEW SOURCES:
- Relationships with partners;
- Relationship with the different contexts;
- Orientation to customer satisfaction;
- Use of digital technologies.
Competitive advantage
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MANAGEMENT OF COMPETITIVE ADVANTAGE
The competitive advantage must be:
- PROTECTABLE: not easily reproducible;
- DURABLE: to maintain for a certain period of time.
Steps to creating a competitive advantage:
- Identification of the advantage;
- Identification of sources;
- Management of the advantage.
The consolidation of a competitive advantage and its development involve acontinuous flow of "super-investments" in critical areas and involve a majoreffort of top management.
Business management and strategiesCompetitive advantage
42
THE SYSTEM OF RESOURCES AND SKILLS
At first, in the past, the analysis focused on the external environment andon business competitive choices compared to competitors. In this view theanalysis of system resources and skills is seen like an internal businesssystem adjustment.
The most recent literature, instead, focuses on the analysis of systemresources and skills (internal environment), because the ability to exploitopportunities and sustain the competitive advantage depends on the quantityand quality of available resources.
The Resource – based theory is based on :
the logic of the strategy is not based on the allocation of resources as asample adaptation to the opportunities, but is founded on existing leverageand potential resources able to create competitive advantages.
Business management and strategiesCompetitive advantage
43
The competitive advantage directly depends on the whole of individual resources andskills expressed by the enterprise.
A) Tangibles
RESOURCES (classification of Grant):
PhysicalFinancial
B) Intangibles
OrganizationalTechnological
C) Human factors
Management capacity and employees
Reputational
Business management and strategies
THE SYSTEM OF RESOURCES AND SKILLS
Competitive advantage
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Are detectable as the business capacity or ability resulting from the combination orintegration of resources.
Distinctive skills:The activities that an organization carries with special and different way (than its competitors).
SKILLS:
Core Competences:The fundamental ability to achieve high business performances.
Business management and strategies
THE SYSTEM OF RESOURCES AND SKILLS
Competitive advantage
45
The sustainability of competitive advantage• The stability of the competitive advantage of a business depends on:
– durability of distinctive resources/skills – structural variables
• business size• privileged access to resources or market• limits to the strategies of competitors
– defense strategies• hide the superior performance• moral suasion • first niche conquest• causal ambiguity
Business management and strategiesCompetitive advantage
4646
Business management and strategiesIntruments and models
Intruments and models
Business Plan Balanced Scorecard BCG Matrix IndexASA (Abell)
Control Strategic decisions Analysis
B.E.P.5 strenght (Porter)
PremiseTo achieve long term goals, the enterprise must primarilyconsider short term targets and quantitative/qualitativegoals, which must daily adapt to internal/external variableschanges, and must be coherent with general strategy.
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Business management and strategies
As a result of these circumstances, the business goals are distinguished infunction of their different time dimension:
– short term goals– medium-long term goals
The two types of objectives outline two different business choices domains;these choices are distinguished in short or long term decisions .
Plan and Control Instruments
Management & ControlThe control is an operational mechanism aimed to guideindividual and organizational behaviours toward theachievement of business goals.
This aim is pursued through:• analytical measurement• target parameters accountability
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Business management and strategiesPlan and Control Instruments
Management & ControlThe economic-financial measurements can be:
• quantitative - monetary• (e.g. income, capital, costs, revenues);
• quantitative non-monetary• (e.g. performances, time);
• qualitative• (e.g. customer satisfaction, business actions stakeholders-
oriented)
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Business management and strategiesPlan and Control Instruments
Control can be referred to:
• actions: Used tools that act directly on employees behavior
• results: Used tools that tend to involve players on the outcomeof their activities and to gratify those who improve ownperformances
50
Business management and strategiesPlan and Control Instruments
Management & Control
Management & Control• The dimensions (variables) of control:
• ECONOMIC-FINANCIAL AND VALUE• ORGANIZATION (COHESION AND MOTIVATIONS)• INTERNAL KNOW-HOW• RELATIONAL CAPACITY• CUSTOMERS• SURVEILLANCE• ENVIRONMENT• ETHICS
51
Business management and strategiesPlan and Control Instruments
Business Plan
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Business management and strategies
What is it?
Who can use it?(What does it may be useful for?)
How is it made?
Plan and Control Instruments
What is a BP?
• It is an Operative tool that expresses, inorganic and systematic way, all thecomponents of an entrepreneurialproject in order to:
• plan• analyze• highlight strengths and weaknesses
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Business management and strategiesPlan and Control Instruments
Who can use a BP?
• Entrepreneur for internal analysis and control• Enterprises employees for information and
strategy sharing• Banks to access credit or potential investors• The istitutional actors who manage the requests
for facilities
54
Business management and strategiesPlan and Control Instruments
How is made a BP?
• It consists of two parts:• descriptive• numerical
• The first part provides to a projectdescription in its different aspects
• The second one provides to a precisenumerical references on financialrequirements and economic projections
55
Business management and strategiesPlan and Control Instruments
The elements of BP
• The project presentation • Promoters and business presentation• Product/service (outcome)• The target market and competitors • Marketing strategies • The resource organization• The financial resources to invest • Economic-financial projections
56
Business management and strategiesPlan and Control Instruments
Project presentation
• Idea description • Target field definition • Product/service description• Generic classification of the market• Needs to satisfy description• Identification of customers
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Business management and strategiesPlan and Control Instruments
Promoters presentation
• Previous experience, qualification andpromoters professional skills description
• The division of members roles
• Identification of the business distinctive elements– Choice of legal form
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Business management and strategiesPlan and Control Instruments
The product / service
• Product / service detailed description
• Strengths and differentiation compared to products / services already exist
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Business management and strategiesPlan and Control Instruments
The market• Market identification
- needs analysis- market definition (geographic, demographic) - processes and purchasing behavioures description
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• Market functioning- market and sales process functioning - distribution systems- special rules- payment terms
• The segmentation-choice between global or niche strategy
• Critical factors identification
Business management and strategiesPlan and Control Instruments
The market
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• Direct competitors analysis• Similar products analysis• Expectation of competitors strategic reaction to a new business entry • New competitors analysis • Market constraints analysis
• Market funding:- procedures definition- questionnaire setting - determination of sample (pattern)- results analysis
Business management and strategiesPlan and Control Instruments
The marketing plan
• Own quality dimensions assessing
• Own market position comparing
• Strengths/weaknesses and opportunities/threats evaluation (SWOT)
62
Business management and strategiesPlan and Control Instruments
The marketing plan
• Define the business strategy through:
- product- customer service- placing- promotion- direct sales - price
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Business management and strategiesPlan and Control Instruments
Human resources
It’s requires:• Quantify the necessary staff and establish the roles
• Establish the staff’s assignment (employee or contractor, full time or part-time)
• Define Members tasks
• Set the budget
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Business management and strategiesPlan and Control Instruments
Financial resources to invest
• Source identification:
- external debts (M/L term) - business resources
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Business management and strategiesPlan and Control Instruments
Economic-financial projections
• Economic and financial impact (evaluation)
It should be developed:- costs statement- balance-sheet- cash flows
66
Business management and strategiesPlan and Control Instruments
67
Integration of quantitative and qualitative monitoring, theBalanced Scorecard (Norton and Kaplan, 1994)• The emphasis on quantitative parameters monitoring in the
short period may lead to underestimate the long-term goals(eg. Innovative efficiency sacrificed for short-runefficiency)
To avoid these drawbacks, we can use a monitoring toolthat integrates strategic and financial variables, quantitativeand qualitative: the Balanced Scorecard
The BS is a strategic monitoring tool that simultaneouslymonitors in a coherent and balanced way the variousrelevant parameters for the creation of competitiveadvantage.
Business management and strategiesPlan and Control Instruments
68
BS Contents• Financial Perspective
traditional indicators of profitability: how should we appear to our shareholders?
• Market Perspective customer satisfaction, loyalty rate, acquiring new customers, market shares: how should we appear to our customers?
• Perspective of internal processes of management performance indicators of the processes, particularly those processes that create value and customer value
• Perspective of the processes of learning and growth skills and motivation of human resources and efficient information system
Business management and strategiesPlan and Control Instruments
69
BS Fundamental CompetencesAbility to mobilize and use the skills and intangibles, in particular among them:
•ability to report •ability to promote innovative products and services for specific market segments •ability to produce at competitive cost, high quality and to reduce time to market •ability to develop skills and motivation in human resources
Business management and strategiesPlan and Control Instruments
70
Costruzione della BS
– vision definition – formalization of the strategy – articulation of strategies relating to the creation
of value in the four areas of Balanced Scorecard– critical success factors identification – identification of performance indicators in
relation to critical factors– definition of a target value for each of identified
measures– assigning each target to the liability of a manager
Business management and strategiesPlan and Control Instruments
71
The Balanced Scorecard
Business management and strategiesPlan and Control Instruments
72
Periodic review of the basic assumptions
• Basic assumptions Control is a systematic check of the premises on which it was based the strategy.
• The basic assumptions are related to macro and competitive environment in which the company operates
• The aim is to verify whether the competitive landscape and macro-environmental changes
Business management and strategiesPlan and Control Instruments
73
Environmental variables monitoring
• Macro-environmental analysis: Analysis of the "enlarged environment" Scenario analysis
• Analysis of the competitive environment Tools for evaluation of the attractiveness of the areas where the company operates or intends to operate
Business management and strategiesPlan and Control Instruments
74
Environmental Analysis
– National and international Economic environment (income, production, inflation ...)
– socio-demographic environment (rates of population growth, structure of households ...)
– socio-cultural environment (values, culture, opinions and "trends" ...)
– institutional environment (political and legal, national and supranational, eg. EU) and social stakeholders (competition, corporate law, labor law ...)
– technological environment (innovation, research ...)– domestic structural environment (infrastructure, training ...)
Business management and strategiesPlan and Control Instruments
75
MethodsThe latest scenarios are based on: • systemic analysis
critical variables (which are variables that assume a key role in the system?), strategies of the actors (such as logic of action?), breakpoints (what important events have marked discontinuity in the recent past?)
• factorial analysis critical variables changing ("axes" and lines of evolution definition)
• scenarios construction systems representations, quantification, "backcasting" behavior structuring
Business management and strategiesPlan and Control Instruments
76
Envirnmental Analysis ToolsAnalysis of the sector. The base il Porters
competition model:
• Identify the characteristics and intensity of the forces that determine the attractiveness of the sector and the competitive position of enterprises. Focus on major groups of competitors (strategic groups and competitive)
• Determine the actual impact of each of them a) graphics system b) system level (weighted score)
Business management and strategiesPlan and Control Instruments
77
Resources and competences Analysis
Evaluation of resources and competencies, identifying the resources and skills that:
•impact on the enterprise as a whole•impact on particular management areas,•are directly owned or held by potential partners and still accessible for each of them
Business management and strategiesPlan and Control Instruments
78
Resources and Competences Relations
– Historical analysis: time comparison of key parameters and indexes of the enterprise
– Comparison with the average values of the industry key indicators
– Benchmarking analysis: what to do (best practices) and to get the results of best performers in the sector?
Business management and strategiesPlan and Control Instruments
79
Quantitative monitoring: the budgeting• The planning of the strategic objectives is a hierarchical
process
• The "high level" strategic objectives are referred to operenting one (for example at the level of business unit or function) that can be monitored during short periods
• Budgets are short term plans that allow you to monitor the activities. Planning and control System
• The budget is structured hierarchically. Objectives expressed in terms of financial viability, lead to targets in terms of cost containment, increase productivity, etc ...
Business management and strategiesPlan and Control Instruments
80
Budget monitoring Logic• Control Objects (viability, efficiency, cash flow ...)
• Setting standards of control and range of variation
• Measuring results
• Comparing the results with the standards set
• Define the causes of deviations
• Take corrective action
• Budget: Revenues (sales and forecast), Investments (financial uses for plants, machinery, stocks), cost (costs of different business units)
Business management and strategiesPlan and Control Instruments
The BCG Matrix
81
The Boston Consulting Group Matrix supports the analysis of the product portfolio potential.
The BCG shows the capacity to contribute to profits performed by each product, thus directing strategies on product portfolio management.
Hypothesis:The collocation of products in a growing market needs high levels of liquidity
Experience effect: a high market share enables a cost competitiveness with comptetitors
Strategic tools
Business management and strategies
82
The experience low and the experience curve
Unitary Cost
Experience: cumulated production0
20
60
40
80
100
Unitaty cost of value added (P-C) of an homogeneous product, measured in monetary constant values, decreases of a fixed and predictable percentage every time that total cumulated production dobles.
•The effect is stronger in the production launch
• Costs have to be decreased by inflation
•Experience: Q, not T
• Experience: Q, not Q/t
Business management and strategies
83
• Learnign potential is low, or the product added value is low;
• A concurrent with little market share benefits of an experience effect greater than otherconcurrent due to its technological superiority;
• Experiences differences are leveraged by product/process innovations, with technology changes(the experience curve changes!);
• The experience effect exists, but it cannot be valorized for the scarse market sensibility onprice;
• A concurrent benefits of a supply privileged font.
It seems appliable mainly in activitieas in which greated volumes confer economic advantages, withimportant learning effects. There are situations in which it has little value, such as:
experience curve limits
The paradox of an experience curve always appliable would be a disaster for all minor concurrent,damnded by leaders to stay in mediocrity and dissapear. Fortunately this is neglected by realbusiness!
Business management and strategies
84
Mar
ket g
row
th r
ate
Relative market share (competitive capacity)
high low
high
low
Cash cow Dog
Star Questions mark+
-
Liquidity needs
+Liquidity generation -
Strategic tools
The BCG Matrix
Business management and strategies
85
The BCG Matrix
Rea
l mar
ket a
nnua
l gro
wth
rate
Relative market share
low
hig
h
high low
dog
Profits: low, unstable
Cash flows: in equilibrium, or negative
Strategies: disinvest
cash cow
Profits: high, stable
Cash flows: high, stable
Strategies: save cash
star
Profits: high, stable, growing
Cash flows: in equilibrium
Strategies: invest in growth
question mark
Profits: low, unstable, increasing
Cash flows: negative
Strategies: analysis to understand if the product will be a star or a dog
Strategic tools
Business management and strategies
86
Trajectory 1 The innovator: financial incomes generated by cash cow are invested in R&D, future stars
Trajectory 2 The follower: utilizes incomes generated by cash cow to solve the question mark strenghtening the market share (against the leader)
Trajectory 3 Loss: from star to question mark, for unsufficient investments
Trajectory 4 Mediocrity: from qustion mark to dog, for unsufficient investments
In fig. 4 possible trajectories:
2 successful, 2 unsuccessful
Strategic tools
The BCG Matrix
Business management and strategies
87
Cash cow Dog
Star Questions mark+
-
+ -
1
R&D
2
3
4
Strategic tools
The BCG Matrix
Business management and strategies
Mar
ket g
row
th r
ate
Relative market share (competitive capacity)
high low
high
low
Liquidity needs
Liquidity generation
88
The BCG Matrix limits
The BCG Matrix has some limits:
Hypothesis 1 related to the experience effect is not siutable for all kind of products, butmainly for volume productions (high defendable competitive advantage and fw,determined, competitive advantage fonts.
The model takes into accoun only internal competitive advantage, and not the externalsource: some dogs may, valorized with distinctive capacities, create profits for clientswilling to pay the over price with (with reference to the leader competitor).
Recomentations need to be generic and systemic. After price, place, communication andproduct strategies have to be detailed.
Strategic tools
Business management and strategies
89
But how to manage the BCG Matrix?
New Product Development
o New idea
o First Selection
o Economic analysis
o Financial Development
o Technical Development
o Product development
o Commercial development
o Repositioning
o Increase quality
o Increase functionality
o Improve aesthetics
Existing Products Management
Strategic tools
Business management and strategies
90
Companies today have to do their competitive daily updating the products they offerand new products with balancing cash crops, paying the money earned by winningproducts and established R & D and promotion of products .
CONCLUSIONS: The search for a balanced portfolio
Strategic tools
Business management and strategies
9191
Value creation
Value constellation (Normann-Ramirez)
Value system (Porter)
Value chain (Porter)
Value network (……….)
Business management and strategies
92
Every strategy directed to sustainable competitive advantage requires knowledge aboutbusiness activities and business organization, in order to act on these and improuve withrespect to concurrents.
With these premises Porter defined a model of business internal analysis to supportefficience and efficacy improvements in all activities involved in vale creation: thevalue chain
the premises...
Business management and strategiesValue creation
93
Incoming logistics
Outgoing logisticsTransformaion Marketing Services
Supplying
Administration
Human resources management
Infrastructural activities
Research and Development
Value creation
Business management and strategies
94
Specific actions on efficacy and effectiveness of internal activities may decreas costs (cost leadership) or enrich the product (differentiation strategies), or may enable strategies focused to market acquisition.
The value chain helps a better analysis of competitive position with reference with concurrents identifing strenghts and weaknesses
Interaction management and interconnections fluidification among activities: internal synergies for client perceived value
C
INCOMING LOGISTICS
OUTGOING LOGISTICSTRASFORMATION MARKETING SERVICES
SUPPLYING
ADMINISTRATION
Human Resources management
INFRASTRUCTURAL ACTIVITIES
RESEARCH & DEVELOPMENT
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Value creation system
Porter value system model:• Is based on a sequencial logic;• Is not a win – win logic, because it
is based on power relations;• It is based on value added creation.
final client
Suppliers
Market
But how do business relate nowadays?
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CLIENTS
Co-maker
Co-maker
Co-maker
Co-maker
Co-maker
Co-maker
Co-maker
Co-maker
Co-maker
Offer Systems value constellation made by da co-maker
Clients, just other actors, are active and protagonist in value creation
Coherent with stakeholder theory and VSA
Not sequential anymore, but contemporary and highly interactive
Value constellation
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Among the chain (1985) and the constellation (1995) setting background goea tochange:
The reletions are not based on force and power logic, but on interactive andcollaborative mechanisms of Collaboration, mutual benefit and trust.
This interpretation highlights that business distinctive competences are not neighboringin the chain, but extend to relations (to activate, to protect, to stabilize). This stimulatesthe emergence of:
business networks, network, constellations, clusters.
The value constellation twists the Porter’s logic of value creation (based on relations ofpower and economic convenience) to search for a harmonious coordination and synergybetween the actors, to promote "win-win“ logic. The increase in value added is sharedbetween the company, co-makers and customers.
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The constellation is very close to the cultural settings of Normann and Ramirez,scholars of services companies.
The chain, however, is more easily interpretable for individual business.
The constellation seems most appropriate to provide an approach, an attitude to therelations between business systems, able to increase value for all stakeholders(including customers), because it is based on a culture of excellence, improvementand lifelong learning.
Towards the value networks....
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Value ChainValue Networks
Value Constellation
Value System
Historical evolution for value creation processes
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The adopted perspective about value creation
Value generation processes are complex and have been thoroughly analyzed inliterature, deepening value chain processes (Porter, 1986), value constellationsmanagement (Normann, Ramirez, 1993), stakeholder value (Charreaux, Desbrieres,2001), etc.
Enterprises are no more left alone in their value generation processes (Hakansson &Snehota, 1989), hence we are close to value generation processes that involve multipleactors (resources owners), who have to play an active role.
Value Creation
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Value generations and networks
Articulated and multiple actors value generationprocesses, characterizing today competition, driveforward value co-creation (Prahalad, Ramaswamy,2004), and they intrinsically suggest the deepening ofnetwork concept.
The concept of network has been investigated in manydisciplines in literature (social sciences, biology, naturalsciences, etc.).
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In economic studies, networks theories have dealt with many network issues, such as:
Net genesis Thompson: 1967; Bateson:1989; Lomi:1991
Net structure Richardson:1972; Burt:1982, 1992; Butera:1990;Hedlund:1986; Bartlet & Goshal:1990;Lorenzoni:1990; Nohria & Eccles:1992
Net government Jones, Hesterly & Borgatti:1998
Network and relations
Williamson:1975, Ouchi:1980; Johanson & Mattson:1984, 1987; Granovetter:1985; Powell:1990; Hakansson & Snehota:1995
Net strategies Jarrillo:1988; Jones, Hesterly & Borgatti:1998
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About networks
Rather, in this contribution, we underline how:o Network may be an organizational form;o Network may be an approach with which investigate business arena (networklenses…);o Networking may be a business strategy;o Networks may describe social patterns involving enterprises as well as individuals.
But most we would like to refer to networking as acultural attitude
Value Creation
Business management and strategies