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"...the determination of the basic long term objective of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals" Chandler 1963 Strategy as stretch or leverage of core competencies in an innovative and distinctive manner

Key Definitions

deliberately choosing a different set of activities to deliver unique mixture of value - Porter

strategy process considers how managers enact and interpret the world around them and the organisational context in which this occurs.

Goals Mis sion Vis ion Values Objectives

A strong strategy model is easily understood by managers and transparent to others within the organisation

how managers interpret and deliver these within the organisation

best performance occurs when simple models are introduced and applied avoiding multiple views and approaches - Problem : if all orgs use the same models how does differentiation occur?

Plans, Decisions and Actions

Competitive Advantage at Business Level Linking Organisation and Strategy

Corporate HQ and Parenting Advantage

3 Key Elements of Strategic Advantage

International and Global Advantage

Orientation: aims and formulating ambitions and visions (future direction)

Ext ernal Environment General Market Industr y Political Econom ic Social Tec hnological Environmental Legal

Animation: mobilisation of the organisational system to implement ambitions (continuous) Important to adopt broader systems based view of interactions between context, organisation and individual action All orgs are complex systems interacting with their environments (structural coupling) with changes in environment affecting the form and behaviour of the organism.

Resources Factor s Capabilities Ideas Innovations

competitive process of natural selection and environmental determination Evolutionary view of Strategy organizations and markets are sticky and strategy emerges slowly

Context, Organisation and Managerial Interpretation

Management interpretation of the environment and internal changes is fundamental to the strategy process with poor interpretation endangering the future of the company

The Basics of Strategy

Organisational Process distinctive resources and competencies distinctive to an organization that provide it with an advantage and underpins their market position

recent arguments made suggesting less power will lie with the management hyper competition blurring of industry boundaries knowledge intensity

Resource-based view

strategy now determined by external conditions outside of managerial control particularly advances in Globalization and IT

greater reliance on knowledge as asset discontinuous change

Strategy and Organisation

challenge of the new environment require flexibility, knowledge creation and collaboration between organisations

Strategic Advantage and the Concept of Strategy

how the firm positions itself relative to the external context External Logic levels of the organisation at which strategy has different meanings and what different resources it needs Internal Logic

Threatening environment Regular short term change Readiness to recruit new people Temporary clusters of skilled individuals Weak loyalty Management consultancy

Key Components of Strategy

distinguishing between achievement of long-term objectives and short term stability Performance Over Time

Mercenary Organisation

role of general management and planning of strategy Managerial Requirement

Calm external environment Bureaucratic structures - specialised sub-units Short-termism with no incentive for long term Difficulty to learn Public sector and banks

Managerial Agency and Practice

Fragmented Organisation

principle of planned vs emergent strategy where organisational typologies emerge over time

best understood within context of long term decision making and future orientation

Unstable environment - competition and regulation High firm loyalty and cooperation Perception that required skills exist within the organisation Sense of shared adventure

strategy as the exercise of choice and making of trade offs between alternative courses of action Organic Organisation

Strategy is about the future

Calm environment but managers who think strategically Bureaucratic but fragmentation avoided ad hoc processes Improvisation and informal processes In groups and out groups Universities

Strategic decisions have significant scale and importance

Strategy is abut taking risks

Self-Sufficient Organisation Subtopic

The Nature of Strategy

Strategic decisions

Strategies have implications for change

Strategy requires the organisation and coordination of vast resources

strategy is about a range of decisions that need to be made by senior management

Lesson 1 - Introduction and the Concept of Strategy.mmap - 01/11/2008 -

Strategic decisions are complex

Strategic decisions take time and are irreversible

Macro-Shock: a major event in the broad environment where a business is located and over which the business has little control

Uncertainties will vary with strategic decisions being made in response to predictable uncertainties (demographics) and unpredictable (technological growth). Uncertainty and Variability: principle that there are limitations to the extent and precision of knowledge about events - this creates RISK for strategic decision makers.

Definition: a company moving into new markets must give consideration to the impact of politics on operations and business development Supranational - EU, UN, OECD National Influence - government and opposition parties

Demographics: strategic decision makers need to consider how these known changes will affect core business - larger market for later middle age group Technology: the film industry face the risk of how successful a film will be - a number of techniques have been developed to reduce and mitigate risk.

Three levels of political influence on a company Dynamism: intensity and frequency of change

Sub national influence - local authorities and regional government

Complexity: number relatedness and diversity of factors

Scenario Planning

Unpredictability: cyclical nature of change and clarity of data

current home legislation future/planned legislation - capital gains tax

Risk and Uncertainty


EU/global legislation - eg SOX or liberalisation of EU automotive industries

risk of interpreting them as falsely precise data analysis has to be highly accurate

Detecting or Perceiving Macro-Shocks

regulatory processes and systems government styles, length and structure - Italy vs UK

NPV and Decision Trees

Risk Analysis

limitations of risk analysis

Political factors for consideration

trading policy

difficulty in incorporating soft factors such as cultural and social issues over-reliance on relationships between past variables

home market lobbying and pressure groups measures relationship between key macro influences and business under analysis

international pressure groups Greenpeace etc Impact Matrix

risks - revolutions, wars, sanctions and embargoes Case Study: The 2007 Sub Prime Crisis - increased defaults on US sub-prime mortgages have led to reduced levels of available credit affecting global financial markets

critical measurement of responsiveness to macro-shock

Definition: a company moving into new markets must give consideration to the impact of changing economic factors in the macro and micro economies both globally and nationally

Fit: how well does the firm fit with existing environmental factors? Strategic Fit and Leverage

taxation - general and product specific ie alcohol and cigarettes

Hamel & Prahalad - too many companies focus on current fit rather than consider future requirements - need to consider stretch and leverage

currencies interest rates prices of raw materials and commodities inflation rates

Economic Economic factors for consideration

stock market movements GDP rates and movement market routes and distribution trends Definition: A company moving into new markets must give consideration to the impact of societal and cultural trends affecting that particular market in areas such as employment, education and lifestyle

Case Study: UK Demography: UK population pyramid will see an increase in older people by2044 with pension age rising to 68. Estimations show that this will cost the UK economy ÂŁ2.3bn in employer contributions

PESTLE lifestyle trends demography including changing population structures consumer attitudes and opinions - ethical buying and environmentalism

Analysis of internal and external factors influencing and affecting a specific company and are critical in identifying future org direction.

PESTLE/SWOT Analysis and Managing Uncertainty

Model is part of the design school where firms set strategy by linking internal capabilities with external environment Management & Organisation

Societal factors for consideration


media influence and perceptions brand and company image/perception

Strengths and Weaknesses

fashion and role models ethnic and religious factors Finance


Definition: A company moving into new markets must give consideration to the impact of technological factors such as changes in communications networks and processing of data. Strengths and Weaknesses

what is the research and development climate? -govt grants

Management and Organisation: managerial talent, labour relations and personnel policies. Planning and control system, structure and climate.

what are the risks of technic investment that will lead to obsolescence - Betamax? how does the Internet affect our products and services?

Technological factors for consideration


what will be the forthcoming trends in technology - second life?

Operations: R&D capabilities and productivity of manufacturing facilities. Analysis of product distribution channels, protection of brand names, competitive pricing.


What are the IP safeguards in place?

Finance: capital structure, financing, profitability, tax structures, financial planning and accounting system. Short and long-term financial planning should be undertaken according to objectives and strategy.

Definition: A company moving into new markets must give consideration to the impact of legal and regulatory factors both locally and globally and how these will impact on company strategy definitions and nature of competition

Measurement of 6 key environmental factors

Anti-trust laws - UK Competition Act 1998 increased power of consumers = less attractive proposition

Legal/Regulatory factors for consideration

Opportunities and Threats

Legal/Regulatory Factors

EU law - minimum wage and business regulations Definition: what is the impact of environmental factors on the function of the business? Opportunities and Threats

impact of Kyoto Protocol and requirements to reduce carbon emissions consumer preferences

Environmental factors for consideration

Societal Changes

Government Changes

Competitive Changes

Economic Changes






Increased regulation

Market leavers

Tax reductions

Supplier Changes

Market Changes


cost of carbon efficiency

Marks and Spencer Stienway and Broadwoods Piano Battle of Crecy 1346

PESTLE.SWOT Analysis and Managing Uncertainty .mmap - 03/05/2008 -

Further Cases for Consideration

Closures of suppliers

Emerging markets

Sourcing new suppliers

Commodity use for other uses

Markets can be divided into Strategic Segments based on product range and price differentials MBV sees positioning as key factor of competitive advantage

Offer Curve: range of options available to customers what groups of customers exist for combination of price and performance

Group A: Low price and low performance

follows Porter’ s description of generic competitive strategies of cost vs differentiation with either a broad or narrow focus



Group B: largest segment with higher specifications for price and performance


Market Offer Curve

generic strategy is a typology that captures the economic forces at work in a particular environment through cost leadership, differentiation or focus

Group C: premium market X: firms unwilling to offer product at this point


shape of curve dependant on customer price sensitivity

New Offer Curve


Innovation can transform shape of offer curve

Product Performance

Strategic Market Segments

Impact and factors of opportunity costs


cost of capital

Household Distribution Channel

Distinction of fixed and variable costs and impact on firm flexibility

Buyer Characteristics

Geographic Location

Impact of sunk costs Identification of Segmentation Variables


Cost Advantage

Price Features

microeconomic approach to strategy is achieved by understanding the basics of cost behaviour

Product Characteristics


Long term cost behaviour and strategic implications for firms Significance of economies of scale and scope - Minimum Efficient Scale - indivisibility and engineering characteristics of production

Case Example: Du Pont and domination of titanium dioxide market in 1970s

Performance Experience/learning curve Cost advantage of vertical integration groups existing on supply side with similar strategies aimed at the same group of customer segments

Requires investment of resources - time, capital costs and higher variable costs

product line

Commonly undertaken in marketing areas and R&D

geographic coverage


Market strategies

distribution channels

Can emerge in 3 ways

The Market Based View

production manufacturing R&D

Supply and Cost Characteristics/Economies of Scale

groups create a range of Mobility Barriers preventing other firms entering the market

Strategic Groups

Competitive Strategy: Analysis of Strategic Position

ownership and structure management and control systems

Firm Characteristics

diversification and integration

product may fail to improve competitors may do it better Risk Factors of differentiation

Differentiation Advantage

customers fail to respond to proposition cost of differentiation may exceed commercial gain

performance and reliability

number and size of groups strategic distance between groups

Innovation Customer Interaction

Product differentiation is the act of making products different from one another and may include both tangible and intangible factors



Impact on Industry Profitability - Porter 1979

market interdependence

Sources of Differentiation Advantage

functional attributes and usage patterns Innovation

modernity new distribution system

Markets and industry evolve over time with growth often being cumulative and are often influenced by factors such as technology

Customer Responsiveness

new knowledge has moved sideways into new industries changing the relationship with the customers - wider product take-up capturing changes in customer values - alcopops

creation, exploitation and defence of market imperfections

Industry Transformation

Market Redefinition

brand and relationship management

successful strategy creates superior returns due to unfair advantage created

statement of competitive intent

5 Forces Model can be reconfigured in a number of ways

statement of positioning in the market with a number of key elements

Product Reconception

evidence of customer advantage combination of superior cost position, differentiated product and protected niches

convergence and compression of supply chain Redrawing Industry Boundaries

Power Catching up

Competitive Advantage

Keeping ahead Sustainability of Competitive Advantage

linkage between intended strategy, functional and operational elements and expected performance

Virtuous circle

how a company intends to create value in the market place

Blockbusters - few advantages but large in size

Identify market segment

Estimate cost structure and profit potential

Industries will differ significantly in the size and shape of advantages available and will contain degrees of advantage

Chesbrough & Rosenbloom 2002 function of the business model

Describe position within the supply chain Business Model can be articulated in terms of detailed plans to provide management with guidance for operation and has become a method for communicating how cash flows will operate Will need to reflect sustainability and defensibility of strategic positions and commitment required Impediments to Imitation once establishment of advantage has been made economic forces can protect position allows for preemptive movements

Early Mover Advantage

identification of which competitors to track establishing competitor database analysing competitor strategy

Lesson 3 Mindmap 2.mmap - 05/05/2008 -

Analysis of Mechanisms

reinforcing existing advantages

patterns of advantage will shift and erode by movements in competitive environment

Articulate value proposition

Define structure of value chain

Changing Game

Isolating Mechanisms: economic forces that limit extent to which competitive advantage can be duplicated or neutralised

Business Model

Inch by Inch - multiple sources but limited advantage

Market place competition: customers compare rival options and make choices which influence prices set by companies Investment based competition: future allocation of resources to create differentiations in the market - R&D and patents protection

Levels of Firm-Based Competition

industry analysis is the analysis of assets, resources and capabilities that set out the economic conditions in which firms collectively operate Example: Ford and Toyota operate in the same environment and share common knowledge and technology but each conduct R&D differently with Toyota structuring its operations differently creating differentiations for the company.

Definition of Industry Analysis

"The mixture of common economic characteristics coupled with attempts to differentiate comprises the content of industry analysis" Difference between revenue and material costs isadded value created by labour costs/capital costs and profits - the more attractive industry will have greater value added Horizontal line at the centre can be considered as the supply chain representing the build up and flow of goods to the final customer. At each level of the chain is an industry investing in assets that accumulates fixed and variable costs pricing its goods to the next level

many services don't have second hand parts for resale and can be understood as the outcome of an interaction

The revenue stream based on prices that can be charged and volumes attainable Unit production cost and access to economies of scope and learning What is the capital cost element - if this is higher than incumbents then it acts as a barrier to entry

The most reliable way of purchasing services is through recommendation as it cannot be sampled.

Firm Entry Threat: at each stage of supply chain there is an industry that can be analysed - and firms considering investment will make an entry calculation based on capital investment decision with 3 components

Similarity between substitution and new entrants but entry = imitation while substitution = new dimensions of competition and product displacement


Balance of power between suppliers and buyer is critical and often the biggest risk will come from different elements of the supply chain. Locating this power can be key in understanding where profits can be made

Search Goods: services tested by customers prior to purchase - car Experience Goods: requiring experience before determining satisfaction - restaurant Credence Goods: satisfaction cannot be determined even after purchase - lawyer

Product Entry Threat: this is a longer term pressure and are often associated with technological changes - fibre optic cable in 1980s

Porters 5 Forces Model

Analysis of Industries and Competition

services require face-to-face encounter with the customer dozens of times each day - the service encounter or moment of truth determines the outcome of service quality. Heterogeneity

Premium prices are therefore charged as the cost of switching may be too significant. Prices will continue to rise of there are no substitution possibilities. OPEC cannot act too aggressively as it will encourage customers to seek alternatives Buyer power analysis is identical with greater buyer concentration and homogeneity of products will allow for greater substitution

Intangibility is accurate up to a point and a number of services have a large number of tangible elements included - some services have different degrees of tangibility depending on the extent to which consumers can evaluate the service

Training is based around intensive customer care programmes as organisation is driven by those front line staff however junior - main paradox of service industry - control of transaction point critical. in service sector production sequence is usually distribution production/consumption - hairdresser’s salon

Service Characteristics

Simultaneous Production & Consumption

Since customers cannot test drive they rely on recommendations as returning service is impossible in many cases.

difficult to apply concept of stock or inventory to services - capacity utilisation in services is critical optimal capacity must be sold today or it is lost forever

Supplier and Buyer Power: have a natural interest to raise their prices which often occur when there are few suppliers or the product provided is critical in the performance of another


Strategic issue is that firms must be aware of how far Perishability applies to their activities and which ones are re-usable as well as having huge implications for operational systems Geographic location Buildings and equipment

Rivalry: considered as the first force for analysis - competition will be stronger with a larger number of competitors and the commodity-like nature of the product


Supply and Purchasing Logistics and Distribution

firms attempt to advance their interests by building specific and distinct assets to create imperfections in this environment and create advantage


Economies of Scale and Scope in the Service Sector Perfect Competition: economic state where all companies operate within identical environment

some firms have an interest in colluding with others to create collective market imperfections to artificially limit competitors

Imperfections provide possibilities for supernormal profits and vary in type and can be firm specific (R&D innovation - proprietary knowledge and differentiation) and market specific ie deregulation

ICT and information networks shared knowledge Scope

process innovation shared cost and investment

Strategy as Imperfections

Culture, training and branding

Market based strategy: creation of distinctive defensible positions Resource based strategy: creation of assets which provide advantage

firms often set strategies to address the forces identified in Porter's model and create an area where supernormal profits can be earned Economies of Scale Economies of Scope: average cost of single product reduced by joint production with other products

Cost Advantages

Industry analysis and generic strategies provide frameworks for thinking about the external logic of strategic decisions and the impact of strategy on the external environment

firms can create a competitive position through cost processes or product differentiation

firm offers item of unique value which is better than rivals

provides a map of the interaction between the external and internal worlds of the firm.

Differentiation Advantage

Industry Analysis and Competitive Strategy

Resources Product market choice

Resource base



Internal financing

Corporate value

External financing

Shareholders Debt holders

Customer value

The Strategy Cycle

measure of approach to attacking the market - broad or narrow

There are 2 economies within the firm, the real economy denoting trade in goods and services and the financial economy - role of management to balance this and its continuous need for adjustment

Unsegmentation: same product over wide range of segments - Coke

Customer Value is only created when there is a balance between the internal capabilities and opportunities from the external environment

Segmentation: broad range of segments but specific offerings for each one - Honda Niche: firm focuses one segment - Ryanair

Generic Strategies

The Internal Logic of Competitive Strategy

describes the activities the organization performs and links them to the organizations competitive position

Strategic Scope

is a subset of the supply chain, the lower part containing primary activities working in sequence within a firm

Mintzberg - 4 Generic Approaches to Scope

Customisation: firm focuses on individual customers - event management

Direct: direct value creation assembly, sales advertising

theoretically undesired position whereby no strategy exists and a firm remains stuck between the generic strategies a firm would be foolish to not consider the attributes of other strategies when pursuing one and many bigger firms are very successful when being deliberately stuck - Sainsburys adopts both a cost and differentiated strategy

3 types of activity that create value

Quality Assurance: quality of other activities - inspecting, testing and checking

Stuck in the Middle The Value Chain is further generic framework allowing a range of analyses - allows analyst to decompose activities of firm into broad categories

strategy options depend on how firm's offering is perceived in the market in terms of price and relative user value

useful as competitive advantage can manifest itself in subtle ways and differentiation can be created by the extent to which each element of the value chain is managed.

model recognises the possibility of high value low price hybrids - Japanese cars

Interrelationships between VC elements provide important outline of competitive advantage in large firms.

The Strategic Clock

Lesson 3 Mindmap.mmap - 04/05/2008 -

Indirect: facilitate performance of direct activities - admin, maintenance, scheduling

When considering services, traditional strategy frameworks have to be reconsidered such as the value chain where sequencing of activities will be different and will need adaptation. Value Chain in the Service Sector

Core Competence = Distinctive Capability = Strategic Asset

RBV focuses on resources and capabilities of the firm asserting distinctiveness of these enables Sustainable Positional Advantages diversified corporation as large tree w ith root system as core competence

Critical distinction betw een Rents: surplus of revenue over costs

Tyranny of SBU - competencies lost through myopia

Prahalad & Hamel 1990

Capabilities and Resources

provide access to w ider markets

Core Com petencies: resources and capabilities that can earn rents

McGee: Strategic task of a firm is to sustain rent streams over time by creating and protecting the competitive advantage and strategic assets that underpin them

Core competencies should have 3 features

contribute to customer benefits difficult to imitate

Theoretical Approach to RBV and Key Definitions

business processes as foundation of strategy competitive success dependant on transforming processes into capabilities

Sim ilar Activities: sharing of common strategic and generic assets creating economies of scale Com plim entary Activities: dissimilar sets of assets requiring coordination to offer advantages i.e. production and marketing

how to coordinate diverse production skills and integrate multiple technology streams

Core competencies can be understood as the collective learning w ithin the organisation

RBV: an inside out approach to competitive advantage through analysis of how companies use resources and capabilities to formulate strategy

4 basic principles of capabilities based competition

Internal economy of a firm can be seen as set of

cross functional nature of capabilities require CEO championing Speed: ability to respond quickly to customer demand

Boston Consulting Group 1992

Consistency: production of products that continue to satisfy needs

fundamental distinction betw een resources and competencies

Acuity: ability to anticipate behaviour of competitors

strategic resources should aim to outperform in 5 dimensions

Resources: process inputs including capital expenditure and equipment

Agility: ability to adapt simultaneously to different business environments

Capability: the ability to apply resources in differentiated w ay 4 - Suggest strategy that best exploits resources and capabilities relative to external environment

Innovation - generating new ideas and combination of existing elements to create new value


3 –Appr aise rent generating potential of capabilities by potential of sustainability an d

of primary benefit to company Appropriative


1 –Identify resources appraise strengths and weaknes ses compared with competitors

relational contracts, internal and external w ays of w orking

Definition of Core Competencies


Architecture 3 forms of distinctive capabilities


Kay 1993

constant innovative process undermine possibilities of imitation Innovation market structure limits entry

Distinctive capabilities created through 3 irreproducible factors

Extracting and Borrow ing: identification of dormant resources or tap into those from other companies

company history tacitness in relationships - routines and behaviours

Blending and Balancing: integration of skills and resources and creating a balanced business plan and process

Resource Leverage: process of better applying existing resources to create an advantage


Strategic Assets are created through application of key resources

Co opting and Shielding: conserving existing resources

intangible information based

Amit & Schoemaker 1993

Expediting Success: reducing cycle time from investment to sale

Management of Core Competencies

"...the set of difficult to trade and imitate, scarce, apropriable and specialised resources and capabilities that underpin the firm's competitive advantage"

physical uniqueness

bundle of constituent skills and technologies

path dependency - cumulative learning Inim itability

an aptitude to manage physical resources

essential characteristics of core competencies

First mover advantage

makes critical contribution to customer value

Hamel 1994

technical life economic life


5 - Identify resources gaps and possible investment for improving resource base

Convergence and Focus: concentrating resources on few er areas reducing dissipation of effort

causal ambiguity - not know ing value of asset

persistence over time

Distinctive Capabilities: characteristics of a firm that others do not have

Grant 1991

Competitive Advantage

2 –Identify capability and resource inputs for each one

capabilities created by investment into support infrastructure


must be competitively unique should provide access or entry to new markets


time compression

Interpreting the external environment

can resource be trumped by another? Substitutability w ho captures value created by the resource? labour and market structures


Com petitive Superiority

Flexible routines and recipes

Barney 1991 - Determining Values of Core Competencies and Resources


Core Comp eten cies

Shared values and beliefs

Tacit knowledge and un derstan ding

Unde rstanding internal dynamics

Unde rstanding competitive dynamics

Core Competencies as the link betw een managerial ability and the economics of the firm

dispersion of know ledge tactility of know ledge

Galunic & Rodan - Properties of Know ledge

context specific

The Resource Based View and Dynamic Capabilities

important to note overlaps betw een MBV and RBV approaches

key factor in driving competitive strategy is ability to manipulate the factors that create imperfections in the market w hich create sustainable competitive advantage

Competence based competition has been used in a number of cases to allow a firm using a resource based approach to make an advantage

Val ues of t he k ey implement ers

Int er action of val ues an d social n orm s

Broad er societal exp ectat ion s

Strategic Intent: encouragement by company to exceed current capabilities Strategic Stretch: gap betw een ambition and resources - companies expand and adapt to create new resources

greater interest in leveraging resources than fitting

Linking Core Competence to Competitive Advantage

Ext er nal com pany f actors Int er nal com pany f actors Competi tive S trat egy

Strategy as the outcome and resolution of different and conflicting forces

Strategic Innovation: firms that rew rite the rules of the game moving the point of competition elsew here then dominating the field

Case: Apple creation of spreadsheet

Firm st rengt hs and weak nesses/d istin ctive competen cies

Ind ustry opp ortun it ie an d t hreat s; key su ccess f actors

Mat ch ing of r esour ces to m arket s

high levels of learning and innovation long term approach to developing capabilities systematic transfer of competencies across the organisation narrow SBU approach can be myopic

Core Com petence: many firms create competencies through investment in organisational infrastructure

existence of valuable market segments

Competitive Strategy in Practice

Product Market Selection - based one existence of long term viable opportunities

Role of Learning critical in acquisition of skills and collective learning of the firm

existence of sustainable positional advantage creation of appropriate strategic assets

is there a market? is there an advantage?

advantage created by firm that cannot be duplicated by competitors Barney 1986: Sustained Com petitive Advantage

Key Success Factors

can the competition be beaten? requires the analysis of customers/demand and analysis of competition resources are limited and opportunities infinite - Trade Offs Opportunity costs perform activities differently to rivals

Issues for consideration w hen formulating competitive strategy

Sustainability of advantage value of individual activities strategic positions should have

The Resource Based View.mmap - 09/05/2008 -

tim e horizon

critique of Boston Model characterising dogs as in economic downturns all businesses are dogs! distinction between operating and strategic turnarounds Operating: increasing efficiency i.e. advanced technology Strategic: changing fortune of company through strategic adjustments - i.e. divestment or acquisition

Hofer 1976 - Corporate Turnarounds

Analysis of 1200 UK companies and identification of Sharpbender - firms with declining performance which may still be healthy Case A - early recovery - aware of decline and anticipates failures Case B - taking intermediate action to break through line of minimum standards current actions insufficient

Key Issues Grinyer etal 1988 - Turnaround Types

Case C - Late reaction and approaching line of failure - classic turnaround case D - doesn't perceive threat of extinction despite breaking own standards Over expansion Poor financial control and high costs new competition

Reasons for Corporate Decline

unforeseen demand shifts Weak management false security self delusion and massaging Management Reaction to Crisis

focus on cost reduction - easy target comparisons drawn with competitor firms

Corporate Failure and Turnaround Strategy

capitalism as evolutionary process where new discoveries break down existing barriers and create new ones Schumpeter - Creative Destruction

external intervention change of ownership new CEO

sources of competitive advantage are created and eroded at ever increasing speed

Key Triggers for Action

management recognition of problems perception of new opportunities major management change stronger financial control diversification

main strategic aim of the firm is to disrupt existing sources of advantage and create new ones

Actions Taken

quality improvement

emphasis on the importance of time and the shorted period of opportunity for building advantages

D'Aveni 1994 - Hypercompetition

acquisitions Stage 1

Porter Positioning Analysis - price, cost and quality choices

Restructure Leadership and Organisational Culture

Positioning - timing of strategic moves Competitive advantages operates at 4 distinct layers

Building of Entry Barriers Deep Pockets

Stage 2

Cost Reduction

Asset Redeployment

D'Aveni sees competitive process as Dynamic Strategic Interactions operating through succeeding levels of competitive intensity

Product/Market Strategy

Level 1 - Price War - all pricing moves are imitated leading to competition Level 2 - Evolution of generic strategies differentiation and segmentation Level 3 - Middle position movement to meet largest target audience Stage 3


Level 4 - product range strategies Level 5 - Niches

Hoffman 1989 - Generic Turnaround Strategies

Level 6 - Return to Perfect Competition

Erosion of Cost and Quality Advantage

Level 7 - escape from perfect competition and restarting the cycle

unique entry point reflecting unmet demand - segmentation competitive position based on asset configuration of dominant strategic group - emulation


redefine quality and create a new price-quality trade off

1 Gateway to Entry

competitive position based on new asset configuration - new game

shift from product to service Number of options for restarting the cycle

entry occurs into segments where barriers are lowest - short term risk minimisation for long term profit

micro marketing and mass customisation product line extensions

2 Initial Entry Point

Sequential Entry Strategy - model for market entry to overcome key barriers

Timing advantage created by skills allowing firm to be first mover

New Entry Strategies

know-how reflects practical operational and technical skills

nature of investment undertaken to use gateway gateways are distinguished by differences in entry costs nature of entry determined by risk management of individual firm

Timing and Know-How

3 Mode of Entry

Ladder of escalation is common in this area within Big Pharma - being first mover is risky but allows rapid movement

strategic decisions about the path of growth and dependent on mode of entry and firm specific assets investments in co specialised assets i.e. technology

economies of scale established firms are encouraged to build high barriers to entry

4 Expansion Path

product differentiation capital investment govt policy

barriers allow for the earning of supernormal profits that can fund new developments

single leader often in dynamic environment with clear and distinct vision and purpose

building of barriers to entry

create opportunities and take significant risks

Erosion of Other Advantages

Strongholds and Entry Barriers

base for expansion to move into competitor area

firms are usually small and aggressive and focus on niche markets firms often have resource disadvantages and seek to avoid competition

Definition of Entrepreneur

new entrants develop attack on incumbent

Entrepreneurs - Start-Ups and Sustainability

Ladder of Escalation

long term defence reshaping resources intensification of competition and multi-point competition

strategy is often deliberate rather than emergent - first mover advantage

unstable stand offs

Intrapreneurship - 1980s attempts to encourage internal innovation within larger firms

final strategy when competitive options and barriers have failed reliance on significant resources to fund R&D, pricing campaigns etc smaller competitors attacked competitors use regulation and law to de rail incumbents

Deep Pockets

Competitive Strategy - From Theory to Practice

Ladder of Escalation

incumbents beat anti-trust actions small firms neutralise deep pocket advantage rise of new power

focus on how firms make competition irrelevant Kim & Mauborgne 2005 Porter's 5 Forces seen as static model and can ignore how industries evolve over time

red vs blue oceans - untapped market space representing opportunity and growth

assimilation of value creation and innovation to create unexpected value for customers

Patterns of Knowledge Creation - new knowledge is captured in form of product innovation creating rival forms of propositions for customers

IKEA Body Shop Barnes & Noble

Demand Growth - S shaped patterns outlining changes in demand

key drivers of value perceived by customers Value Innovation

Grant 2002 - Factors Affecting Industry Evolution

Steps of Value Innovation As C20 has progressed product lifecycles have become progressively compressed

how to adjust the drivers in light of insight into utility functions reconfigure value chain to deliver new balance of activities

The Lifecycle Model Blue Ocean Strategy

consider alternative industries for insight into delivery

identification of lifecycle stage growth rates, market potential, products, competitor numbers

look across strategic groups to determine variety Principle 1 - Reconstruction of Market Boundaries

generic industry characteristics

Start Up - embryonic stage

ignore figures and analyse customer behaviour Discovering a Blue Ocean

Gain position gradually

Principle 2 - Focus on Bigger Picture

Analysis of Lifecycle Effects

Growth with industry - seek to maintain market share Gain position aggressively - when growth is high

think beyond existing customers Principle 3 - Reach Beyond Existing Demand

Natural Strategic Thrusts - strategies that apply at different stages of lifecycle Principle 4 - Correct Strategic Sequence

Harvest validity and usefulness variety in time between stages firms can change lifecycle through innovation

Lesson 5 Mindmap.mmap - 07/06/2008 -

encourage finer segmentation turning blue sky idea into serious business model

Position defence

markets can be rejuvenated

look down buyer chain as users may differ from buyers consider complimentary service offerings

Arthur D Little in 1970s was first to collect data on financial flows over lifecycle with sales following bell curve shape

Critique of Lifecycle Model

Competitiv e Strategy - long term dynamics of better serving customers Relatedness

Key Definitions

Corporate Strategy - value gained from the mixture of businesses within a company and how they are optimised

Portfolio Management


"... the firm expands to make and sell products or a product line having no market interaction with each of the firm's other products" Competition occurs at business unit level

Rumelt 1982 Definition and Context

Porter 1987 - 3 Factors of Diversification

Diversification adds costs and constraints Shareholders can diversify individually

significant complexity in this area not allowing for comparison across industries and where performance is further influenced by a range of other variables

structure split into functional responsibilities

Single Business Dominant Business

affected by expansion diversification Unitary Form Structure - traditional model from 1850s - railroad and telegraph companies

Related Business Unrelated Business

increased administrative load on senior management

increased problems of coordination

Dominant Constrained and Related Constrained always outperform

division of tasks and responsibilities into semi autonomous operating units

Rumelt 1974 Classification of Firms

industry factors

removed executive responsibility from routine operations

causal ambiguity Vertical Integration Related Diversification Linked Diversification

Galbraith's Centre of Gravity - stage in industry chain where performance increases - 4 Diversification strategies

reduced entrepreneurial effectiveness

Chandler 1962 - Inherent Weaknesses of U Form

Differentiation between Constrained and Linked

increased resources for long term planning and appraisal

Div ersification and Performance Chandler 1962 - Success of M Form

Factors impacting this analysis

allows for economies of scale and scope enables economies of specialisation

Changing Organisational Structures

Unrelated Diversification

allows corporate management to measure and compare performance of units allowed first movers to dominate the market for decades

Relationships Between Diversification and Performance

Palich, Cardinal & Miller 2000 - Relationship of Diversification with Performance

Multi-Div isional Structure - 1920s onwards

allowed for continuous improvement in production and distribution key focus was that of growth which led to oligopolies with post 1960s expansion leading to diversification and conglomerates

conflict of interest from financial perspective that sees diversification as extension of management abuse undermining shareholder interests

corporate management can loose touch with key operational factors

Agency hypothesis - diversification driven by personal goals Div ersification Discount - diversified firms should quote at a discount of potential value of trading separately

confusion around accountability for outcomes Challenges of M Form Structure Div ersification and the Finance Perspectiv e

business units will often compete rather than cooperate for resources impediment of Trans-firm competencies

decreases in diversification associated with pressures of corporate control Denis & Sarin 1997

conceptual understanding that M Form would be naturally selected due to its efficiency

if diversification is negative there should be evidence of significant arbitrage which hasn't increased following 1980s boom

Critique of Finance Perspectiv e

diversified firms trade at a discount due to causes prior to diversification process

economic argument suggests that M form has proliferated due to whole being worth more than the sum of its parts

Corporate Strategy: Adding Value in Multi Business Firms

not clear that diversification leads to lower performance or the other way around

In cases where net value of corporate membership of a firm is negative the break up of the firm is attractive option

Villalonga 2000

diversified firms show a significant premium

potential added value of M form

many emerging markets business groups are performing well despite being widely diversified business focus works well in developed markets but in emerging markets conglomerates imitate functions of several institutions

The Inherent Value of a Multi-Business Firm

corporate centre takes role of involved investor

Div ersification in Emerging Markets and Business Groups

Gov ernance Transaction Cost Economies

necessary information and can impose sanctions and replace management where necessary

2 categories of benefit

value enhancing properties allow the creation of economies of scope

company specific strategy related industry features role of the business as part of a wider organisation importance of industry based factors with negligible corporate factors reinforcement of Porterian outside in view

key management question regarding the overall impact of strategy on multi-business organisations


Schmalensee 1985

analysis of US companies - identified impact of business effects explaining 45% variance in returns low corporate and industry effects

related businesses can shared specialised knowledge and managerial expertise

Characteristics of the Portfolio First Round of Studies

Does Corporate Strategy Matter?

economics of corporate strategy revolve around 3 key issues

Rumelt 1991

critique of earlier work - analysing smaller companies impact of corporate effect increased significantly

builds key knowledge of business performance providing auditing and direction of improved performance

How synergies are captured Relatedness the Grow th ambitions and achievement through investment

key attributes are interconnected and it is important to ensure that portfolio approach doesn't focus too much on eliminating unprofitable areas while ignoring synergies

Second Round of Studies Brush & Bromiley 1997 and Chang & Singh 2000

Strategy-Structure Balance

what is the Definition of business units and boundaries? what is the intended lateral Integration and Coordination between units

Corporate organisation has to be consistent with economics

what is the Vertical Relationship between corporate and operational units

Corporate operational interface determines authority and accountability in the firm adding value through buying and selling businesses with corporate centre acting as funds investor Portfolio Management approach common in 1980s asset stripping Restructuring - acquisition of businesses with intention of achieving value through intervention Porter 1987 3 Concepts of Corporate Strategy

Transferring Skills - management of ongoing relationships between business units

1960s and 1970s saw growth in divisionalisation and growth of diversification 1970s saw major challenges of large conglomerates and senior management looked for new models to manage the company cash flow rational for business linkage acquisition and divestment did create oversimplified assumptions

BCG Growth Share Matrix

Sharing - value activity created through sharing of facilities, services or resources - economies of scope

additional value created to new purchases from parent organisation

Practical Frameworks and Applications

3 key requisites - corporate advantage = competitive advantage/ greater value creation than cost/must add more value than any other parent company

Managing the Multi Business Firm Corporate Strategies

stand-alone influence - value created by influence on individual business strategy and performance

Portfolio Planning Models

Goold etal 1994 Parenting Advantage

General Management – Stand Alone Influence

3 Classes of Value Creation

Linkage Influence

Portfolio Management

Central Specialist Services

functional and serv ice influence - focus on adding value through influence of centrally controlled staff functions linkage influence - horizontal process of value creation between businesses Planning Influence - to what extent does the corporate level engage with operational factors Control Influence - extent to which business units are held to operational and budgetary control Financial Control - centre allows for operational autonomy but strict application of budget

Goold & Campbell 1987 - Relationship Between Parenting Style and Performance Corporate Styles 3 Key Styles identified

Strategic Planning - high planning control of business units Strategic Control - in between the above

Issue of Relatedness - optimal corporate role dependent on extent of relatedness

Lesson 6 mindmap.mmap - 09/07/2008 -

unrelated businesses do not offer economies of scope and benefit from governance factors McGee pp.354 cooperative and competitive strategic orientations

External Relations hips

poor performance of mergers and acquisitions has led companies to seek alternative strategic approach difficulty in assimilating expertise of target company

M&A and Strategic Alliances are a major force in restructuring industries

immediate advantages of M&A have been undermined by 2 key factors

shortage of attractive targets for M&A

Barriers have increased follow ing deregulation and new markets leading to larger number of cross border activities

Strategic Alliances seek to overcome these problems through avoiding culture and organisational shock w hile build rapid presence in required areas

the purchase of one firm by another w ith 100% controlling interest

Collusive Strategy - several firms cooperate to reduce output below competitive level and increase prices

can be illegal in some countries

payments made in shares or cash or both premium often paid to meet difference betw een share price of acquired firm prior to announcement of bid

2 Types of Cooperative Strategies Strategic Alliances - cooperation w ithin industry but output is not reduced - aim to enhance competitive position


Grow th options for alliance include: International Expansion/Vertical Integration and Diversification

Basic Definitions

Friendly Acquisitions - management of target company is approached and recommends deal to shareholders Hostile Acquisition - target managers ignored w ith direct appeal to shareholders

companies of different national origin seek to sell a product in a market w here one partner has access

new firm is created out of tw o original ones no premium is paid

alliances often see partners w ith different skills - 1st w orld product and know ledge 3rd w orld understanding of local market


(1) International Expansion Joint Ventures Strategic Alliances Betw een Non-Com petitors

alliance betw een 2 companies w ithin same production process - Coca Cola and McDonalds (2) Vertical Partnerships

Although M&A present significant strategic opportunities for a company consideration must be given to w hy so many fail (50%) and w hy firms persist in follow ing this approach?

cooperation betw een companies w ithin different industry w ith aim to leverage capabilities Alliances may occur w hen there is technical convergence

focus tow ards bringing together equals w ith emphasis of retention of both sets of practices

M&A is a high stake process and can lead to conflicts both around target acquisition priceand post merger tensions

(3) Cross Industry Agreements acquisitions affect all aspects of corporate life - much attention has been given to analysing drivers for acquisition

paradoxical concept but around 70% of cooperation agreements exist betw een competitors

analysis has moved tow ards post acquisition phase of implementation w hich connects planning and performance

covering one stage of production process and result in common product shared by all companies intra zonal in areas of R&D and manufacturing - automotive and electronics

high customer visibility and elimination of competition - Aerospace and defence

Acquisitions have evolved in w aves - 1960s diversification exposed in 1980s as fallacy but w ith massive resurgence in the 1990s

(1) Shared Supply Alliances

covers entire production process and results in one final product developed (2) Quasi-Concentration Alliance

Background and Overview to Acquisitions

Dussauge & Garrette 1999 - 3 Types of Com petitor Alliance

1985-1995 cross border acquisitions increased tenfold

drive tow ards single European market has spurred and encouraged cross border acquisitions

assets contribution differ betw een partners i.e. manufacturing and distribution to w ork, new products brought in must not directly compete w ith others - telecomms and automotive

post 1990s have seen increase in mega-mergers creating global giants Mobil and Exxon

(3) Complementary Alliance

Managing Strategic Alliances

profitability is highly influenced by multinational partner w ith local firm totally dependent of profit

movement of organisational survival concluding w ith cross border and mega-mergers of late 1990s

Corporate Strategy: Mergers and Acquisitions Horizontal Consolidation Period

joint venture is small element of business for multi-national if profits are reduced the local firm suffers

industry restructure and removing competitors increased market pow er

balance of power issues need to be resolved - partners from both firms must engage on day to day operational management and push for dominant equity stake

access to new markets Classical/Exploitation Motives

(1) International Expansion Joint Ventures


low er success rate of joint ventures w ith shred management can result from problems in this balance of pow er

unrelated diversification due to decline ine existing markets, spreading risk and first entrant advantage Exploratory Motives

degree of mutual trust betw een partners commitment for long-term investment

buying a bargain

strategic fit betw een partners

(2) Vertical Partnerships

Financial Motives for M&A

advantage can be created through moving people betw een the tw o firms

openness and transparency of incumbent ability of entering partner to internalise new skills

tax advantages financing advantages avoid focusing on small acquisitions less than 5% of parent turnover

diversification may create advantage tot he host company - the speed of entrant into market dependent on 3 factors

Appropriability of incumbent expertise

Characteristics of Targets linking Acquisitions and Perform ance

risks of failure increase w ith reduction in market share pre-acquisition experience

(3) Cross Industry Agreements

dividing up w ork betw een respective functions through informal structures few incentives to prioritise w ork over personal research

issue of relatedness is hotly debated w ith the w ider belief that acquirer should know the business

Managing Alliances

CEO characteristics Managing R&D

issue of trust and suspicion

Pre-Acquisition Planning

(4) Shared Supply Alliances

Other Im pacts on M&A Process

process issues environmental pressure

long lived but w ith barriers to dissolution can lack flexibility w ith firms becoming captive and isolated from marketplace

how w ill acquisition build on core competencies and enhance competitive advantage? analysis of industry to judge long term profitability - Porter 5 forces

Managing Manufacturing

contractual obligation can impede corrective action

examine possible targets for synergies

focus should be on maximising economies of scale and reducing investment aim to reduce duplication but pooling task may be necessary at times

Target Selection

examination to expose possible incompatibilities assessment of target w orth and affordable price

(5) Quasi-Concentration Alliances

consideration of regulatory factors anti-trust and monopolies

Trojan Horse w ith each partner trying to capture the others skills

success or failure can have w idespread impacts on a range of stakeholders

w ish to make the other partner more dependent to leverage favour capabilities of other partner value and attractiveness of capabilities organisation of the alliance

Bidding Tactics number of factors w ill influence extent of success or degeneration

(6) Complimentary Alliances

need to persuade target shareholders that current performance can be improved upon puffing up management abilities and w ining and dining key stakeholders

Doing the Deal

absorptive capacity of the firm

Reevaluation of Assets - forcing bidder to raise offer

impact of environment change

Im proving Profit Forecasts - influenced by regulation Defender Tactics

post acquisition phase sees value or loss created

White Knight - target seeks alternative bidder

association w ith high levels of redundancies psychological impacts of acquisition w ith numerous layers affected by range of factors including nationality, industry and corporate structure

Organisational Fit

w here employees are integral i.e. consultancy this is most critical impact of organisational constraints is function of strategic direction from the centre and the need for resource transfer aviodance of interfering w ith company and attempt to learn from achievements common in new or unfamiliar areas

Issues on Post-Acquisition Integration

Arm s Length

those companies in poor condition and held in isolation to avoid w ider infection employing of turnaround strategy - high risk

Intensive Care Integration Styles

rapid loss of identity and structure and subsumed into parent common w hen similarities occur and allow for economies of scale and scope


independence from parent company w ith future projects show ing joint efforts interchange of capabilities across companies and offer greatest potential


Crow n Jew els- selling of strategic assets to offset acquisition Pac Man - launch of reverse bid

analysis shifts from one of strategic fit to organisational fit

Lesson 7 Mindmap.mmap - 12/07/2008 -

economies of scope and scale acquisition of new skills

Strategic Motives for M&A

"A common project between legally and commercially independent companies, headquartered in different countries, in which the parties jointly bear both the responsibility for management and financial risk" Weder 1991

collaboration and alliances between firms is not a new phenomenon

require partners to hold equity stake paid by cash or other assets

collaboration is now required to cope with increasing pressures of globalisation, dynamic markets and increasing complexity

reciprocity and pooling , exchange/integration of specific resources

Internet facilitation of alliances allows sharing of data faster and effectively

well defined and limitedstrategic objectives must learn to share power with other partners


Characteristics of IJVs

process of creation is time consuming and can lead to significant delays

surveys have shown up to 95% of UK firms operating within partnerships despite increasing importance alliances can be volatile

most are unstable relationships and require shared learning

issues have developed around cultural barriers or risk of losing trade secrets

need for resources, money and skills

approach to management will require sophisticated interpersonal communication and negotiations kills

allows companies to develop global outlook enables international expansion with reduced financial management allows for greater understanding of new markets Political - pressure from governments to reduce subsidiaries owned by foreign companies

Reasons for Entry into IJV

Market Access - gaining access to new markets and understanding of local issues

Yan & Luo 1002 - 5 Reasons for Entering IJVs

Risk sharing - reduction of 'foreignness liability' Access to Resources Pooling to create economies of scale and synergies Strategic Fit - compatibility of long term objectives of both firms Capabilities Fit - equal contributions of resources, assets and competencies Selection of Partners - 4 Types of Fit

Cultural Fit - corporate, industry and national/ethnic Organisation Fit - way in which partners interact - decision making and control mechanisms

non equity positions through application of contracts distribution agreements Contractual Agreements

equity structure marketing issues

technology transfer agreements franchising agreements

technology transfer

outsourcing Issues Arising in IJV Negotiations

staffing dividend policy

Types of Alliance

International Joint Ventures IJVs

equity holding in partner - common in biotech Equity Alliances

Big Pharma take equity participation in start ups in exchange for finding research firms set up new company investing resource and sharing profits

Joint Ventures

VIVO mobile phone company

Components of the Joint Venture Agreement Scope - intended purpose, level of output and intended rate of growth Contributions - level and nature - cash, technology, brand names and distribution networks Valuations - value of assets and technology contributed, distribution of value created in form of dividends Management and Staffing - size of board and number of seats allocated to each partner

providing wider range of products meeting customer need

Strategic Alliances

matching competitors

Protection - how interests are protected outside of IJV - use of technology and brand names

Key drivers influencing companies to build alliances

expanding global reach focusing on core competencies

Conflict Resolution - internal and external arbitration, renewal and extinction

cost reduction help to actualise Economies of Scale

research has shown overall number to be around 70% Operational Improvement

difficult to determine or quantify failure losses can be made but learning curve invaluable

Barney & Hesterly 2006 - Generic Sources of Value Creation Through Alliances

drastic environmental change differences between partner cultures poor leadership

help partners improve performance through joint learning sharing of risk and cost factors - Big Pharma and biotech

Creating Value Through Alliances

setting technological standards within a particular industry - telecomms Favourable Competitive Environment

Troy 1994 Reasons for Failure in Alliances

licensing agreements allow companies to enter new markets through authorisation of foreign firm to use technology or goods

leadership ambiguity overestimated market

Reasons for IJV Failure

Facilitation of Entry into Country or Industry

other identified causes have included: poor strategy development, optimistic expectations, poor commitment, weak communication, undefined roles

joint ventures allow firms to operate in new environments and expand product base - Coca Cola-Nestle products and diversification

government interference insufficient local infrastructure disputes over sharing of costs and benefits

Woodside and Pitts 1996 - Main Causes of Failure Between Industrial and Developed Countries

perception differences in IJV goals joint ventures can diverge from expected purpose key to understanding how bargaining power of partners will evolve imbalances at preliminary stage will result in dominant control requiring minority to protect its position

Bleeke & Ernst 1995

potential for conflict will increase where product and geographic positions overlap management of relational quality is also critical - Coke Nestle collapse due to mistrust existence of efficient procedural solutions to resolve conflict is critical to success of JVs

Strategic AlliancesLesson 8 Mindmap.mmap - 12/07/2008 -

Alliances as Real Options Managing a Joint Venture

alliances as limited commitment of resources delaying commitment to an initiative firm buys to option to make an acquisition later and test the water

study of transactions taking place across national borders International Business

consists of trade and capital transfers or FDI 50% of trade and 80% of FDI is carried out by the worlds 500 largest firms those earning in excess of $1000bn originate from the US, Asia, EU triad triad is basic unit of analysis for international strategy

Multinational Enterprises (MNE)

Corporate strategy of many MNEs dependent on a few key country policies capital invested in other countries by MNEs Foreign Direct Inv estment

most FDI occurs within the triad and has significant implications on trade patterns and industrial activity OECD

Regulation and Management Bodies

WTO GATT why are some companies able to innovate while other cannot? Supply Conditions success of nations and individual firms due to 4 key attributes

Demand Conditions Related and supporting industries market structure

National Competitiv e Adv antage Porter 1980 Porter Diamond

tendency towards complex structures

International Business - The Strategic Context

MNEs tend towards matrix structures multi country single product MNEs will structure towards country divisions but problems arise with multi product multi country operations Global Company - product divisions based on need to standardise Multi-Domestic - organise around countries due to local advantages

MNE faces challenges from home and host countries strategic choices should influence management structure

Matrix approach is used where there is a fine balance with vertical orientation substituted with more direct individual contacts

linkages are manifested by cash flows and influenced by host country policies

Managing International Organisations

Depth of involvement in foreign market s

long decision making times confusing priorities confused lines of responsibilities

Critique of Matrix

encourages conflict due t lack of vertical control Clarity - how well people understand roles Continuity - commitment to same values and processes by the company Consistency - how well all parts of the company work in relation to each other

Internationalisation Process

Bartlett & Ghoshal 1990 - 3 Criteria for Successful Matrix

Time License

Export via Agent

Export through own systems

Local Assembly


country centric and treats world as portfolio of local markets local discretion - decentralised federations

responsive to competition and government related forces


foreign operations as offshoots of domestic strategy value created through skills transference to local markets

Rugman & Hodgetts 2003 - MNE Characteristics

International Bartlett & Ghoshal 1989 - 4 Basic Strategies for International Competition

treats the world as single integrated unit focus towards profitability through standardisation and capturing cost reductions from local economies

draw on common pool of resources found in the home country link operations through common strategic vision and unified strategy

international strategy developed by value creation through transfer of skills and products to foreign markets


Toyota world of integrated variety - exploit cost economies, transfer competencies AND consider local responsiveness

competition in any one country is independent of competition elsewhere consumer behaviour differs between markets

Transnational Multi domestic Industries

resource based view can compliment factors of coordination and responsiveness

competition in one country is influenced by competition elsewhere product standardisation and international rivalry

Application of Resource Based View Global Industries

principle of comparative advantage knowledge and capability

firm required to develop integrative process for all countries harder to define a global company at the firm level

provision of organisational and strategic context

range of other factors have been considered including R&D, management style and board structure

Unilever have moved from multi domestic to Transnational strategy attempting to maximise cost efficiencies while protecting local responsiveness transnational company is likely to need appropriate structure moving from a centralised hub to an integrated network

Global Strategies and International Advantage

Role of the Corporate Centre

role is required to make trade offs and strategy of the firm is to avid being stuck in the middle

single global market with standard products and corporate focus on efficiency through standardisation

Global Companies Levitt 1983 - Global Standardisation

triad concept - for success firms should compete in each of the three major regions

Balancing of efficiency, responsiveness and innovation is an elaboration of Porter's diamond

Ohmae 1985 - Global Localisation Cultural Homogenisation - evolution of a global village

Chance and Uncertainty - unforeseen events increase over length of time Role of Home Gov ernment - influence over all elements of national advantage

product variety and differentiation firm manages worldwide activities as a portfolio of independent subsidiaries

core competencies and strategic assets can reside in localities and can be developed anywhere in worldwide operations

Conv ergence of Markets - infrastructure and operation of markets - regulation, competition law, tariffs and consumer protection

Two further variables can be added to this analysis Driv ers of Globalisation

basis of data only considered triad countries and only refers to firms with strong bases

Globalisation of Customers - degree of similarity between utility functions of different customers Cost Driv ers - economies of scope and scale/increased fixed costs

government is a crucial player but not all governments pursue a common policy


Changes in Industry Structure - deregulation, privatisation, technology

companies make the final strategic choices which at times may differ from national orthodoxy

key challenge to manage the blend between global standardisation and local differentiation

assumption of national development as linear lifecycle

global choices can be considered in regard to the positioning of value chain activities

credits outbound FDI as source of change and profit - what of inbound? model ignores role of MNE in creating distinctive position for itself - evidence to show that MNEs are influenced by factors outside of home country govt actions create externalities that can create firm specific advantages

Rugman & D'Cruz 1993 - Critique of Porter

upstream activities can be decoupled from downstream

Strategic Choices standardisation occurs w hen

activities constitute large parts of fixed costs scale effects are of importance

Neglect of gov ernment as maj or driv ing force

larger companies take advantages of imperfections, smaller MNEs are compelled to seek advantage elsewhere

Globalisation and the Value Chain

multi domestic occurs w hen

downstream activities are tied to buyer location activities constitute large parts of fixed costs

globalisation will require value chain to be partitioned - three key choices

implications for big v s small MNEs developed to provide realistic basis of analysing international competitiveness of smaller MNEs

how to link similar activities coordination

captures complex interactions between policies of different governments

Achiev ing Efficiency - dominant perspective with objective to maximise ratio between inputs and outputs

MNE sits at diamond centre but focused on more than one home base from each base factor characteristics are gained as well as benefits from demand conditions


degree of coordination dependant on standardisation need of product - low vs high coordination are driven by conflict cost vs responsiveness pressures

The Double Diamond Country Issues and the Double Diamond

gains are made through taking advantage of the highest common factor - i.e. best infrastructure and cheapest location

Sources of Competitiv e Adv antage

Ghoshal 1987 - Framework for Globalised Competitive Advantage

Risk Management - macroeconomic, political, resource and competitive risks Innov ation, Learning and Adaptation increased geographic scope increases exposure to diversity National Differences

Canadian US companies 3 tools for building global competitive advantage

Firm Specific Adv antages - Core Competencies

Matrix plots these variables to identify key issues for consideration Quadrant 1 - reliance on strong CSA usually in mature markets - focus on low factor costs Quadrant 2 - no advantages inefficient and candidates for restructure or absorption

Competitiv e Adv antage Matrix

Quadrant 3 - benefit from low cost and differentiation with major factor contributions Quadrant 4 - differentiated firms strengths in marketing and customisation - home base is largely irrelevant what is the role of MNEs in constructing their own destiny rather than being subject to market factors? development of partnership working and cooperative supply networks information sharing between supply partners and inventory coordination includes both suppliers and competitors

Economies of Scale Economies of Scope

Country Specific Adv antages - impact and advantage of home bases on MNE

derived from diamond model but parallels commercial and network relationships challenged by emerging set of relationships around partnerships and joint ventures with competitors

Lesson 9 Mindmap.mmap - 20/07/2008 -

The Flagship Model

traditional definitions of industries will become obsolete as will categories of competitor, buyers and suppliers firm strategies will be more focused towards outsourcing certain assets competitive advantage will be increasingly based on knowledge activity

Major Conclusions

scope economies will become available across apparently unrelated industries intermediaries will become flash points in the value chain

Market and RBV argue that the creation of distinct assets and capabilities can be translated into product bundle of value to the customer tacit and implicit value created through product distinctiveness and risk mitigation for customer

vertical integration representing activities of firm as most efficient model

rents are rooted in temporary monopolies of knowledge that are difficult to imitate or replicate for a specific time

limited company structure created financial advantages through taxation structures

tacit knowledge is now becoming explicit, appropriated by others and industrialized

overall establishment of planned economy of the firm influenced developed of strategic management

if knowledge can be substituted by external providers the vertical integration of a firm can become unsustainable

Traditional View of the Firm

knowledge market has grown significantly with patterns of consumption moving towards knowledge based products

planned economy rose due to tacit and implicit knowledge within the firm creating firm specific assets and competencies

as demand has grown, the supply of knowledge has become an industrialized activity

has led to the growth of outsourcing

supported by highly orchestrated vertical linkages with suppliers and buyers

Know ledge: Demand and Supply

tacit knowledge allows two firms in identical product markets to be differentiated organizational capital

Corporate Glue - idiosyncratic and tacit knowledge embodied in highly specific assets

significant changes in the nature of knowledge investment with previous tacit knowledge now available in the open market or substitutable

nature is now changing and affecting relationships between buyers and suppliers and within markets

defined as the process of replacing internal activities with external provision New Economies of Scale- capture of key activities by larger firms leading to demise of smaller ones lacking capital and expertise creates additional barriers to entry for competitors trying to mirror this approach

Netw ork externalities are the effects on a user of a product or service of others using the same or compatible products or services

New Economies of Scope- scale technology allows for the handling of more data without additional costs

requires new management forms and ways of working

Positiv e netw ork externalitiesexist if the benefits are an increasing function of the number of other users

elements of value chain are replaced by outsourcing opportunities for collaboration with suppliers who have developed greater skills undermine process of vertical integration and replace it with partnership and open market working

influenced by processes of deregulation

new agencies, selling bodies and brokers emerge role of the Internet

The New World of Netw ork Industries

Disintermediation- process of proprietary links within firm are replaced by market mechanisms Quinn 1992 - 6 Phases of Change The Role of Disintermediation

a network is a set of links between nodes that can be one or two way i.e. railway and telephone networks

Deconstruction- wide scale replacement of internal provision with external during Disintermediation Netw orks - Basic Definitions

Redispersion and Redecentralisationreassertion of the need for local and personalized contact

knowledge only really exists where it i s protected by law

Negativ e netw ork externalitiesexist if the benefits are a decreasing function of the number of other users notion ofComplimentarity- i.e. value of a railway station is derived from the existence of other railway stations


network economies of scale - value rise disproportionately higher than increase in network size as long as prices are constant increasing utility derived by a user as the number of other users for that product increases - i.e. phone system

undermines the notion of pure advantage as possession of unique knowledge

traditional forms of corporate glue are eroding rapidly strategist needs to consider process of erosion identify defensive moves and the principle behind new knowledge combinations

Netw ork Externalities - New Economic Force

Impact on the Strategist

focus of network economics has shifted from monopolies to interconnection, coordination and compatibility

BCG - corporate glue is melting with new intermediaries emerging to support connectivity

the demand curve for a good slope s downwards but is distorted in the presence of network externalities

ICT has allowed for knowledge modules to be snapped together and works to explain how value chains are being refocused

Netw ork Externalities and Critical Mass

knowledge supply has now become a specialism knowledge is now a tradable good undermining proprietary knowledge within firms now critical for competitive advantage

knowledge activities are now significant elements within all value chains

The New Economy Strategy as Knowledge

Deconstructing the Value Chain

competitive pressures require more than technical efficiency - outsourcing becomes a key requirement firms need to refocus attention and resources to knowledge intensive activities that help drive competitive advantage As a consequence ofdeconstruction - 3 new business models have emerged Internet businesses that mount attacks on direct business by splitting information and physical flows - Amazon Amazon model seeks to differentiate itself by mitigating high fixed costs through economies of scope following diversification

The New Competitor

multiple points of Disintermediation allows the firm to focus on those activities that drive advantage

Knowledge led Strategy

firm redefines its remaining capabilities that can be bought in and it becomes less vertically integrated

The Deconstruction Model Disintermediation

it maintains control of the value chain by reinforcing retained competencies battle to control the supply chain and competitive advantage integration replaced by orchestration with powerful brands and competencies providing control of supply - Hewlett Packard

control of the supply chain will be dependent on location of knowledge

The Deconstruction Model Orchestration

Construction of New Value Chains

those groups who can focus on specific value added steps create incentives for scale and scope effects can wrestle control from traditional integrated players first stage of the processsees existing core competencies moved into other value chains establishing scale and scope

sees attempt to dominate other related supply chains with existing competencies knowledge based competencies have become controlling element in multiple supply chains

The Reconstruction Model Know ledge Transfer

nature of scope has moved from product market to knowledge second stage of the processsee new set of corporate level capabilities used to manage collaborative partnerships creation of new value chain

replacement of the value chain with corporate glue at its centre which in turn maintains portfolio position across value chains orchestration of strategic linkages to retain control over traditional value chains

The Value Web

movement of strategic thinking away from market and supply chain domination towards assertion of position within intellectual assets and management of knowledge

Lesson 10 Mindmap.mmap - 01/11/2008 -

original assumption was that networks were each owned by an individual firm but technological advances have meant that there is now fragmented ownership

although value is gained from scarcity in the new economy value comes from plenty tipping point refers to the point at which the size of the networks tips towards one player over another

Strategic Advantage - Combined Mindmaps  
Strategic Advantage - Combined Mindmaps  

mindmaps for this module