so what is strategy short version.ppt

Patrick T. GibbonsJefferson Smurfit Professor

of Strategic Management

What is strategy?

Environmental Analysis“Analysis is the

critical starting point of strategic thinking”

Kenichi Ohmae

Environmental Scanning

3-4

THE INDUSTRYENVIRONMENT

• Suppliers• Competitors• Customers

Social structure

The national/ The national/ international international

economyeconomy

TechnologyTechnology

GovernmentGovernment& Politics& Politics

The natural The natural environmentenvironment

Demographic Demographic structurestructure

Social structureSocial structure

•The Industry Environment lies at the core of the Macro Environment.

•The Macro Environment impacts the firm through its effect on the Industry Environment.

From Environmental Analysis to Industry Analysis

From Environmental Analysis to Industry Analysis

3© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com

Median return on equity (%), 1999-2007

Profitability of US Industries(selected industries only)

Profitability of US Industries(selected industries only)

HIGH PROFITABILITY LOW PROFITABILITY

Household & Personal Products 26.0 Motor Vehicles & Parts 9.3

Pharmaceuticals 21.0 Insurance Life & Health 9.1

Petroleum 20.1 Forest & Paper Products 7.3

Tobacco 21.6 Food Production 6.5

Food Consumer Products 19.5 Semiconductors & Electronic Components

6.2

Securities and Investment Banking 18.4 Network & Communications Equipment

5.9

Beverages 17.2 Telecommunications 5.8

Medical Products & Equipment 17.2 Entertainment 2.7

Scientific & Photographic Equip. 15.6 Airlines (12.6)

Commercial Banks 14.8

Computer Software 14.0

Aerospace & Defense 13.9

3 key influences:

1. The value of the product to customers

2. The intensity of competition

3. Relative bargaining power at different levels within the value chain.

The Determinants of Industry Profitability

The Determinants of Industry Profitability


7

Porter’s Five Forces of Competition Framework

Porter’s Five Forces of Competition Framework

SUPPLIERS

POTENTIALENTRANTS

SUBSTITUTES

BUYERS

INDUSTRYCOMPETITORS

Rivalry amongexisting firms

Bargaining power of suppliers

Bargaining power of buyers

Threat of

new entrants

Threat of

substitutes

© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com

THREAT OF ENTRY•Capital requirements•Economies of scale•Absolute cost advantage•Product differentiation•Access to distribution channels•Legal/ regulatory barriers•Retaliation

SUBSTITUTECOMPETITION

• Buyers’ propensity to substitute• Relative prices & performance of substitutes

SUPPLIER POWER• Suppliers’ price sensitivity • Relative bargaining power

INDUSTRY RIVALRY•Concentration•Diversity of competitors•Product differentiation•Excess capacity & exit barriers•Cost conditions

BUYER POWER• Buyers’ price sensitivity • Relative bargaining power

The Structural Determinants of Competition

The Structural Determinants of Competition


© 2013 Robert M. Grantwww.contemporarystrategyanalysis.com 10

Five Forces or Six?Introducing Complements

INDUSTRY COMPETITORS

Rivalry among existing firms

SUPPLIERS

SUPPLIERS SUBSTITUTES

BUYERS

Threat of substitutes

Threat of new entrants

Bargaining power of suppliers

Bargaining power of buyers

COMPLEMENTS

The suppliers of complements create

value for the industry and can exercise bargaining

power

Forecasting Industry Profitability

• If we can forecast changes in industry structure we can predict likely impact on competition and profitability.

Strategies to Improve Industry Profitability

• Which of the structural variables that are depressing profitability can we change by individual or collective strategies?

Strategic Positioning

• Once we know which structural features of the industry support profitability and which depress profitability, we can choose a favorable positioning within the industry.

15

Applying Five-Forces AnalysisApplying Five-Forces Analysis

© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com

THE FIRM

Goals & Values

Resources &Capabilities

Structure & Systems

THE INDUSTRYENVIRONMENT

•Competitors•Customers•Suppliers

STRATEGYSTRATEGY

The Firm-Strategy

Interface

TheEnvironment-Strategy

Interface

Shifting the Focus of Strategy Analysis:From the External to the Internal Environment

Shifting the Focus of Strategy Analysis:From the External to the Internal Environment


STRATEGY

INDUSTRY KEYSUCCESS FACTORS

COMPETITIVEADVANTAGE

ORGANIZATIONALCAPABILITIES

RESOURCESTANGIBLE INTANGIBLE HUMAN

•Financial•Physical

•Technology•Reputation•Culture

•Skills/know-how•Capacity for communication & collaboration•Motivation

The Links between Resources, Capabilities and Competitive Advantage

The Links between Resources, Capabilities and Competitive Advantage


Company Valuation ratio

Country Company Valuation ratio

Country

Yahoo! Japan 72.0 Japan Coca-Cola 7.8 US

Colgate-Palmolive 20.8 US Diageo 7.4 UK

Glaxo Smith Kline 13.4 UK 3M 7.3 US

Anheuser-Busch 12.6 US Nokia 6.7 Finland

eBay 11.2 US Sanofi-Aventis 6.3 France

SAP 10.8 Germany AstraZeneca 5.9 UK

Yahoo! 10.7 US Johnson & Johnson 5.7 US

Dell Computer 10.0 US Boeing 5.7 US

Sumitomo Mitsui Financial 8.8 Japan Eli Lily 5.6 US

Procter & Gamble 8.4 US Cisco Systems 5.5 US

Qualcomm 8.3 US Roche Holding 5.5 Switz.

Schlumberger 8.2 US L’Oreal 5.3 France

Unilever 8.1 Neth/UK Altria 5.2 US

PepsiCo 8.0 US Novartis 5.1 Switz.

Firms with the Highest Ratios of Market value to Book Value(December 2006)

Firms with the Highest Ratios of Market value to Book Value(December 2006)


Scarcity

Relevance

Durability

Transferability

Replicability

Property rights

Relative bargaining power

Embeddedness

THE EXTENT OF THE COMPETITIVE ADVANTAGE

ESTABLISHED

SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE

APPROPRIABILITY

THE PROFITEARNING POTENTIALOF A RESOURCE OR

CAPABILITY

The Rent-Earning Potentialof resources and Capabilities

The Rent-Earning Potentialof resources and Capabilities


Assessing a Company’s Resources and Capabilities: The Case of VW

Assessing a Company’s Resources and Capabilities: The Case of VW

RESOURCES Importance VW’s relative strenght

R1. Finance 6 6

R2. Technology 7 5

R3. Plant and equipment

8 8

R4. Location 4 4

R5. Distribution 8 5

R6. Brands 6 5

CAPABILITIES Importance VW’s Relative Strenght

C1. Product Development

9 4

C2. Purchasing 7 5

C3. Engineering 7 9

C4. Manufacturing 8 4

C5. Financial Management

6 4

C6. R&D 5 4

C7. Marketing and Sales

9 4

C8. Government Relations

4 8

C9. Strategic Management

7 4Both scales range from 1 to 10 (1= very low, 10= very high)


Rel

ativ

e S

tren

gth

Strategic Importance

Superfluous Strengths Key Strengths

Zone of Irrelevance Key Weaknesses

1

1

5 10

5

10

R1

R2

R3

R4

R5

C1

C2

C3

C4C5C6 C7

C8

(Hypothetical only)

Appraising VW’s Resources and CapabilitiesAppraising VW’s Resources and Capabilities

C9

R6


C1 Student recruitmentC2 Course

developmentC3TeachingC4Student placementC4. Alumni relationsC5 Corporate relationsC6 ResearchC7 AdministrationC8 Financial mgt.C9 MarketingC10 ITC12 HRM

Appraising the Capabilities of a Business School (illustrative only)

Appraising the Capabilities of a Business School (illustrative only)

IMPORTANCE

- +

+

RELATIVE STRENGTH

-

Superfluous strengthC6

Key strengthC9, C3, C5

Inconsequential weaknessesC11, C10

Key weaknessesC8, C4, C2, C12, C1, C7


Not important

Needed to play

Needed to win

1. Effective deal making

2. Rapid new product development

3. Relentless cost forms

4. Product quality5. JV management 6. Superior EH&S

management7. Managing culturally

diverse workforce8. Fast decision

making9. Customer

segmentation10.Capture synergies

across divisions11. Effective

procurement

IMPORTANCE

- +

+

RELATIVE STRENGTH

-

Superfluous strength6

Key strength9, 4, 5

Inconsequential weaknesses

10

Key weaknesses1, 2, 3, 7, 8, 11

Amoco’s Appraisal of Organizational Capabilities (illustrative only)

Amoco’s Appraisal of Organizational Capabilities (illustrative only)


4. Develop strategy implications: (a) In relation to strengths--How can these be exploited more effectively and fully? (b) In relation to weaknesses --Identify opportunities to outsourcing activities that can be better performed by other organizations. --How can weaknesses be corrected through acquiring and developing resources and capabilities?

3. Appraise the firm’s resources and capabilities in terms of:

(a) strategic importance(b) relative strength

2. Explore the linkages between resources and capabilities

1. Identify the firm’s resources and capabilities

STRATEGY

CAPABILITIES

RESOURCES

POTENTIAL FOR

SUSTAINABLE

COMPETITIVE

ADVANTAGE

Summary: a Framework for Analyzing Resources and Capabilities

Summary: a Framework for Analyzing Resources and Capabilities


Competitive Advantage?“if your business can

produce at a lower cost than can competitors, or if it can deliver more perceived value than competitors, or a mix of the two then you have a competitive advantage.”

Value Chain

ActivitiesValue chain involves value activities and margin

Value activities are the distinct physical and technological activities that a firm performs to create value for customers

Activities usually involve people, technology, fixed assets and information.

Primary activities are involved in the physical creation of the product and its sale and transfer to the buyer.

Support activities…

Lafley & Martin, 2013Five essential questions:

What is your winning aspiration?

Where will you play?How will you win?What capabilities must

be in place?What management

systems are required?

Source: A Playbook for Strategy, Rotman, Winter 2013

Putting Strategy in its Place

Hendrick & Fredrickson, Nov 2001, Are you sure you have a Strategy?

Strategic Analysis• Industry Analysis

• Customer/ Marketplace Trends• Environment Forecast• Competitor Analysis

• Assessment of Internal Strength, Weaknesses and Resources.

Mission• Fundamental Purpose• Value

Objectives• Specific Targets

StrategyThe Central Integrated,

externally oriented concept of how we will achieve our objectives.

Supporting Organisational Arrangements

• Structure• Process• Symbols• Reward• People

• Activities• Functional policies

and profiles

Five Major Elements of StrategyArenas – Where will we be active? Vehicles - How will we get there? Which Product Category? Internal Development? Which Market Segment? Joint Ventures? Which Geographic Area? Licensing/ Franchising? Which Core Technologies? Acquisitions? Which Value Creation Stages?

Economic Logic - How willwe obtain our return?

Lower costs through scaleAdvantages? Lower costs through scaleand replication advantages? Premium prices due toUnmatchable services? Premium services due to proprietary product features?

Staging – What will be our speed and sequence Differentiators – How will we win?of moves? Image? Price? Speed of Expansion? Customisation? Styling? Sequence of Initiatives Product Reliability?Hendrick & Fredrickson, Nov 2001, Are you sure you have a Strategy?

Arenas Vehicles

Staging Differentiators

Economic Logic

KomatsuWhat are the key characteristics of the

Chinese construction machinery market?How would you compare Komatsu’s,

Caterpillar’s and Sany’s positions in the market?

What strategies are these firms pursuing?

Competitor Analysis

so what is strategy short version.ppt

Documents

industry analysis3

industry profitabilitywhich

industry structure

industry sup

macro environment

strategic positioningonce

profitability of us

structural variables