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1. What are the characteristics of a strategic decision that set it apart from the operational or tactical decisionsof a business.

Strategic decisions:

- A particular set of actions that set a company apart from its rivals- Longer term direction and survival of the firm- Require substantial resources and commitment- Hard to reverse, and involves majority of organization

Operational decisions:

- Day to day running of business more related to efficiency- Use inputs effectively, keep costs and wastage down- Operates within the context of a strategy, for example a factory can make operational improvements to

make it produce more, vs. the decision to get that factory in the first place (operational decisions are at a

lower level than strategic decisions)

- Competitors can match these- Just because your operations are efficient doesnt mean business will succeed building widgets cheaply

and efficiently is pointless if widgets have been replaced by gadgets in the market place

Tactical decisions:

- Competitive choices enabled by choosing business model

2. What does competitive advantage mean and how would you establish whether a business has an advantageor not and how much of an advantage.

- The basis of competition is the value your firm offers in the mind of customers relative to value offerings ofother firms you have competitive advantage if you offer more value.

- Means you offer more value than competitors in the same industry (better customer value proposition), andcustomers are drawn to your products and services over that of rivals through factors like price, quality,

brand, customer experience, features, or overall value.

- To identifyo Low cost provider (best quality for that price)o Differentiation on quality, product selection, tech (better product)o Focus on narrow niche and specialize in meeting those niche needs better than otherso Have huge product offerings (ops geared towards large model numbers)o Developing expertise / resources that other companies cannot easily imitate (Toyotas TPS)

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3. What are the elements of a business model and how is it different from or similar to a strategy?

- Strategy is a managerial commitment to a set of actions, and needs to be distinctive / unique to besuccessful the roadmap for the future, the high level plan for the business

o Focuses on how company will gain competitive advantage in the market- Business model is about the customer value proposition and profit formula (CVP and PF), and executing

the CVP profitably. Essentially the blueprint for how the business mechanics will work, how revenue will be

generated, how costs will be controlled, and how the firm will be profitable.

- Example of TV giving free programs but making advertising revenue based on the audience size, or Gilletteselling a cheap master product (razor) but then selling the recurring related products (blades) at a high

markup, or a software business focusing on new sales of products, vs. license & subscription / recurring

revenue

4. What are the key elements of a strategy?- Vision

o The future and high level ambitions of the business needs to be distinctive.- Mission

o The present, and what the business is all about at this point.o Who we are, what we do, and whywe are here.o Example Google to organize the worlds info and to make it accessible

- Values

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- Game plans at multiple levels

o Corporate / overallo Business - Paymentso Functional area e.g. Shared Serviceso Operational e.g. IST

- Objectiveso How to strengthen market position and gain competitive advantageo Actions to build competitive capabilities

5. What is the difference between business strategy and corporate strategy?- CS is at the top the initiatives that firm uses to establish positions in different industries

o Includes the approaches execs use to amplify combined performance of the set of businesses, liketurning cross-business synergies into competitive advantage

o Major decisions typically reviewed by the board of directors - BS concerns actions and approaches to produce successful performance in specific line of business.

o Key focus: craft responses to changing market circumstances and initiating actions to strengthenmarket position

o Also responsible for seeing that lower level strategies are executed properly

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6. What are the main generic business strategies and what will make them particularly favourable as anoption? (Chapter5)

- Main considerations are:

- Giving you five options:

- Low cost provider best wheno Difficult for rivals to copy cost cutting approacheso Price competition among rivals is strongo Products of rivals are very similaro Differentiation doesnt mean much to buyerso Low switching costs for buyerso New industry entrants build a client base

- Broad differentiation is best wheno Buyers needs and preferences too diverse for a standardized product offeringo Many ways to differentiate, and buyers see this as valuableo Few rival firms following a similar differentiation approacho Tech change is fast paced and competition revolves around evolving product features

- Focused / niche strategy is best wheno Target niche is a good sizeo Industry leaders do not take active interest in the niche

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o Costly for multi-segment rivals to meet specialized needs of buyers in nicheo Many niches means lots of blue oceans for many peopleo Reservoir of customer goodwill and loyalty

7. What are strategic objectives and how do they relate to vision, mission and corporate performancemanagement methods such as Strategy Maps and Balanced Scorecards

- Purpose: convert strategic vision in specific performance targets. Objectives represent a managerialcommitment to particular results and outcomes.

- Well stated objectives are:o Measurableo Contain a deadline for achievement

- Typically supported with incentives to achieve those objectives.- Vision: transforms vision (future goals) into more granular goals takes a strategy from being something

nebulous to a set of well defined, measurable objectives that management can pursue.

o Examples include gaining X% market share,o Achieving lower overall costs than rivals,o Deriving X% of revenue from new productso Having a wider product line than rivals

- Financial measures are lagging indicators, and strategic objectives met are leading indicators of a firmsfuture financial performance because the competitive advantage is growing

- How it relates to Balanced Scorecards & Strategy Map:o Only pursuing a narrow class of objectives does not lead to a sustainable and profitable businesso E.g. only going after financial objectives might work in the short term, but you could be put out of

business by a disruptive innovator.

o Likewise, having strategic objectives but not being profitable is also senseless.o BS aims to set strategic objectives and financial objectives, both short and long term, to lead

business to competitive advantage

- Need objectives at every level of the business typically a top down affair

8. What is the purpose of corporate governance and what are the main methods/ways/techniques used to ofensure proper governance

- Corporate Governance (CG) concerned with making sure that the company is being run in a manner that is inthe interest of shareholder and other stakeholders (such as employees and the community), and to preventabuse of power or misappropriation of company resources by the firms management. It also aims to ensure

ethical and sustainable behavior based on the concept of Ubuntu.

- Board of directors the primary mechanism for overseeing shareholder interests and double checkingmanagement. Board plays the key role in ensuring corporate governance.

- Board:o Inquiring critics of companys direction & strategyo Evaluate caliber of senior executives strategy making & executing skillso Institute compensation plan for top executives that reward them for serving stakeholder &

shareholder interests

o Oversee companys financial accounting and reporting practices

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- S e e ! is any group or individual that can affect or be affected by the realization of an organizationspurpose "

- Business is an institution for stakeholder interaction. Corporations arejust thevehiclesby which stakeholdersareengaged in ajoint and cooperativeenterprise ofcreating value for each other.

- How does it fit with strategy? Executives primary purpose is to create as much value as possible for stakeholderswithout resorting to trade-offs thestrategy the firm employs will affect stakeholders to various degrees.

- Stakeholder interest maps guide decision making accordinglye.g. high interest low power stakeholders mightget newsletters# whereas high interest, high power stakeholders might be directly involved in the business

decisions.

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- Identify strength of each of the 5 forces in the industry.- Forces can be:

o Fierceo Strongo Normalo Weak

- Determine whether the collective strength of the 5 competitive forces is conducive to earning attractiveprofits.

Rivalry strong:

o Buyer demand growing slowlyo Excess capacity in industryo Large number of rivals, and of equal size / powero Buyer switching costs lowo Products weakly differentiated

Threat of entry strong:

o Entry barriers lowo Existing industry members want to extend their reach into new segments / areaso Newcomers can get attractive profitso Buyer demand grows rapidlyo Industry members unable / unwilling to fight entry of new rivals

Threat of substitutes strong:

o Good subs availableo Subs are better pricedo Subs have better or similar featureso Buyers have low switching costs

Supplier power strong:

o High switching costs to other supplierso Needed inputs are in short supplyo Differentiated inputs of supplier makes its products bettero Few supplierso Threat of integrating forward

Buyer power strong:

o Switching costs lowo Buy in large quantitieso Buyer demand weak or declining (recession)o Identity of buyer adds prestige to sellero Buyer very well informedo Threat of integrating backward

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12.What are industry driving forces, key success factors and strategic groups- Industry driving forces:

o Long term growth rateo Globalizationo Technology / interneto Product & market innovationo Leaps in manufacturing abilityo Entry / exit of new firmso Diffusion of technical know-how

- Most important aspect determine increase or decrease in demand, make competition more or less intense,higher or lower industry profitability

- Strategic group reveals who are close competitors also affected by driving forces in different ways.- KSFs:13.What is meant by the resource-based view of the firm and how does one identify strategically-important

resources/capabilities (VRIN2 )

Resource based view: Looks at firms resources and capabilities as basis for competitive advantage and

strategy formulation. Expert knowledge and a strong code base is a resource, but being able to deliver

quality software within budget and time is a capability a rollup of resources. Second step is to think of

the industry to apply the abilities in and the strategy that is needed to best exploit firms resources and

capabilities.

Valuable. Can use to outperform competitors or reduce weaknesses.

Rare. Closely linked to its value if everyone has one, it doesnt offer a competitive advantage.

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Imperfectly imitable. Even better if there is causal ambiguity people do not understand the resource fully,

like Toyota Production System & lean manufacturing.

Non-substitutable. If competitors can substitute with a better and/or cheaper substitute or replicate the

abilities using the substitute, then the competitive advantage the resource offers is lost.

14.How would one use a SWOT analysis in strategy craftingStrengths Capitalize on companys resource strengths in terms of strategy

Weaknesses How much do they matter in the market place, and do strengths make up for them

Opportunities Focus on capturing rivals best opportunities, and those that align with key resources and

capabilities of the firm

Threats Defending against them from rivals if they are substantial and can be exploited

15.What is a value chain/network and how would one use it in strategy craftingCompanies need to have costs that are similar to rivals, otherwise they run risk of a price war they cannot

compete in. Two ways to assess firms cost structure relative to rivals: benchmarking and value chain

analysis. Value chain: mixture of primary and secondary activities involved in the production of the goods &

services for the firm. In a software business its requirements gathering, analysis, design, specing, coding,

quality assurance, delivery and support.

Secondary activities are HR, finance, R&D

Important in strategy as the cost of the value chain needs to be made up for by the value it supplies to

customers, which is reflected by the revenue generated and the costs to generate that revenue. Business

cannot survive if value chain costs more than it generates in revenue.

Outside entities also important, like how car manufacturer relies on dealers for repairs and sales mustmake sure entire value chain system is considered.

16.What is the main argument and recommendations of the Blue Ocean strategy authorsInstead of competing in heavily contested red oceans where incumbent firms have already positioned

themselves attractively or have competitive advantage due to their resources, capabilities and cost

efficiency, and where rules of the game are well understood and firms are competing for existing demand -

rather go for blue oceans uncontested new industries or market segments.

Blue oceans dont really exist yet or are untainted by competition can create new demand and leads to

rapid and profitable growth.

17.What is vertical integration, what vertical integration options do we have and what factors should beconsider in deciding whether to outsource or vertically integrate

Vertical integretation: Extending firms operating and competitive scope by expanding its value chain

forwards (towards buyers) or backwards (towards suppliers) in the same industry. Can be full integration

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(participating in all stages of value chain of next or previous link) or partial integration (only some value

chain activities expanded into).

Do this to increase competitiveness & profitability. One reason to do this is if suppliers are holding you to

ransom and resulting in your profitability being eroded due to high input costs backwards integration is

useful to keep costs down. If your resources, capabilities and competitive strengths synergize lend itself to

this integration then forward or backwards integration should be considered.

However economies of scale must be considered and whether production efficiencies can be achieved

given demand for that which you are integrating into if you only need 50,000 widgets and it will take a

plant making 1 million widgets to do so profitably, it is better to outsource to others. Also increases firms

capital investment in an industry, making it hard to exit or to refurbish equipment and plants.

Outsourcing has advantages like being able to do things more cheaply (economies of scale / production

efficiencies) and reduces risk to changing technology supplying / buying firm has to take the knock if tech

changes are needed.

18.What is diversification strategy and what are the main factors we would think about in deciding whether todiversify or not (Chap 8 is very important)

DS is spreading your company across multiple industries, so as to diversify and reduce risk (for unrelated

businesses) or to get cost or differentiation based competitive advantage via strategic fit due to synergistic

value chain activities, resources, and capabilities.

Can expand into related or unrelated businesses:

Related: Value chain matchups / synergies mean competitive advantage through strategic fit between the

firms. Sharing of resources, capabilities, technology. The greater the economies of scope and scale between

related businesses, the higher the chance of cost based competitive advantage over rivals.

o Economies of scope: Cost reductions that result from operating in multiple businesses, like having ashared manufacturing plant or a shared finance / HR function across businesses, due to strategic fit

between value chain activities of different businesses.

o Economies of scale: Cost reductions due to the size of the operation. Larger plants and higherproduction volumes lead to lower variable costs, more buying power with suppliers due to large

purchases.

Unrelated: Diversification means lower risk in a single industry and financial resources can be applied for

maximum value like seeing struggling business with high profit potential, buying it, using parent company

management know how to turn it around and then get big profits. Very difficult to achieve 1 + 1 = 3 due to

differences.

Three tests to see if diversifying is suitable:

Industry attractiveness test. Is nature of industry going to lead to better profits than current industries 3 Weighted industry attractiveness score.

Cost of entry test. Is cost of entry worth the projected profits. High barriers to entry normally meanbetter profits, but if lots of capital needs to be spent to scale then profits are eroded, e.g. $1 mill

revenue gives $200K profit, but to get to $3 mill revenue and $600K profit you need to spend $1 mill.

Better off test. Two firms joining need to create more value than each individually, due to competitiveadvantage stemming from strategic fit between their value chain activities. E.g. If A + B doesnt create

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more value than each on its own, shareholders might have well bought stock in each firm separately. (1

+1 = 3). Unrelated: parent management provides expertise.

Resource fit: when businesses add to overall firms resource strengths and firm has adequate resources to

support all its businesses without spreading itself too thin.

Financial resource fit: Cashhogs & cash cows: Use cash cows (low growth but good industry position and

profitability) to finance promising cash hogs in high growth industries with attractive future profit prospects.

Cash hog > Young star > Self sustaining star > Cash cow

Non-financial resource fit: Can company develop resourc e strengths na competitive capabilities it needs in

each of its businesses4

(like managerial competence) and is it stretched too thin by requirements of one of

its businesses4

(acquisition spree, management needs to oversee large number of smaller businesses)

Most resources should go to business with good:

o Profit & growth prospectso Position in 9 cell matrix (industry attractiveness vs. market position)o Strategic & resource fito

Past performance financially

Other cool stuff

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