Strategy Analysis

Analysing organizational goals and objectives

Vision
Organizational goals that evokes powerful and compelling mental images.
Mission
Set of organizational goals that includes the purpose of the organization, its scope of operations and the basis of its
competitive advantage
Strategic Objectives
A set of organizational goals that are used to operationalize the mission statement and that are specific and cover a
well-defined time frame.
 Measurable
 Specific
 Appropriate
 Realistic
 Timely

Analysing external Environment

Scanning
Surveillance of the environment to predict trends already underway.
Monitoring
Tracks the evolution of environmental trends
Competitive intelligences
Collecting and interpreting data on competitors, defining and understanding the industry and identifying competitor’s
strengths and weaknesses.
Environmental forecasting
Development of plausible projections about direction, scope, speed, and intensity if environmental changes.
• Scenario Analysis
In depth approach to environmental forecasting with detailed assessments of
 Societal trends
 Economics
 Politics
 Technology
 Other external dimensions
SWOT Analysis
Analysing internal and external environment of a company.

General environment
• Demographic
• Sociocultural
• Political/Legal
• Technological
• Economic
• Global
Competitive environment
1. Porter’s 5 Forces
• Potential entrants
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Distribution channels
• Cost disadvantages independent of scale
• Buyers
• Large volumes relative to sellers’ volumes
• Undifferentiated products
• Few switching costs
• Low profits
• Backward integration
• Unimportant quality of supplier products
• Suppliers
• Few companies, more concentration than the industry it sells to
• No substitute
• Industry is not an important customer for supplier
• Important inputs for buyers
• Differentiation and switching costs
• Forward integration
• Substitutes
Outside the industry
• Industry competitors
• Threat that customers will switch to competitors within the industry.
• Numerous or equally balanced competitors
• Slow industry growth
• High fixed costs
• Lack of differentiation or switching costs
• Capacity
• High exit barriers

Strategic groups

Assessing Internal Environment of the firm

1. Value Chain Analysis
• Primary activities
• Inbound logistics
• Operations
• Outbound Logistics
• Marketing and Sales
• Service
• Support activities
Add value themselves or add value through primary activities
• General Administration
• HR management
• Technology Development
• Procurement
 2. Resourced based view
Perspective that firms’ competitive advantages are due to their endowment of strategic resources that are:
 Valuable
 Rare
 Costly to imitate and substitute
• Tangible
• Financial
• Physical
• Technological
• Organizational
• Intangible
• Human
• Innovation
• Reputation
• Organizational capabilities:
• Combine tangible and intangible.

• Competitive advantage?
• Resources are valuable
• Rare
• Easy to imitate?
 Physical Uniqueness
 Path dependence
 Casual ambiguity
 Social complexity
• Substitutes?

3. Evaluating Firm performance

• Financial Ratio
• Balance scorecard:
Evaluating using performance measures from customer, internal, innovation, learning, and financial
perspectives.

Strategy Formulation
Business Level Strategy
Types of competitive advantages and Sustainability
Generic strategies:
basic types of business level strategies based on breadth of target market and type of competitive advantage.

1. Overall Cost Leadership

• Experience curve
• Competitive parity
 • Potential pitfalls
• Too much focus on few value-chain activities
• Imitated too easy
• Lack of parity on differentiation
• Reduced flexibility
• Obsolescence of the basis of costs advantages
2. Differentiation
Differentiation perceived industrywide as unique and valued by the customer
• Potential pitfalls
• Uniqueness is not valuable
• Too much differentiation
• High premium price
• Differentiation that easy to imitate
• Dilution of brand identification through product line extensions
• Different perceptions of differentiation between buyers and sellers.

3. Focus (cost&differentiation)
Narrow market segment within an industry
• Pitfalls
• Cost advantage may erode the narrow target
• New entrants and imitation
• Too focus to satisfy buyer’s needs.

4. Combination strategies
• Mass customization
• Profit pools
• Pitfalls
• Stuck in the middle
• Underestimating challenges and expense
• Miscalculating sources of revenue.
Industry Life-Cycle Stages: strategic implications
1. Introduction stage
• New pdt that are not known
• Poorly defined market segments
• Unspecified pdt features
• Low sales growth
• Rapid technological change
• Operating losses
• Need of financial support
2. Growth stage
• Strong increase in sales
• Growing competition
• Developing brand recognition
• Need for financing complementary value chain activities (marketing, sales, customer service,
R&D)
3. Maturity stage
• Slowing demand growth
• Saturated markets
• Direct competition
• Price competition
• Emphasis on efficient operations

• Strategies:
• Reverse positioning:
offering pdt with fewer product attributes and lower price
• Breakaway positioning
incrementally improving products along specific dimensions, by offering pdt that are still in the
industry but are perceived as being different.
Decline stage
• Falling sales and profits
• Increasing price competition
• Industry consolidation

• Strategies:
• Maintaining:
keeping the product going without significantly changes in strategies
• Harvesting:
obtaining as much profits as possible and requires that costs be reduced quickly
• Exiting the market:
dropping
• Consolidation:
acquiring or merging with other firms in an industry in order to enhance market power and gain
valuable assets.

Turnaround (Maturity and Decline)

Strategy that reverses a firms’ decline in performance and returns it to growth and profitability.
• Assets and cost surgery
• Selective product and market pruning
• Piecemeal productivity improvements (costs)
Corporate Level Strategy (diversification)
Process of firms expanding heir operations by entering new business
Related diversification
1. Economies of scope
Leverage Core competences
Core competences strategic resources that reflect the collective learning in the organization. They must:
• Enhance competitive advantage by creating superior customer value
• Different business must be similar in at least one important way related to the core
competence
• Must be difficult to imitate
• No substitutes

Sharing activities
Having activities of two or more business’ value chains done by one of the businesses.
• Deriving cost savings

2. Enhancing revenue and differentiation

3. Market power
Pooled Negotiating Power
Improvement in bargaining position relative to suppliers and customers
Vertical integration
Pro and cons:
 Satisfy quality required by the market?
 Are viable source of future profits?
 Have the company the competences?
 There is a potential negative impact on stakeholders?
• Transaction costs perspective
Unrelated diversification
1. Parenting and Restructuring
• Parenting
no changes, but better management
• Restructuring
Intervention of corporate office in new business that substantially changes the structure.
• Assets restructuring
• Capital restructuring
• Management restructuring
2. Portfolio Management
A method of
 assessing the competitive position of a portfolio of a business within a corporation
 suggesting strategic alternatives for each business
 identifying priorities for the allocation of resources across the business
BCG MATRIX!!!

How to achieve diversification

1. Mergers
Combining two or more firms into one new legal entity
2. Acquisitions
Incorporation of one firm into another through purchase
 • Reasons for both:
• Obtaining valuable resource
• 3 points of related diversification
• Limitations for both
• Costly
• Imitation
• Cultural issues
3. Strategic alliances
Cooperative relationship
4. Joint ventures
New entities formed within a strategic alliance in which the two firms contribute in equity.

• Reasons for both:

• Entering new markets
• Reducing manufacturing costs
• Developing and diffusing new technologies
5. Internal development

International Strategy
Motivations
• Increase market size
• Take advantage of arbitrage
• Enhancing product’s growth potential
• Optimize the location of the value chain activities
• Outsourcing: using other firms perform value chain activities
• Offshoring: shift activity in a foreign location
• Performance enhancement
• Cost reduction
• Risk reduction
• Learning opportunities
• Explore reverse innovation

Risks
• Political
• Economical
• Currency risk
• Management

To take in consideration
• Total wage costs
• Indirect costs
• Increased inventory delivery times
• Reduced market responsiveness
• Coordination costs
• Intellectual property rights

International strategies
International strategy
Based on firm diffusions and adaptation of the parent companies’ knowledge and expertise to foreign markets. Used in
industries where pressure for both local adaptation and costs is low.
McDonalds Kellogs

Global strategy
Firms’ centralization and control by the corporate office, with the primary emphasis on controlling costs. Standardized
products.
Strengths:
 Strong integration occurs across the various business
 Standardization leads to economies of scale, low costs
 Uniform standards of quality
Limitations
 Adaptation
 Concentration of activities in one facility can create dependence
 Single locations = high transportation costs
Es. IBM, Zurich Financial

Multidomestic strategy
Firms’ differentiating their products and services to adapt in industries where the pressure for local adaptation is high
and the pressure for lower costs is low.
Strengths:
 Ability to adapt
 Ability to detect opportunities
Limitations:
 ability in costs
 difficult to transfer knowledge
 over adaptation as conditions change
Danone, Coca-Cola per esempio cambiano il nome

Transnational Strategy
Optimizing the trade-offs associated with efficiency, local adaptation, learning.
Strengths:
 Ability to attain economies of scale
 Adaot to local markets
 Locate activities in optimal locations
 Increase knowledge flows
Limitations
 Unique challenges in determining optimal locations of activities to ensure cost and quality
 Managerial challenges
Nestlé,

Regionalization
Entry modes

Exporting
Licensing
A company receives a royalty or fee in exchange for the right to use ..
Risk: licensee become a competitor.
Franchising
A company receives the royalty or fee in exchange for the right to use its intellectual property: longer time period than
licensing, includes also monitoring, training, advertising.
Strategic alliance
Joint ventures
Creation of a third part, initiative that are smaller in scope.
Wholly owned subsidiaries
When the company has already knowledge and capabilities.

Strategy Implementation
Strategic Control and Corporate Governance
Traditional control
Strategy formulation  implementation  control  and again
Contemporary control
Relationship is circular, everything is influenced by everything.

Corporate governance
The relationship among various participants in determining the direction and performance of corporate. Primary
participants:
• Shareholders
• Management
• BOD

Agency theory
Relationship between principals and agents:
 Conflicting goals and the difficulty of principals of monitoring agents.
 Different attitudes and preferences

BOD
Has the fiduciary duty to ensure that the company is run consistently with the long term interests of the owners or
shareholders. It acts as intermediary between shareholders and management.
 • Right expertise on the board: from outside and with compenteces
• Manageable size of BOD
• Members that can actively participate
broad view
• Transparency and trust

External governance control mechanisms

• Market:
sell shares if management is not doing right  Takeover constraint: risk to be acquired by hostile
raider.
• Auditors
• Banks and analysts
• Governmental regulatory bodies
• Media and public

Creating Effective Organization Designs

How to choose structure?

• Type of strategy driven from foreign operations
• Product diversity
• How firm is dependent from foreign sales?
Simple structure
Owner-manager makes most of the decisions, controls. The staff serves as an extention of the top executive.
Functional structure

 Major functions as production, marketing, R&D, accounting are grouped internally by function.
 Coordination and integration of the activities are a big responsibility for chief executive.
 High level of centralization.

Divisional structure
• Strategic business
Divisions with similar pdt, markets, are grouped homogeneously
• Holding company structure
Divisions have high autonomy
.

 Product, projects and products markets are grouped internally.

 Decentralization of decisions
 Problem with sharing resources
 Expensive
 Different images of divisions
Matrix structure

multiple lines of authority

often organized by geographic areas

For Multidomestic strategies

Modular Organization
Non vital functions are outsourced.

Horizontal organizational structures

Groups similar or related business units under common management control and facilitate sharing resources and
infrastructures to exploit synergies among operations units and help to create a sense of common purpose.
Creating Learning Organization and an Ethical Organization
Leadership
Process of transforming organization from what they are to what the leader would have them become

• overcoming barriers to change

Power
Ability to get thigs done in a way she wants to be done
• organizational bases of power
because of position of the person
• personal bases

Emotional intelligence

Learning organizations
That create a proactive, creative approach to the unknown; characterized by:
• inspiring and motivating people with a mission and purpose
• developing leaders
• empowering employees
• accumulating and sharing internal knowledge
• gathering and integrating external information
• challenging the status quo