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179 Cards in this Set
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What is strategy? Explain in your own words and give examples. |
Strategy concerns long-term survival of the organization. How we are going to create sustainable competitive advantage over longer period of time? What kind of activities do we do to create that advantage that are different from our competitors? How do we do that? What kind of customers we are going to serve and what kind of customers we are not going to serve? Where do we see ourselves in 3-5 years? The important thing is to choose which customers we want to make really happy and don't care much about the rest. Don't mistake strategy with goals/objectives. A goal or objective is not a strategy. Being the best company is not a strategy. There is no best company. It all depends on the customer you are trying to serve. A good example is Volvo, automobile company. It is considered among the safest cars in the world by people, even though research does not seem to support this. However, they are using this to their advantage, trying to get the best security systems in their cars and create this aura through marketing. They spend less money on the design, engine and other car parts, as those do not improve safety. They might be considered among the best cars for the customers that are looking safe car. They use differentiation strategy. Another example can be IKEA. The best furniture company in the world? Probably not. The best cheap furniture company and well-designed furniture company in the world for people with limited budget who still want some good design? Definitely yes. They use low-cost strategy and are trying to cut costs everywhere where design is not involved. There is almost no customer service in their stores as that is an additional cost. There is no customization and you cannot choose the color you want. You get what you see. They also don't sell furniture per say. They sell boxes. Boxes that you have to assemble into furniture, yourself. That cuts on space and delivery costs. For the people who want customized design, colors or great customer service, IKEA is far away from being the best furniture company. Getting back to the point that the ultimate customer that you are trying to serve is what matters the most. |
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What is strategy according to Michael Porter, Mintzberg, Alfred Chandler or any other formal definition? |
•Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value’ MichaelPorter • ‘..the determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resource necessary forcarrying out these goals’ AlfredChandler •‘..apattern in a stream of decisions’ HenryMintzberg• ‘..thelong-term direction of an organisation’ ExploringStrategy |
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What are 4 strategic lenses? Explain each one of them. |
Design (Rational / Classic/Modern) - Top down rational approach, where top management creates strategy and middle management as well as regular workers must all follow it. Experience (Cultural / symbolic)– This strategy is based on thinking that what worked in the past, will work in the future. It is usually best on managers' experiences or managers using best practice experiences to create a strategy the experience lens provides a view of organizations as cultures within which people make decisions about or influence strategy on the basis of their cognitive (or mental) models and established ways of doing things (or routines). Variety (Organic / modern)– This view interprets strategy as a process coming from within an organisation and influenced by the environment around it. It's a 'bottom up' approach and requires an organisational culture which allows all employees to feel able to express their ideas. Some companies such as 3M, actively encourage employees to generate ideas with specifically allotted time Discourse (Language & power /postmodern) - This view consists in making choices between different possibilities and then inspiring confidence for the choice taken. This view is very high on legitimacy and low on rationality and innovation. Strategy as discourse sees strategy development in terms of language as a "resource" for managers by which strategy is communicated, explained and sustained and through which managers gain influence, power and establish their legitimacy as strategists. Politics is a great example of this. |
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What are the key issues when it comes to strategy according the Exploring the strategy model? |
Misunderstanding of strategy. Miscommunication of strategy. Not making the choice of serving particular customer and trying to serve everybody. Not choosing one overall strategy but rather trying to do many strategies and once. Strategy is complex and there is a lot of uncertainty involved. It requires change in the organization and people tend to resist the change. It requires understanding and integration of the approach that suits both; internal organization and the external environment. |
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What is corporate strategy? Explain and give and example |
•Corporate-Level Strategy is concerned with the overall purpose and scope of an organisation and how to add value to business units. |
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What is business strategy? Explain and give and example |
•Business-LevelStrategy isconcerned with the way a business seeks to compete successfully in itsparticular market. |
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What is operational strategy? Explain and give and example |
•OperationalLevel Strategy isconcerned with how different parts of the organisation deliver the strategy interms of managing resources, processes and people. |
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How different people contribute to strategy at work? Explain and give and examples |
Allmanagers are concerned with strategy:•Top managers frequentlyformulate and control strategy but may also involve others in the process. •Middle and lower level managers haveto meet strategic objectives and deal with constraints. •All managers haveto communicate strategy to their teams. •All managers cancontribute to the formation of strategy through ideas and feedback. |
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What are strategic decisions all about? |
It's about long-term direction of the organization, and its activities scope. It's about gaining competitive advantage and addressing changes in the business environment. It's about building on resources(competences) and the values as well as expectations of the stakeholders. |
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What are 3 horizons for strategy? Explain and give examples. |
1st horizon is about getting the best of the products or services that the organization has. Increasing/maintaining growth. 2nd Horizon is about investing into emergent businesses, technologies, entrepreneurs for future income. 3rd horizon is about looking at new ventures, new businesses, projects and other possibilities that the company might pursue in the future. An example could be a person having his own restaurant and getting income from it. His goal would be to keep his restaurant going and making it as profitable as possible. He would also look to invest his profit percentage into promising companies with expectations to get some nice ROI in the future. Lastly, he would look at other opportunities, such as opening one more restaurant or opening business consultancy agency as he has experience of managing his own business successfully. |
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What are 3 levels of strategy? Explain and give examples. |
•Level–Strategic (Top management): Horizon2-10 YearsCorporatelevel. Planning a battle. The enemy iscompetition and hostile environment. The forces areresources (people and technology). Objective isto overtake territory and protect position. Battleground isthe marketplace. –Tactical (Middle management):Horizon 6M – 2YBusinesslevel. Engaging in battle. Winning battles in a particular market or segment. –Operational (Daily management):Horizon day, week, monthOperationallevel. Everyday fighting |
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What are strategy process? Explain 3 processes briefly. |
•Analysis ofcompetetiveness–External (OT): Environment ->success factors–Internal (SW): Value chain ->distinctive competences •Formulation–Alternative courses of action toclose gap between external needs and internal abilities–Set-up evaluation criteria (KPI)–Comparison (cost/benefit) andchoice •Implementation–Resource allocation–Control and performance–HR policies (training and reward) |
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Explain models when it comes to strategy and uncertainty. |
Low complexity, slow rate of change = Rational model High complexity, slow rate of change = Implementors formulate Low complexity, fast rate of change = Formulators implement High complexity, fast rate of change = Radical model |
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What strategy statement must have? 3 themes, explain them. |
Strategystatements should have three main themes: •thefundamental (official) goals thatthe organisation seeks, which draw on the stated mission, vision and objectives •thescope ordomain of the organisation’sactivities (products->segments->markets->environment) •andthe particular advantages or capabilities ithas to deliver all these (ressources->value chain->competences) |
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Explain top-down, bottom-up, emergent strategy in your own words. Cascading goals(hint) |
MIDDLE MANAGERS TRANSLATE THESTRATEGIES OF TOP MANAGERSINTO GOALS AND ACTIVITIES AT THEOPERATIONAL LEVEL STRATEGY LINKS THE ORGANIZATIONWITH ITS ENVIRONMENT .AJIDREFLECT$ THE INTENTIONS OF THOSEWHO FORMULATE STRATEGYThis figure (4.3) depicts strategyas a top-down process.THE CONCEPT OF EMERGENT STRATEGYADDS A BOTTOM-UP PROCESS TOTHE TOP-DOWN VIEW OF STRATEGYThis model recognizes both plannedand unplanned elements as part of the strategyprocess.o |
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What are stakeholders and what's their influence on strategy? |
Stakeholders are thoseindividuals or groups that depend onan organisation to fulfil their own goalsand on whom, in turn, the organisation depends.•Officialvs. operational goals•Conflictinggoals. |
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What are three strategy's branches? |
•CONTEXT – internaland external. This includes industry and cultural analysis as well resource-based view. ••CONTENT – strategicoptions. Choice and performance. ••PROCESS – formationand implementation.Strategic planning, choice and change, strategy-as-practice |
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What is strategic position? |
Thestrategic position is concerned with the impact on strategy of the external environment,the organisation’s strategic capability (resourcesand competences), the organisation’s goals andthe organisation’s culture. Fundamental questions forStrategic Position:• What are the environmental opportunities andthreats?• What are the organisation’s strengthsand weaknesses?• What is the basic purposeofthe organisation?• How does culture shape strategy? |
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Define strategic choices |
Strategic choices involvethe options for strategy in terms of both the directionsinwhich strategy might move and the methodsbywhich strategy might be pursued. This includes choice of market: penetrating market with existing product, creating new product or services, developing new market or conglomerate diversification. As well, to gain competitive advantage there are 4 choices of strategy: cost leadership, differentiation, cost focus, differentiation focus. Fundamental questions forStrategic Choice: • How should business units compete?• Which businesses to include in the portfolio?• Where should the organisation compete internationally?• Is the organisation innovatingappropriately?• Should the organisation buyother companies, form alliancesor goit alone? |
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What is strategy in action about? |
Strategy in action isabout how strategies are formed andhow they are implemented. The emphasis is on the practicalities ofmanaging. |
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What is intended strategy? |
Intendedstrategy: strategy planning systems |
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What is emergent strategy? |
Emergentstrategy: logical incrementalism and learning |
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What are fundamental questions for strategy in action? |
Whichstrategies are suitable,acceptable and feasible?• What kind of strategy-making process isneeded?• What are the required organisationstructures and systems?• How should the organisation manage necessary changes?• Who should do what in the strategyprocess? |
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Where can exploring strategy model be applied to? |
The Exploring Strategy Model canbe applied in many contexts. In each context the balance of strategicissues differs: • Small Businesses (e.g.Purpose and Growth issues) • Multinational Corporations(e.g. Geographical Scope andStructure/Control issues) • Public Sector Organisations (e.g.Service/Quality and Managing Changeissues)• Not For Profit Organisations (e.g.Purpose and Funding issues) |
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Why are strategic lenses useful? |
The strategy lenses areways of looking at strategy issues differently in order to generate manyinsights. Looking at problems in different ways will raise new issues and newsolutions. |
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Sum up what you have learned so far. |
Summary: •Strategyis the long-term direction ofan organisation. A ‘strategystatement’should cover the goalsof an organisation, the scopeof the organisation’sactivities and the advantages or capabilities theorganisation brings to these goals and activities. •Corporate-levelstrategy isconcerned with an organisation’soverall scope; business-levelstrategy isconcerned with how to compete; and operational strategy isconcerned with how resources, processes and people deliver corporate- andbusiness-level strategy.•Strategywork isdone by managersthroughout an organisation, as well as specialist strategic planners and strategyconsultants. •Researchon strategy context, content and processshows how the analytical perspectives of economics, sociology and psychologycan all provide practical insights for approaching strategy issues •TheExploring Strategy Model has three major elements: understanding the strategicposition,making strategic choices forthe future and managing strategy-in-action.•Strategicissues are best seen from a variety of perspectives, as exemplified by the fourstrategy lenses of design, experience, variety and discourse. |
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What does PESTEL mean why is it useful? Think of some examples. |
ThePESTEL framework categorises environmental influences into six main types: political, economic, social, technological, environmental , legal Thus PESTEL provides a comprehensive list ofinfluences on the possible success or failure of particular strategies. •Political Factors: Forexample, Government policies, taxation changes, foreign trade regulations,political risk in foreign markets, changes in trade blocks (EU). •Economic Factors: Forexample, business cycles, interest rates, personal disposable income, exchangerates, unemployment rates, GDP trends. •Socio-cultural Factors: Forexample, population changes, income distribution, lifestyle changes,consumerism, changes in culture and fashion. •Technological Factors: Forexample, new discoveries and technology developments, ICT innovations, rates ofobsolescence, increased spending on R&D. •Environmental (‘Green’) Factors: Forexample, environmental protection regulations, energy consumption, globalwarming, waste disposal and re-cycling. •Legal Factors: Forexample, competition laws, health and safety laws, employment laws, licensinglaws, IPR laws. |
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What are the key drivers for change? |
Keydrivers for change:•Theenvironmental factors likely to have a high impact on the success or failure ofstrategy. •Forexample, the birth rate is a key driver for those planning nursery educationprovision in the public sector.•Typicallykey drivers vary by industry or sector. , |
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How to use PESTEL framework? |
•Applyselectively–identify specific factors which impact on the industry, market andorganisation in question. •Identifyfactors which are important currently butalso consider which will become more important in the next fewyears. •Usedata tosupport the points and analyse trends using up to date information •Identifyopportunitiesand threats – themain point of the exercise! |
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What is scenario in terms of strategy? |
Scenarios aredetailed and plausible views of how the environment of an organisation mightdevelop in the future based on key drivers of change about which there is ahigh level of uncertainty. •Buildon PESTEL analysis . • Do not offer a single forecast of how the environment will change. • An organisation should develop a fewalternative scenarios (2–4) to analyse future strategic options. |
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How to use scenarios? |
•Identifythe most relevant scope of the study the relevant product/market and time span. •Identifykey drivers of change –PESTEL factors that have the most impact in the future but have uncertainoutcomes. •Foreach key driver select opposing outcomes whereeach leads to very different consequences. •Develop scenario ‘stories’ - Thatis, coherent and plausible descriptions of the environment that result fromopposing outcomes •Identify the impact of each scenario on the organisation and evaluate futurestrategies in the light of the anticipated scenarios. •Scenario analysis is used inindustries with long planning horizons for example, the oil industry orairlines. |
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What is an industry? |
Anindustry is agroup of firms producing products and services that are essentially the same.For example, automobile industry and airline industry. |
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What is a market? |
Amarket is agroup of customers for specific products or services that are essentially thesame (e.g. the market for luxury cars in Germany). |
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What is a market segment? |
Amarket segment is agroup of customers who have similar needs that are different from customerneeds in other parts of the market. Wherethese customer groups are relatively small, such market segments are called ‘niches’. Customerneeds vary. Focusing on customer needs that are highly distinctive is one meansof building a secure segment strategy. Customerneeds vary for a variety of reasons –these factors can be used to identifydistinct market segments.Notall segments are attractive or viable market opportunities – evaluation isessential. |
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What is a sector? |
Asector is abroad industry group (or a group of markets) especially in the public sector(e.g. the health sector) |
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What are the bases of customer segmentation? |
Look up bases of market segmentation charts/pictures. |
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Whoare the strategic customers? |
A strategic customer isthe person(s) at whom the strategy is primarily addressed because they have the most influence over which goods orservices are purchased. Examples:• For a food manufacturer it is the multipleretailers (e.g. Tesco) that are the strategic customers not the ultimate consumer.• For a pharmaceutical manufacturer it is thehealth authorities and hospitals not thefinal patient. |
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What are Porter's five forces? |
Porter’s five forces frameworkhelps identify the attractiveness of an industry in terms of five competitiveforces: • thethreat of entry, • thethreat of substitutes, • thebargaining power of buyers, • thebargaining power of suppliers and • theextent of rivalry between competitors. The five forces constitute an industry’s ‘structure’. |
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Explain The Threat of Entry &Barriers to Entry |
•Thethreat of entry is low when the barriers to entry are high and vice versa. •Themain barriers to entry are: Economiesof scale/high fixed costs Experienceand learning Accessto supply and distribution channels Differentiationand market penetration costs Governmentrestrictions (e.g. licensing)Entrantsmust also consider the expected retaliation from organisations already in themarket |
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Explain the threats of substitutes |
Substitutes areproducts or services that offer a similar benefit to an industry’sproducts or services, but by a different process. Customers will switch to alternatives (andthus the threat increases) if: • The price/performance ratio of the substituteis superior (e.g. aluminium maybe moreexpensive than steel but it is more costefficient for some car parts) The substitute benefits from an innovationthat improves customer satisfaction(e.g. high speed trains can be quickerthan airlines from city centre to city centre) |
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Explain the bargaining power of buyers |
The bargaining power of buyers Buyers arethe organisation’simmediate customers, not necessarily the ultimate consumers. If buyers are powerful, then they can demandcheap prices or product / service improvements to reduce profits . Buyer power is likely to be high when: Buyersare concentrated Buyershave low switching costs Buyerscan supply their own inputs (backward vertical integration) |
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Explain the bargaining power of suppliers |
Suppliers arethose who supply what organisations need to produce the product or service.Powerful suppliers can eat into an organisation’sprofits. Supplier power is likely to be high when: Thesuppliers are concentrated (few of them). Suppliersprovide a specialist or rare input. Switchingcosts are high (it is disruptive or expensive to change suppliers). Supplierscan integrate forwards (e.g. low cost airlines have cut out the use of travelagents). |
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Explain competitive rivalry |
Competitiverivals are organisations with similar products and services aimed at the samecustomer group and are direct competitors in the same industry/market (they aredistinct from substitutes). The degree of rivalry is increased when Competitorsare of roughly equal size Competitorsare aggressive in seeking leadership Themarket is mature or declining Thereare high fixed costs Theexit barriers are high Thereis a low level of differentiation |
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What are the types of rivalry? |
•Monopolistic industries - anindustry with one firm and therefore no competitive rivalry. A firm has ‘monopolypower’ ifit has a dominant position in the market. For example, BT in the UK fixed linetelephone market. •Oligopolistic industries - anindustry dominated by a few firms with limited rivalry and in which firms havepower over buyers and suppliers. •Perfectly competitive industries- wherebarriers to entry are low, there are many equal rivals each with very similarproducts, and information about competitors is freely available. Few (if any)markets are ‘perfect’ butmay have features of highly competitive markets, for example, mini-cabs inLondon. Hypercompetitive industries -where the frequency, boldness and aggression of competitor interactionsaccelerate to create a condition of constant disequilibrium and change. •Hypercompetitionoften breaks out in otherwise oligopolistic industries (e.g. mobile phones). •Organisationsinteract in a series of competitive moves in hypercompetition which oftenbecomes extremely rapid and aggressive as firms vie for market leadership. |
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What are the implications of five forces? |
•Identifiesthe attractiveness ofindustries – which industries/markets to enter or leave. •Identifiesstrategies to influence theimpact of the forces, for example, building barriers to entry by becoming morevertically integrated.•Theforces may have a different impact on differentorganisations e.g.large firms can deal with barriers to entry more easily than small firms. |
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What are the issues with in five forces analysis? |
•Applyat the most appropriate level –not necessarily the whole industry. Consider industry and strategic groups,market, segment and sector •Notethe convergenceofindustries – particularly in the high tech sectors (e.g. digital industries -mobile phones/cameras/mp3 players). •Notethe importance of complementaryproductsand services (e.g. Microsoft windows and McAfee computer security systems arecomplements). This can almost be considered as a sixth force. |
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Sum up what you have learnt so far. |
•Environmentalinfluences can be thought of as layersaround an organisation, with the outer layer making up the macro-environment,the middle layer making up the industry or sector andthe inner layer strategic groups and market segments. •Themacro-environment can be analysed in terms of the PESTEL factors,from which key drivers of change canbe identified. Alternative scenarios aboutthe future can be constructed according to how the key drivers develop. •Industriesand sectors can be analysed in terms of Porter’s five forces –barriers to entry, substitutes, buyer power, supplier power and rivalry.Together, these determine industry or sectorattractiveness. •Industries and sectors are dynamic, andtheir changes can be analysed in termsof the industry life cycle, comparative five forces radar plots and hypercompetitive cycles ofcompetition. •In the inner layer of theenvironment, strategicgroup analysis, market segment analysis and the strategy canvas canhelp identify strategic gaps or opportunities.•Blue Ocean strategies characterisedby low rivalry are likely to be better opportunities than Red Ocean strategies with many rivals. The most important reason forenvironmental analysis is to identifyOPPORTUNITIES AND THREATS |
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Explain Comparative industry structureanalysis |
Look up Comparative industry structureanalysis chart |
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Explain cycles of competition |
Look up the chart in the slides or google |
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Define industry's life-cycle |
Development, growth, shake-out, maturity, decline |
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What are strategic groups? |
Strategic groups areorganisations within an industry or sector with similar strategiccharacteristics, following similar strategies or competing on similar bases. • These characteristics are different from thosein other strategic groups in the sameindustry or sector. • There are many different characteristics that distinguish between strategic groups. • Strategic groups can be mapped on to two dimensional charts – maps. These can be usefultools of analysis. |
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Explain Characteristics for identifyingstrategic groups |
Look up Characteristics for identifyingstrategic groups |
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What are the uses of strategic group analysis? |
•Understanding competition -enables focus on direct competitorswithin a strategic group, rather than the whole industry. (E.g. Tesco willfocus on Sainsburys and Asda) • Analysis of strategicopportunities -helpsidentify attractive ‘strategicspaces’within an industry. •Analysis of ‘mobilitybarriers’i.e.obstacles to movement from one strategic group to another. These barriers canbe overcome to enter more attractive groups. Barriers can be built to defend anattractive position in a strategicgroup. |
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What are Criticalsuccess factors (CSFs) ? |
•Critical success factors arethose factors that are either particularly valued by customers or which providea significant advantage in terms of cost. •Critical success factors are likelyto be an important source of competitive advantage if an organisation has them(or a disadvantage if an organisation lacks them). •Different industries and marketswill have different critical success factors (e.g. in low cost airlines theCSFs will be punctuality and value for money whereas in full service airlinesit is all about quality of service). |
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What is Blue Ocean? |
•‘Blue oceans’ are new market spaces where competitionis minimised. •‘Red Oceans’arewhere industries are already well defined and rivalry is intense. •BlueOcean thinking encourages entrepreneurs and managers to be different by findingor creating market spaces that are not currently being served. •A‘strategy canvas’ compares competitors according to theirperformance on key success factors in order to develop strategies based oncreating new market spaces. |
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What is strategy canvas? |
Look it up |
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What is mission statement? |
Short(Who are we – and) Why do we exist Everybody in the organization, and whointeracts with the organization can determine whether what goes on now is inharmony with the mission Daimler Mission Daimler invented the automobile – and ispassionately shaping its future. As pioneers of automotive engineering we seeit as our claim and obligation to continue this proud tradition and make future mobility safe and sustainable– with groundbreaking technologies andhigh-quality products |
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How to create a strategy? (Hint:start with analysis) |
What is the strategic position now? Basic strategic position map arepurpose, identity, important values, mission, “formulas for success”, chosengeneric strategy consistent and relevant today Create a 5 forces model for industry(industries) Extra focus on recipe (Formulate 3 to 7key success factors)AskCEO Extra focus on critical mass Choose 5 to 7 trends being most likely tohave large impact on future strategic position and understand this impactdeeply Youcan use the 5 forces model or the PESTEL analysis Youcan make a workshop with management group Describe the basic strategic position forthe future (Mission-statement, which industries, major values, purpose, genericstrategy, “formula for success”) – make sure it is consistent Describe INITIATIVES handling each majorproblem identified – make sure that INITIATIVES are few and mutually consistent Make a plan how to transform company intonew strategic position Changeof basic strategic position (difficult) Planfor the implementation of each initiative identified as solution to problems Identify Key Perform Indicators Measureof how successful company is according to each Key Factor for Success in (new)recipe Measureprogress of each initiative in strategy |
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How to find strategic problem for the organization? |
Inconsistent basic strategic position? Industry is very bad? Volume much less than critical mass? Not able to compete according to recipe?Possibleto change this or not? Customers, channels or suppliers too strong?Threats of substitution? Threats of new competitors? |
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How to be competitive? |
Acceptable product/service, lowest cost Exceptional product/service(differentiate) Specialized product/service (focus onniche) Stuck in the middle (not competitive) |
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What is the relation between competitive advantage and pricing? |
Acceptable product, low cost: Lowprice Averageprice (high margins) Highprice (rarely possible) Exceptional product Lowprice (why? – if the product is exceptional)Averageprice (increase volume) Highprice (premium price because some customers will be willing to pay) NicheDependswhether it is Niche/cost or Niche/differentiation |
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What are the problems with being stuck in the middle between price and differentiation? Short and long-term. |
Short term ok when competition is notfierce Long term very costly on profit orexistence |
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Define cost strategy |
Competitive advantage normally throughlearning or scale You still have to differentiate enoughfor the product to be attractive to the normal customer Low cost leader – or up to 10 % fromleader in cost Use of IT to automatize processes andproduce more efficiently |
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Define differentiation strategy |
Tangible (i.e. design, quality, …) Intangible (i.e. branding, CSR, …) You still need to have reasonable costrelative to the price you can get Use of IT to enhance and improvecustomers experience with product or service |
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Define focus on niche strategies |
Niche barrier Allthis works well if niche is so different for normal competition that it will bemore costly or of lesser value to customers in the niche to use the ordinaryproduct from general competitors not focusing on the niche (High niche barrier)} |
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What you should aim for to win competition? |
Monopoly Blue ocean strategy |
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What is strategic position? |
Strategic ( = of importance for theoverall situation) Position ( = where something is relativeto something else) Who are we?Where are we?What’s the purpose?What is our formula for success?How is our business environment?(competitors, suppliers, customers)What will happen in the future?(Politics, the economy, ecology, legal, new competitors?, substitution,technology change etc.) |
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Define competitive rivalry? |
Recipe (How to compete) Entry barrier (How hard it is to becomecompetitor) Exit barrier (How difficult it is forlooser to leave the competition) Critical mass (How big you need to be tobe a successful competitor) Generic strategies used Competitors can be similar or different(Strategic groups) |
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How are barriers and profit related? |
High entry barrier indicates highpotential profits Low entry barrier indicates low potentialprofitsHigh exit barriers indicates unstableprofits Low exit barriers indicates stableprofits |
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What is the resource based view of strategy? |
Theresource-based view (RBV) ofstrategy asserts that the competitive advantage and superiorperformance of anorganisation is explained by the distinctiveness of its capabilities.} |
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What are competences and what are resources? |
•Resourcesarethe assets that organisations have or can call upon (e.g. from partners orsuppliers),thatis, ‘what we have’. •Competences arethe ways those assets are used or deployed effectively, that is, what we do well’. |
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What are components of strategic capabilities? |
Physical, Financial, Human. |
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What are redundant capabilities? |
•Capabilities,however effective in the past, can become less relevant as industries evolveand change. •Such ‘capabilities’ canbecome ‘rigidities’ thatinhibit change and become a weakness. |
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Define value chain |
•The value chain describesthe categories of activities within an organisation which, together, create aproduct or service that add value to customers. •Thevalue chain invites the strategist to think of an organisation (or supplychain) in terms of setsof activities and sources of competitive advantage thatcan be analysed in any or all of these activities. |
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What is path dependency? |
Path dependency iswhere early events and decisions establish ‘policypaths’ thathave lasting effects on subsequent events and decisions. |
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What are the impacts of path dependency? |
•Buildingstrategyaround the path-dependent capabilities that have been successful in the past. •Pathcreation –changing strategies in a way that is built on the past and acceptable to keyplayers. •Managementstyle maybe rooted in and evolved from the early style adopted by the founder(s). Buildingstrategy onthe capabilities gained in the past (ch 3) and using these for creatingcompetitive advantages (ch 6)Pathcreation =change, with the challenges that lies in “change”,e.g. resistance to change (ch 14)Managementstyle = the ways of approaching changes (ch 14)cketeer' log |
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What is dynamic capability? |
Dynamic capability isthe ability of an organisation to renew and recreate its strategic capabilitiesto meet the needs of changing environments. Dynamiccapabilities and core competences are often tacit and difficult to imitate Theoryof knowledge: attaining, elaborating, sharing, storingTheoryof learning: single double loopingTheoryof sharing |
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What are threshold and distinctive capabilities? |
•Threshold capabilities arethose needed for an organisation to meet the necessary requirements to competein a given market and achieve parity with competitors in that market – ‘qualifiers’. •Distinctive capabilities arethose that critically underpin competitive advantage and that others cannotimitate or obtain – ‘winners’. |
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What are core competences? |
Corecompetences1 are the linkedset ofskills, activities and resources that, together: •delivercustomer value •differentiatea business from its competitors•potentially,can be extended and developed as markets change or new opportunities arise. |
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How strategic capabilities and competitive advantage are related? |
Thefour key criteria by which capabilities can beassessed in terms of providing a basis for achievingsustainablecompetitive advantage are: •value, •rarity, •inimitability and •non-substitutability |
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What makes strategic capability valuable? |
Strategiccapabilities are of value when they: • take advantage of opportunities and neutralise threats, • provide value to customers • provide potential competitive advantage • at a cost that allows an organisation torealise acceptable levels of return |
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What are rare capabilities? |
•Rarecapabilities are those possessed uniquely by one organisation or by a fewothers only. (E.g. a company may have patented products, have supremelytalented people or a powerful brand.)•Raritycould be temporary. (Eg: Patents expire, key individuals can leaveor brands can be de-valued by adverse publicity.)2 |
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What is inimitable capability? |
Inimitablecapabilities are those that competitors find difficult to imitate or obtain.• Competitive advantage can be built on unique resources (a key individual or IT system) but these may not be sustainable (key people leave or others acquire the same systems). • Sustainable advantage is more often found in competences (the way resources are managed, developed and deployed) and the way competences are linked together and integrated. |
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What are Criteria for the inimitability ofstrategic ? |
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What is non-substitutability when it comes to capabilities? |
N - Non-substitutability Competitiveadvantage may not be sustainable if there is a threat of substitution. •Productor service substitution from a different industry/market. For example, postalservices partly substituted by e-mail. •Competencesubstitution. For example, a skill substituted by expert systems or ITsolutions |
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What is organizational knowledge and tacit knowledge? |
Organisational knowledge isthe collective intelligence, specific to an organisation, accumulated throughboth formal systems and the shared experience of people in that organisation. • Some of this knowledge is ‘Tacit’knowledge thatis, more personal, context-specific and hard to formalise and communicate – soit is difficult to imitate, for example, the knowledge and relationships in atop R&D team. |
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What is benchmarking? |
Benchmarking is ameans of understanding how an organisation compares with others – typicallycompetitors. Two approaches to benchmarking:•Industry/sector benchmarking -comparingperformance against other organisations in the same industry/sector against aset of performance indicators. •Best-in-class benchmarking -comparing an organisation’sperformance or capabilities against ‘best-in-class’performance – wherever that is found even in a very different industry. (E.g.BA benchmarked its refuelling operations against Formula 1). |
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What is value network? |
•The value network comprisesthe set of inter-organisational links and relationships that are necessary tocreate a product or service.•Competitiveadvantage can be derived from linkageswithin the value network. |
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What is the natural of focal organization? |
•Usingthe value chain/network on organisations dealing with–Products–Services–Non-profit (Government, Charity,Sport clubs…)•Whenthe (focal) organisation has no operations–Channel valuechain (Wholesale,Distributer)–Customer value chain (Retail) |
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What are the uses of value chain? |
•A generic description ofactivities –understanding the discrete activities and how they both contribute to consumerbenefit and how they add to cost. •Identifying activities wherethe organisation has particular strengths or weaknesses •Analysing the competitiveposition ofthe organisation using the VRIN criteria – thus identifying sources ofsustainable advantage. •Lookingfor ways to enhance value or decrease cost invalue activities (e.g. outsourcing) |
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What are the uses of network value? |
•Understanding cost/price structures across the value network – analysing the best area of focus and the best business model . •Identifying ‘profit pools’ within the value network and seek to exploit these. •The ‘make or buy’ decision: deciding which activities to do ‘in-house’ and which to outsource. •Partnering and relationships – deciding who to work with and the nature of these relationships. |
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What are the uses of SWOT analysis? |
•Keyenvironmental impacts areidentified using the analytical tools explained in Chapter •Majorstrengthsand weaknesses areidentified using the analytic tools explained in Chapter 3. •Scoring(e.g. + 5 to - 5) can be used to assess the interrelationship betweenenvironmental impacts and the strengths and weaknesses. •SWOTcan be used to examine strengths, weaknesses, opportunities and threats in relation to competitors. •SWOTcan be used to generate strategic options–using a TOWS matrix. |
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What is TOWS matrix? |
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What are the dangers in SWOT analysis? |
•Longlists with no attempt at prioritisation.•Over generalisation –sweeping statements often based on biased and unsupported opinions. •SWOTis used as a substitute for analysis –it should result from detailed analysis using the frameworks in Chapters 2 and3. •SWOTis not used to guide strategy –it is seen as an end in itself. |
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What is the process of developing strategic capabilities? |
Internal capability development: •Leveraging capabilities –identifying capabilities in one part of the organisation and transferring themto other parts (sharing best practice). •Stretching capabilities -building new products or services out of existing capabilities. •External capability development –adding capabilities through mergers, acquisitions or alliances. •Ceasing activities –non-core activities can be stopped, outsourced or reduced in cost. •Monitor outputs and benefits – tounderstand sources of consumer benefit and enhance anything that contributes tothis. •Managing the capabilities of people–training, development and organisation learning. |
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Sum up what you have learned? Try recalling from the memory and see how much you remember compared to what's in the summary. |
•Strategic capabilities compriseboth resources and competences. •Theconcept of dynamic capabilities highlightsthat strategic capabilities need to change as the market and environmentalcontext of an organisation changes.•Sustainability ofcompetitive advantage is likely to depend on an organisation’scapabilities being of at least thresholdvalue ina market but also being valuable,relatively rare, intimable and non-substitutable. Waysof diagnosing organisational capabilities include: • Benchmarkingas ameans of understanding the relativeperformance of organisations. • Analysing an organisation’s value chain and value networkas abasis for understanding how value to acustomer is created and can be developed. • Activity mapping as ameans of identifying more detailedactivities which underpin strategic capabilities. • SWOT analysis as away of drawing together an understandingof strengths, weaknesses, opportunitiesand threats an organisation faces. |
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What is strategic business unit? |
Strategic business unit supplies goods or services for a distinct domain of activity. SBU can be called divisions or profit centers. SBU can be identified by market based criteria (similar customers, channels and competitors) It can also be identified by capability based criteria (similar strategic capabilities) |
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What is the purpose of SBU? |
To decentralize initiative to smaller units within the corporation so that SBU could create their own distinct strategies. This allows corporations to vary in their business strategies according to the different needs of external environment. As well, it encourages accountability as each SBU is held responsible for their own costs, revenues and profits. |
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What is competitive strategy? |
It concerns with how each strategic business unit achieves competitive advantage in its own domain of activity. |
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What is competitive advantage? |
It is about how SBU creates value for its users both greater than the costs of suppliers and better than other rival SBUs. |
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Explain cost-leadership strategy and its' main key drivers? |
It involves becoming the lowest-cost organization in its own domain of activity. For key drivers that can help an organization achieve this: lower input costs, economies of scale, experience and product process/design. Walmart, Amazon, Dell great examples |
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Explain differentiation strategy and its' two key issues. |
Differentiation involves becoming unique at some dimension that the customers value enough for organization to be able to charge premium price. (Premium price - high price) Two key issues needed to keep in mind for this strategy is the strategic customer on whose needs the differentiation is based. Also, who are the key competitors, who are the rivalry and who might become one. Examples: Apple, Harley Davidsod |
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Explain focus strategy. |
A focus strategy targets narrow segment of domain activity and tailor its products or services to the needs of that specific segment to the exclusion of others. There are two types of focus strategy: Cost-focus strategy (Ryanair,Aldi) Differentiation-focus strategy (Ecover, Ferrari, Ducati) Successfulfocus strategies depend on at least one of three key factors:• Distinctsegment needs.• Distinctsegment value chains.• Viablesegment economics. |
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What are the problems with being stuck in the middle and choosing more than one strategy? |
Porter’sargues:•It isbest to choose which generic strategy to adopt and then stick rigorously to it. •Failureto do this leads to a danger of being ‘stuckin the middle’i.e.doing no strategy well. •Theargument for pure generic strategies is controversial. Even Porter acknowledgesthat the strategies can be combined (e.g. if being unique costs nothing). •Acompany can create separate strategic business units each pursuing differentgeneric strategies and with different cost structures. •Technologicalor managerial innovations where both cost efficiency and quality are improved. •Competitivefailures – if rivals are similarly ‘stuckin the middle’ orif there is no significant competition then ‘middle’strategies may be OK. |
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What is strategic clock? |
It is a method to analyze organization's competitive position in contrast with its' competitors ways of competitive positioning. |
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Explain differentiation on strategy clock. |
•Strategiesin this zone seeks to provide products that offer benefits that differ fromthose offered by competitors. •Arange of alternative strategies from: differentiation without price premium (12o’clock) – used to increase market share. differentiation with price premium (1 o’clock)– used to increase profit margins. focused differentiation (2 o’clock)– used for customers that demand topquality and will pay a big premium. |
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Explain low-price on strategy clock. |
Lowprice combined with: low perceived product benefits focusingon price sensitive market segments – a‘no frills’ strategy typifiedby low cost airlines like Ryanair. lower price than competitors whileoffering similar product benefits – aimed at increasing market share typifiedby Asda /Walmart in grocery retailing. |
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Explain hybrid on strategy clock. |
•Seeksto simultaneously achieve differentiation and low price relative tocompetitors. •Hybridstrategies can be used: to enter markets and build positionquickly. as an aggressive attempt to win market share. to build volume sales and gain from mass production. |
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Explain non-competitive part of the strategic clock |
•Increasedprices without increasing service/product benefits. •Incompetitive markets such strategies will be doomed to failure. •Onlyfeasible where there is strategic ‘lock-in’ or a near monopoly position. |
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What is strategic lock-in? |
•Strategic lock-in iswhere users become dependent on a supplier and are unable to use anothersupplier without substantial switching costs. |
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How can strategic lock-in be achieved? |
•Lock-in can be achieved in two main ways: Controlling complementary products or services. E.g. Cheap razors that only work with one type of blade. Creating a proprietary industry standard. E.g. Microsoft with its Windows operating system. |
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How to establish strategic lock in? |
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What is hypercompetition? |
•Hypercompetitiondescribes markets with continuous disequilibrium and change e.g. popular musicor consumer electronics.•Successfulhypercompetition demands speed and initiativerather than defensiveness. |
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What are 4 key principles when it comes to interactive strategies in hypercompetition? |
•Fourkey principles: Cannibalisebases of success. Aseries of small moves rather than big moves. Beunpredictable. Misleadthe competition. |
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What is game theory and it's 4 principles? |
Game theory encouragesan organisation to consider competitors’likely moves and the implications of these moves for its own strategy. Gametheory encourages managers to consider how a ‘game’ canbe transformed from ‘lose–lose’competition to ‘win–win’cooperation. •Fourprinciples: Ensurerepetition. Signalling. Deterrence. Commitment. |
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Try recalling all the things you have learned so far. In this card, you will find the summary of what you are supposed to know and understand. |
•Businessstrategy is concerned with seeking competitive advantage inmarkets at the business rather than corporate level. •Businessstrategy needs to be considered and defined in terms of strategic business units (SBUs). •Differentgeneric strategies canbe defined in terms of cost-leadership, differentiation and focus. •Managersneed to consider how business strategies can be sustainedthrough strategic capabilities and/orthe ability to achieve a ‘lock-in’position with buyers. •In hypercompetitive conditions sustainablecompetitive advantage is difficult to achieve. Competitors need to be able tocannibalise, make small moves, be unpredictable and mislead their rivals. •Cooperative strategies mayoffer alternatives to competitive strategies or may run in parallel. •Game theory encouragesmanagers to get in the mind of competitors and think forwards and reasonbackwards. |
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What is diversification? |
•Diversificationinvolvesincreasing the range of products or markets served by an organisation. |
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What is related diversification? |
•Relateddiversification involvesdiversifying into products or services with relationships to the existingbusiness. –Carlsbergmoves into alcoholic beverage –Legomoves into wooden toys –Nordeamoves into insurance |
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What is conglomerate diversification? |
•Conglomerate(unrelated) diversification involvesdiversifying into products or services with no relationships to the existingbusinesses.–Jyskmoves into travelling business –Mærskmoves into producing mobile phones / |
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What is consolidation? |
•Consolidationrefersto a strategy by which an organisation focuses defensively on their currentmarkets with current products. |
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What is retrenchment? |
•Retrenchmentrefersto a strategy of withdrawal from marginal activities in order to concentrate onthe most valuable segments and products within their existing business. |
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What is market penetration? |
Market penetration refersto a strategy of increasing share of current markets with the current productrange. This strategy: strategic capabilities; buildson established scope is unchanged; meansthe organisation’s increased power; leadsto greater market share and with buyers and suppliers; economies of scale; andprovides greater and experience curve benefits. |
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What are the constraints of market penetration? |
Legal constraints, retaliation from competitors and economic constraints (recession or funding crisis). |
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What is product development? |
Product development refersto a strategy by which an organisation delivers modified or new products toexisting markets. •Thisstrategy : involvesvarying degrees of relateddiversification (in terms of products); can be an expensive and high risk mayrequire new strategic capabilities typically involves project management risks. |
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What is market development? |
Market development refersto a strategy by which an organisation offers existing products to new markets Thisstrategy involvesvaryingdegrees of related diversification (in terms of markets) it; may also entail some product development (e.g.new styling or packaging); can take the form of attracting new users(e.g. extending the use of aluminium tothe automobile industry); can take the form of new geographies (e.g.extending the market covered to new areas – international markets being themost important); must meet the critical success factors ofthe new market if it is to succeed; may require new strategic capabilitiesespecially in marketing. |
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What is conglomerate diversification? |
Conglomerate (or unrelated)diversification takesthe organisation beyond both its existing markets and its existing products andradically increases the organisation’sscope. |
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What are the main drivers for diversification? |
•Exploiting economies of scope –efficiencygains through applying the organisation’sexisting resources or competences to new markets or services. •Stretching corporate management competences. •Exploitingsuperior internal processes.•Increasingmarket power. |
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What is synergy? |
Synergyrefersto the benefits gained where activities or assets complement each other so thattheir combined effect is greater than the sum of the parts. N.B. Synergy is often referred to as the ‘2 + 2 = 5’ effect. |
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What are value destroying diversification drivers? |
Somedrivers for diversification which may involve value destruction (negativesynergies): Responding to market decline, Spreading risk and N.B. Despitethese beingcommon justifications for diversifying, finance theory suggests these aremisguided. Managerial ambition. |
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How diversity and performance is related? |
Completely undiversified implies low performance while related limited diversification implies the highest performance. Unrelated extensive diversification also implies low performance. |
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What are Diversification and integrationoptions ? |
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What is vertical integration? |
•Vertical integration describesentering activities where the organisation is its own supplier or customer. |
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What is backward integration? |
•Backward integration refersto development into activities concerned with the inputs into the company’scurrent business. |
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What is forward integration? |
•Forward integration refers to development into activities concerned with the outputs of a company’s current business. |
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What is outsourcing? |
Outsourcingisthe process by which activities previously carried out internally aresubcontracted to external suppliers.•Outsourcingand the value chain (focus on distinctive capabilities) •Outsourcingand the value system (vertical [dis]integration) |
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How to decide of whether to outsource or not? |
Thedecision to integrate or subcontract rests on the balance between two distinctfactors: • Relativestrategic capabilities:Doesthe subcontractor have the potential to do the work significantly better? • Risk of opportunism:Isthe subcontractor likely to take advantage of the relationship over time? |
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What are Value-addingactivities(horizontal and vertical)? |
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What are Value-destroyingactivities(horizontal and vertical) ? |
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What are corporate rationales? |
•Theportfolio manager operates as an active investor in a waythat shareholders in the stock market are either too dispersed or too inexpertto be able to do. •Thesynergy manager is a corporate parent seeking to enhancevalue for business units by managing synergies across business units. •Theparental developer seeks to employ its own centralcapabilities to add value to its businesses. |
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What are portfolio matrices? |
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Define Thegrowth share (or BCG) matrix |
•Astar isa business unit which has a high market share in a growing market. •Aquestion mark (or problem child) is a business unit in a growingmarket, but it does not have a high market share. •Acash cow isa business unit that has a high market share in a mature market. •Adog isa business unit that has a low market share in a static or declining market. |
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What are the problems with BCG matrix? |
Problemswith the BCG matrix: definitional vagueness, capital market assumptions, motivation problems, self-fulfilling prophecies and possible links to other business units. |
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What is Thedirectional policy(GE–McKinsey) matrix ? |
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Explain the parenting mix matrix |
Heartland businessunits - the parent understands these well and can add value. The core of futurestrategy. 2.Ballastbusinessunits - the parent understands these well but can do little for them. Theycould be just as successful as independent companies. If notdivested, they should be spared corporate bureaucracy. 3.Value-trapbusinessunits are dangerous.There are attractive opportunities toadd value but the parent’slack of feel will result in more harm than good The parent needs newcapabilities to move value-trap businesses into the heartland. It is easier todivest to another corporate parent which could add value. 4.Alien businessunits are misfits.Theyoffer little opportunity to add value and the parent does not understand them.Exit is the best strategy.a |
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Summarize what you have learnt. |
•Many corporations comprise several,sometimes many business units.Decisions and activities above the level of business units are the concern ofwhat in this chapter is called the corporateparent. •Organisational scope is considered interms of related and unrelateddiversification. •Corporate parents may seek to add valueby adopting different parenting roles: theportfolio manager, the synergy manager or the parental developer. •Thereare several portfolio models tohelp corporate parents manage their businesses, of which the most common are: the BCG matrix, the directional policy matrix and the parenting matrix. •Divestment and outsourcing shouldbe considered as well as diversification, particularly in the light of relativestrategic capabilities and the transaction costs of opportunism. |
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What is strategic drift? |
Strategic drift isthe tendency for strategies to develop incrementally on the basis of historicaland cultural influences but fail to keep pace with a changing environment. |
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What is logical incrementalism? |
•Gradualchange in alignment with environmental change. •Buildingon successful strategies used in the past (built around core competences) •Makingchanges based on experimentation around a theme (incremental change built on asuccessful formula) |
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Why there is a strategic drift and why strategies fail? |
Strategiesfail to keep pace with environmental change because : • Steady as you go –reluctance to accept that changerequires moving away from strategies that havebeen successful. • Building on the familiar –uncertaintyof change is met with a tendency tostick to the familiar. • Core rigidities – capabilities that are taken for granted and deeply ingrained in routines are difficult to change even when they are nolonger suitable. •Relationshipsbecome shackles –organisations become reluctant to disturb relationships with customers,suppliers or the workforce even if they need to change. •Laggedperformance effects – the financial performance of theorganisation may hold up initially (e.g. due to loyal customers or costcutting) masking the need for change.stem.net |
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What is a period of flux? |
Asperformance declines and the organisation loses track of the environment then aperiod of Fluxoccurs typified by: • Strategies that change, but in no clear direction. • Top management conflict andmanagerial changes. • Internal disagreement onthe ‘right’strategies. • Decliningperformance andmorale. • Customersbecoming alienated. |
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How is performance, transformational change and death related? |
Asperformance continues to deteriorate the outcome is likely to be : • Theorganisation dies (e.g.goes bankrupt or into receivership). • Theorganisation is taken over (and perhaps radically changed by new owners). • Theorganisation implements transformational change–multiple, rapid and fundamental changes. |
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Why history is important? |
•Recognisingthat organisational experience becomes deeply embedded in behaviour. •Avoidingrecency bias –learning from the past. •Asking‘whatif’questions based on past experience. •Historyas legitimisation – pastsuccess can be used as evidence to support specific strategies. •Innovationbased on historic capabilities which can be adapted and transferred. |
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What is path dependency? |
Path dependency iswhere early events and decisions establish ‘policypaths’ thathave lasting effects on subsequent events and decisions. |
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What is organizational culture? |
Organisational culture isthe taken-for-granted assumptions and behaviours that make sense of people’sorganisational context |
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What does recipes mean? |
Arecipe isa set of assumptions, norms and routines held in common within anorganisational field about the appropriate purposes and strategies of fieldmembers. In effect it is ‘shared wisdom’. |
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What is legitimacy? |
Legitimacyisconcerned with meeting the expectations within an organisational field in termsof assumptions, behaviours and strategies. Strategies can be shaped by the need forlegitimacy in several ways: • Regulation • Normative expectations • The recipe |
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What is the paradigm? |
Theparadigm isthe set of assumptions held in common and taken for granted in an organisation. The paradigm: • isbuilt on collective experience • informswhat people inthe organisation do • influenceshow organisations respond to change.ers |
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What is the cultural web? |
The cultural web showsthe behavioural, physical and symbolic manifestations of a culture that informand are informed by the taken-for-granted assumptions, or paradigm, of anorganisation |
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Click for summary of what you are supposed to know. |
•Thehistory and culture of anorganisation may contribute to its strategic capabilities, but may also giverise to strategic drift asits strategy develops incrementally on the basis of such influences and failsto keep pace with a changing environment. •Historical,path-dependentprocesses play a significant part in the success or failure of an organisationand need to be understood by managers. There are historical analyses that canbe conducted to help uncover these influences. •Cultural and institutionalinfluences bothinform and constrain the strategic development of organisations. •Organisational culture isthe basic assumptions and beliefs that are shared by members of anorganisation, that operate unconsciously and define in a basictaken-for-granted fashion an organisation’sview of itself and its environment. •Anunderstanding of the culture of an organisation and its relationship toorganisational strategy can be gained by using the cultural web. |
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How is internationalisation potential determined? |
•Internationalisationpotential in any particular market is determined by Yip’s four drivers:market, cost, government and competitors’strategies. |
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What are the sources of advantage in international strategy? |
•Sourcesof advantage in international strategy can be drawn from both global sourcingthrough the international value network and national sources of advantage, ascaptured in Porter’sDiamond. |
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What are four types of international strategy? |
•Thereare four main types of international strategy,varying according to extent of coordination and geographical configuration:simple export, complex export, multidomestic and global. |
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What should market selection for international entry or expansion be based on? |
•Marketselection forinternational entry or expansion should be based on attractiveness,multidimensional measures of distance and expectations of competitorretaliation. |
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What are the modes of entry into new markets? |
Modes of entry intonew markets include export, licensing and franchising, joint ventures andoverseas subsidiaries |
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How is financial performance and internationalisation related? |
•Internationalisationhasan uncertain relationship to financial performance,with an inverted U-curve warning against over-internationalisation. |
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How can subsidiaries in international firm be managed? |
•Subsidiariesin aninternational firm can be managed byportfolio methods just like businesses in a diversified firm. |
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What elements of PESTEL framework are the most important when comparing countries for entry? |
Four elements of the PESTELframework areparticularly important in comparing countries for entry: Political.Political environments vary widely between countries and can alter rapidly. Economic. Keycomparators are levels of Gross Domestic Product and disposable income whichindicate the potential size of the market. Social.Factors like population characteristics and lifestyle as well as culturaldifferences. Legal. Countries vary widely in theirlegal regime. REMEMBERWHOLE SWOT: Capabillities,value chain/network, 5 forces and culture. First,interdependence between country operations increasesthepressure for global coordination. For example, a business with a plant inMexicoserving both the American and the Japanese markets has to coordinatecarefullybetween the three locations: surging sales in one country, or acollapsein another, will have significant knock-on effects on the other countries? |
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What is CAGE framework? |
The CAGE Distance Framework identifies Cultural, Administrative, Geographic and Economic differences or distances between countries that companies should address when crafting international strategies. It may also be used to understand patterns of trade, capital, information, and people flows. |
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What is Porter's Diamond and what are its' 4 drivers? |
Porter’sDiamond –explainswhysome locations tend to produce firms with sustained competitive advantages insome industries more than others. The four drivers in Porter’sDiamond stemfrom: local factor conditions local demand conditions: local related and supporting industries local firm strategy structure and rivalry.Homedemand conditions. The nature of the domestic customers can becomeasource of competitive advantage. Dealing with sophisticated and demandingcustomersat home helps train a company to be effective overseas. For example,Japanesecustomers’ highexpectations of electrical and electronic equipmentprovidedan impetus for those industries in Japan leading to global dominanceofthose sectors. Sophisticated local customers in France and Italy have helpedkeeptheir local fashion industries at the leading edge for many decades. |
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How to assess country markets? |
Countrymarkets can be assessed according to three criteria: Marketattractiveness to the new entrant Thelikelihood and extent of defenders’reaction Defenders’clout – the relative power of defenders tofight back. |
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What is international strategy? |
International strategy refersto a range of options for operating outside an organisation’scountry of origin. |
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What is global strategy? |
Global strategy involveshigh coordination of extensive activities dispersed geographically in manycountries around the world. |
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What is global-local dillema? |
The global–local dilemma relatesto the extent to which products and services may be standardisedacross national boundaries or need to be adapted tomeet the requirements of specific national markets. |
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What is complex export? |
Complex export. Thisstrategy still involves the location of most activities inasingle country, but builds on more coordinated marketing. Economies ofscalecan still be reaped in manufacturing and R&D, but branding and pricingopportunitiesare more systematically managed. The coordination demandsare,of course, considerably more complex than in the simple export strategy.Thisis a common stage for companies from emerging economies, as theyretainsome locational advantages from their home country, but seek to buildastronger brand and network overseas with growing organisational maturity. |
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What is transnational structure? |
The transnational structurecombineslocal responsiveness with high global coordination. Key Advantages include:ØKnowledge-sharing.ØSpecialisation.ØNetworkmanagement. |
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What are modes of entry? |
1.Export2.License3.Joint venture – alliance4.Foreign direct investment |
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What are pros and cons of export? |
Advantages•Noneed for operational facilities in host country•Economiesof scale in the home country•Internetcan facilitate exporting marketing opportunities Disadvantages•Loseany location advantages in the host country•Dependenceon export intermediaries•Exposureto trade barriers•Transportationcosts |
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What are pros and cons of joint ventures and alliances? |
Advantages•Sharedinvestment risk •Complementaryresources•Mayberequired for market entry Disadvantages•Difficultto find good partner•Relationshipmanagement•Lossof competitive advantage•Difficultto integrate and coordinate |
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What are pros and cons of licensing? |
Advantages•Contractualsource of income•Limitedeconomic and financial exposure Disadvantages•Difficultto identify good partner•Lossof competitive advantage•Limitedbenefits from host nation |
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What are pros and cons of foreign direct investment fully owned subsidiary? |
Advantages•Fullcontrol•Integrationand coordination possible•Rapidmarket entry through acquisitions•Greenfieldinvestments are possible and may be subsidised Disadvantages•Substantialinvestment and commitment•Acquisitionsmay create integration/ coordination issues•Greenfieldinvestments are time consuming and unpredictable |
