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WHAT IS STRATEGIC MANAGEMENT?
• “Without a strategy, an organization is like a ship without a rudder, going around in circles. It’s like a tramp; it has no place to go.” Joel Ross & Michael Kami (Fred 2011)
• According to Wheelen and Hungers’ study (2006), STM is a set of managerial decisions and actions that determines the long-term performance of a corporation. It involves– Environmental scanning (both external and internal), strategy formulation
(strategic or – Long range planning), strategy implementation, and evaluation and control. They – Emphasize the analyzing and evaluating of external opportunities and threats in
terms of an organization’s strengths and weaknesses.
• From the perspectives of Dess and Miller (1993), STM is a process
that combines three major interrelated activities: strategic analysis, strategy formulation and strategy implementation.
104/22/2023
STM – Defined
• In the other way, Lamb (1984) states that strategic management is an ongoing process that: – Evaluates and controls the business and the industries in
which the company is involved; – Assesses its competitors and sets goals and strategies to
meet all existing and potential competitors; and then – Reassesses each strategy annually or quarterly to determine
how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment, or a new social, financial, or political environment.”
204/22/2023
PURPOSE OF STRATEGIC MANAGEMENT.
• Regardless of the size, the scale, every
organization needs to adopt a well-
planned strategic management to survive
and compete in the market and try to
optimize for tomorrow following the trend
of today. 304/22/2023
4
SUCCESSFUL STRAT MGMT
• An industry is composed of a set of firms that
produce similar products or services, sell to
similar customers, and use the similar methods
of production.
• Gathering industry information and
understanding competitive dynamics among the
different companies in an industry is key to
successful strategic management.04/22/2023
5
LP-1 dt 7 & 8 Sep 15
• Ch-1 Strat. Mgmt – Creating Competitive Advantages
• Learning Objectives
– Definition and 4 key attributes of Strat. Mgmt
– The Strat. Mgmt Process and its 3 related principal
activities
– Corporate Governance
– Environmental Forces
– Vision, Mission and Objectives – Awareness of 04/22/2023
STRATEGIC MANAGEMENT MODEL
6
1.Establish vision,Purpose, values, and
3-5 yrs scorecard
2. determine annual
Obj & Goals
3. Address implementation
Barriers
7. Identify drivers with Targets for annual
Objectives 6. Develop project action plans
For drivers
5. Charter improvement teams
And Create infrastructure
4. Design and execute communication
plan
8. Execute Project Action Plans
9. Review Project planIn a database
And systematic process
10. Sustain the Improvements
(Trg & Doc) Impr
ove
stra
tegi
c m
anag
emen
t pro
cess
Planning Development
Implementation
Do Proj
Mgmt
Study Performance Evaluat
ion
ActInstitutionalize
Annual strategic planning 04/22/2023
7
STRAT MGMT & CEO
• All Org are run by the CEO’s• Role of CEOs
– CEOs are synonymous with the success and failure of the org– Strat Mgmt is based on participatory decision making techniques
with the CEO taking full responsibility for the outcome • Leadership roles:
– Romantic ---- Leader is the key to success or failure – External Factor ---- Focus is on the external factors for success
or failure of the Org • Recent examples:
– BP Oil Rig disaster in Florida Bay and its fallout – Corporate fines against BOA, SC Bank, Lehman Brothers etc – Downfall of BCCI– Recent economic downturn in USA / Euro Zone / DPW etc
04/22/2023
8
STRAT MGMT
• The Essence of STRAT MGMT is to focus on 2 fundamental
questions:
– How should we compete in order to create competitive advantages (CA) in the market place
– How can we create competitive advantage in the market place that are not only unique, sustainable and valuable but also difficult for competitors to copy or substitute.
• Important to note is:– Sustainable CA cannot be achieved without operational
effectiveness which means performing similar activities better than rivals.
• Operational Effectiveness includes concepts of TQM, just-in-time, benchmarking, business process reengineering, and outsourcing etc
• Strategy is all about being different from everyone else.04/22/2023
9
STRAT MGMT DEFINITION
• What is Strat Mgmt?• Step further than incremental management – Taking
minor decisions in a stable, simple and unchanging industry.
• Does it happen always? No, therefore, need for Strat Mgmt which is defined as:
• “Analyzing, taking decisions, and initiating actions in order to create and sustain competitive advantage.”
• Biggest Question– How (and when) and why do some firms outperform
others?• Critical Answer
– The challenge to managers is to decide on strategies that provide advantages that can be sustained over time
04/22/2023
10
STRAT MGMT AND 4 KEY ATTRIBUTES
• Directed at overall organizational goals – Looking at the strategic issues rather than functional areas
– What to produce and at what cost • Involving multiple stakeholders
– Involve owners, employees, customers, suppliers, and the community at large
• Incorporating short term and long term perspectives – Keep an eye on the current production needs as well as
vision for the future ---- Creative Tension• Recognizing need for trade-offs between efficiency and
effectiveness– Using organizational resources wisely and optimally
04/22/2023
11
THE STRAT. MGMT PROCESS
• It involves 3 related principal activities:– Analysis
• Of strategic goals (V + M + Strat Obj)• Internal and External Environment of the Org
– Decisions (Strategic)• Based on Org’s domestic and international operations, the Org
should address 2 basic questions, i.e., 1. What industries should we compete in?
2. How should we compete in those industries?
– Actions• In order to achieve success as a result of decisions, the
necessary resources must be made available for a desirable outcome.
• It is a continuing process and seeks intimate involvement of CEO• Be able to differentiate between Intended Strategy and Realized
Strategy---------?
04/22/2023
12
Internal Environment Culture
Resources
Task Environment
Industry
Societal Environment
Sociocultural Focus
Politico-LegalForces Technological
Forces
Economic Forces
• Suppliers• Shareholders• Employees • Interest Groups• Customers• Creditors• Communities • Trade Associations • Competitors
04/22/2023
13
CORPORATE GOVERNANCE AND STAKEHOLDERS MANAGEMENT
• Management (CEO)– To run the Org to satisfy the interests and needs of
the shareholders under the guidelines prepared by BOD
• Shareholders (Owners) • BOD (Elected by the shareholders to represent their
interests)– To align the interests and motives of the
management with those of the owners
04/22/2023
ROLE OF CEO--- Electronic Data System since 1962
• In 1998 --- EDS earned $22Bn (Total market $140Bn) as Revenue with shares trading at $35.
• In March 2003 --- Shares shrunk to $16. Additionally, EDS’s reputation was tarnished due investigations by S&EC resulting in loss of competitive position.
• EDS CA -- technical competence, steady growth, old CEO’s conservative culture --- crisp white shirt and military cut hair style v/s new CEO’s culture --- gung-ho style to get rid of bureaucratic life style
• To spur growth the new CEO pushed for “megadeals” requiring outsourcing companies to make large investments. Resultantly, stocks were pushed up to $77. By 2001, CEO (Mr. Brown) received $52M in compensation.
1404/22/2023
EDS- WHAT WENT WRONG • CEO’s Attitude --- Over ruling the managers• By 2002, Navy contract suffered loss of $1.9Bn due poor
calculation of margins – Megadeals / megarisks• In the same time frame, a contract with Worldcom signed
in 1998 incurred a loss of $118M due bankruptcy of Worldcom as a result of Internet Bubble Burst
• 2002 estimates were fudged and investors were assured of 13-14% growth despite recession
• Stocks plunged to $11.68• By 2003, EDS BOD lost patience and replaced CEO• Closing statement: Pay for performance, differentiate
performance- not organizational level….make difficult choices. Do as I say, not as I do.
1504/22/2023
16
• Creating Symbiosis or Zero Sum • Two views
1. Zero Sum --- All the stakeholders are to be satisfied:• Employees want higher wages • Shareholders want higher profits • Zero sum concept gives rise to Unionism
2. Stakeholder symbiosis ---- Managers acknowledge
interdependence between employees, suppliers,
customers, shareholders and the community at
large
CORPORATE GOVERNANCE AND STAKEHOLDERS MANAGEMENT --CONTD
04/22/2023
17
Corporate Governance and Social Responsibility
• Social Responsibility is the expectation that businesses or individuals will strive to improve the overal welfare of the society. Companies have determined Triple Bottom Line which is:
1. Financial Measures / Capital
2. Ecological and material capital --- Renewable resources generated by living systems, such as wood or animal by-products
3. Human and Social Capital --- Human deals with peoples’ knowledge, skills, health, nutrition, safety, security, and fossil fuels, and Social includes assets of civil society, social cohesion, trust, reciprocity, equity and other values that provide mutual benefits
04/22/2023
18
THE STRAT. MGMT Perspective --- An imperative
• It requires managers to take an integrative view of the Org and assess how all of the functions and activities fit together to help an Org achieve its goals and objectives.
• Some Key Driving Forces are: 1. Globalization
– Global economy is NOT the flow of goods only but it is flow of capital, people, and information worldwide.
2. Technology– Innovative technology is having impact on our lives, trade,
services and products (Innovation, Invention and digitization)
3. Intellectual Capital – Creating and applying knowledge to deliver differentiated
products and services of superior value for customers require the acquisition of superior talent, as well as ability to develop and retain that talent 04/22/2023
19
• Role of Leaders
• Thinking and Working groups can not be
different and separated (System Approach)
• Ideas must be encouraged, analyzed and
implemented
• Trg and Dev must move hand in glove
EMPLOYEES AND STRAT MGMT
04/22/2023
20
VISION, MISSION AND OBJECTIVES
• Vision tend to be quite broad, and can be inspiring, overarching and emotionally driven
• Org express priorities best through stated goals and objectives that form a hierarchy of goals
• Hierarchy of goals is the Company’s Vision • A vision may or may not succeed• Give examples of vision:
– GOP– BU– Unilever– Telenor– PTCL– Engro Foods
04/22/2023
21
MISSION
• It encompasses both the purpose of the company as well as the basis of competition and competitive advantage
• More specific and depict rationale for existence of org
• Effective mission statements incorporates the concept of stakeholder management, suggesting that org must respond to multiple constituencies if they are to survive and prosper.
• They also have the greatest impact when they reflect an org’s enduring, overarching strategic priorities and competitive positioning. 04/22/2023
22
STRATEGIC OBJECTIVES
• Operationalization of Mission statement • Outlining Strategy how to achieve higher goals • Cover well defined time frame • Resources are identified and allocated • To be meaningful, Objectives must be:
– Measurable– Specific - clear and concise – Appropriate - Consistent with vision and mission– Timely – Have a time frame
04/22/2023
04/22/2023 23
LP- 2 Wk 2 – 14-15 Sep 15
• Ch-2 Analyzing the External Environment of the Firm
• Learning Objectives– Importance of developing forecasts of the business
environments – Critical inputs to forecasting, i.e., scanning, monitoring
and collecting CI– Scenario Planning– why and how?– Impact of Competitive Environment on Profitability – Trends and Events of General environment– Strategic Grouping and its impact on business
Strategies
CORPORATE WATCH
• Pakistan becomes 5th largest remittances recipient country
• Yamaha to invest $150m in Pakistan auto sector• Pakistan can become world's 18th largest economy by 2
050 and Now is the right time to invest in Pakistan startups----- How? Sit-in caused Rs. 547bn loss to national economy so far and visit by Chinese President was postponed and caused a delay in initiating plans for around $46Bn investment
• Pakistani businesses can export over 3,500 items to the US duty free
• Dollar hits six-month high against rupee (Sep 15)
• 04/22/2023 24
EXAMPLES OF CA / CP• The Standard Chartered Bank. The bank`s clients can now print cheques
any time at their own premises, through its internet based global delivery channel.
• European Competition Commissioner is preparing to decide on the case after spending three years examining whether Google squeezes out rival services in online search results.
• Airbus and Boeing both topped 1,000 new jets orders in the first eight months of the year (2014) but Boeing is far ahead after adjusting for cancellations
• KASB Bank posts Rs171m profit The bank`s total assets amounted over Rs.69 billion. The bank is now defunct.
• July 2014 -----The Indus Motor Company (IMC) announced final cash dividend of Rs23.50 per share, in addition to an earlier interim dividend of Rs6 per share. IMC reported profit-after-tax of Rs3.87 billion during 2013-14, increase of 15 per cent over the previous year. However, the sales revenue decreased by 11pc to Rs. 57bn from Rs.64bn in 2012-13.
04/22/2023 25
04/22/2023 26
WHY ANALYZE EXTERNAL ENVIRONMENT?
• Purpose: Forecasting • Highlight with examples:
– Motorola – case study – Lehman Brothers – MECO & NTR in Pakistan – Bicycle Industry in Pakistan – Privatization of PTCL – Power Generation in Pakistan– Auto industry in Pakistan – Tractor Industry in Pakistan
04/22/2023 Where has the money gone? 27
SECTOR Sale proceeds 1991 to August 4, 2014
No.Amount
(Rs. in million)Banking 7 41,023
Capital Market Transaction 24 186,689Energy 14 51,756Telecom 4 187,024Automobile 7 1,102Cement 17 16,177Chemical 16 1,643Engineering 7 182Fertilizers 7 40,281Ghee Mills 24 842Rice 8 236Roti Plants 15 91Textile 4 370Newspapers 5 270Tourism 4 1,805Others 6 159
Total 169 529, 650
Privatization Measures in Pakistan
Results of Failure to ANALYZE EXTERNAL ENVIRONMENT
• Motorola • Founded in 1930 as maker of radios, and consumer
electronics• Color TV business sold in 1970 and intensified high tech
for commercial, industrial and governments sectors• 1980 – became leading supplier of cellular telephones• 1994 – Fortune magazine rated as the most loved
company• What went wrong?• Failed to notice changes in trends – switching from
analog to digital tech and arrival of competitors (Nokia and Ericsson)
04/22/2023 28
Eastman KODAK
• George Eastman (a High School drop out) started operations in 1880
• 1928 - 1st colored movie • 1975 – 1st Digital camera • 2000 – Patents worth $2.2Bn - $2.6Bn • 2003 – 64000 employees• 2012 – 17000 employees and filed for bankruptcy
• 2011 – Share price $1 (only) down from a top price of $94
04/22/2023 29
Questions?
1. Why has Kodak and some other retail outlets in
USA & UK filed for Bankruptcy?
2. Do we have Bankruptcy Laws in Pakistan?
3. How many firms and Orgs have filed for
bankruptcy in Pakistan in last 10 years?
04/22/2023 30
04/22/2023 31
WHY DO WE DO THAT?
• We undertake External analysis by Scanning, Monitoring and obtaining Competitive Intelligence / Information (CI) so as to
Forecast
events and trends.• The trends and events are product of:
– Globalization – Time to Market – Innovating technologies – Shifting roles and responsibilities ---- Economic conditions
04/22/2023 32
CREATING ENVIRONMENTALLY AWARE ORG
• 3 Steps:
1. Institute measures for and inculcate the habit of: – Undertaking Environmental Scanning – Uninterrupted Monitoring of business activities and – Obtain Competitive Intelligence (CI) in order to pre-empt the
changing trends and events
2. Be aware of the General Environment arising out of:– Demography, Social, Politico-legal, Technology, Economic and
Global environment (slide-13)
3. Remain abreast of Competitive Environment– Porter’s Five-Forces (Buyers, Suppliers, Substitutes, Potential
Entrants and Mutual rivalry
04/22/2023 33
Ist Step ENVIRONMENTAL SCANNING
• Definition– The process of conducting surveillance of firm’s
external environment to predict environmental changes to come and detect changes already underway.
• Purpose – To become aware of changing trends – To adopt pro-active strategies rather than resorting to
reactive strategies / measures to correct the changing trends and events
04/22/2023 34
ENVIRONMENTAL MONITORING
• Definition
– It is to track the evolution of environmental trends,
sequence of events, or streams of activities
• Purpose
– To undertake closer scrutiny to become fully
cognizant of impact of changing trends and events
– It enables the firms to evaluate how dramatically
environmental trends are changing the CI.
04/22/2023 35
COMPETITIVE INTELLIGENCE (CI)
• Definition– It is an activity which helps firms define and
understand their industry and identify their rivals’ strengths and weaknesses.
• Purpose – To collect data for managerial decision making– If done properly, it avoids surprises for the firms and
companies
• Is it an ethical issue? Refer to page 41 Exh 2.2
04/22/2023 36
ENVIRONMENTAL FORECASTING
• Definition – Based on Scanning, Monitoring and CI, the process
involves the development of plausible projections about the direction, scope, speed, and intensity of environmental changes.
• Purpose – To predict change – It answers the questions:
• How long would it take to for a new technology to reach the market place ?
• Will the present social concern about an issue result in new legislation?
• Are current lifestyles trends likely to continue?
04/22/2023 37
SCENARIO PLANNING
• Definition: A military borrowed concept: – As a result of environmental scanning, monitoring and
competitive intelligence, plan a range of scenarios – An in-depth analysis based on range of disciplines,
interests, tangible and intangible impacts and effects emerging out of various conditions of economic, local and international laws and changing geo-political and
politico-military situations • Purpose
– Not to miss out any factor – To develop range of options (Opportunities)
SCENARIO PLANNING AT SHELL OIL COMPANY
• Process involves following steps:– Extensive interviews through open ended
questionnaires – Analyzing of interviews and making agenda
points – Synthesizing agenda points – Holding series of workshops and deliberating on
agenda points and formulating Scenarios that may occur in 10 -15 years time
– Testing of Strategic Options (Policy Options/ Strategy) to ascertain robustness of each scenario
04/22/2023 Specially formed teams may do this job on continuous basis 38
04/22/2023 39
2nd Step THE GENERAL ENVIRONMENT
• Definition– It is composed of 6 factors that can have dramatic
affects on the firm’s adopted strategy.
• It includes1. Demographic Segmentation
2. Socio-cultural aspect of life
3. Politico / Legal Environment
4. Technological Innovations
5. Economic Conditions
6. Global Environment • Discuss Exh 2.3 page 46 and Exh 2.4 page 54
04/22/2023 40
3rd Step THE COMPETITIVE ENVIRONMENT
• Definition. Termed as Task or Industry environment, it includes
factors that have direct relationship with the industry or the firm.
However, it may not generate as much strategic advantage as the
Value net analysis, (S-19)
• They are Porter’s Five Forces:
1. Threat of new entrants (Competitors)
2. Bargaining powers of buyers
3. Rivalry among existing firms
4. Bargaining powers of suppliers
5. Threat of introduction of substitute products or services
Porter’s Five Forces
04/22/2023 41
Industry Competitors
Rivalry among Existing Firms
Potential Entrants
Buyers
Substitutes
Suppliers
Threat of new Entrants
Bargaining powers of buyers
Threat of substitute
products or services
Bargaining powers of Suppliers
04/22/2023 42
THREAT OF NEW ENTRANTS (COMPETITORS)
• The Measures that reduce threat of new entrants:
• Economies of Scale • Product Differentiations• Capital Requirements• Switching Costs • Access to Distribution Channels• Cost Disadvantages Independent of Scale
– Proprietary product– Favorable access to raw materials – Government subsidies– Favorable government policies
04/22/2023 43
BARGAINING POWERS OF BUYERS
• Purchasing large volumes • Products – Standard or undifferentiated • Few switching costs• Earns low profits• Buyers pose credible threat of backward
integration• Product v/s quality unimportant
04/22/2023 44
RIVALRY AMONG EXISTING FIRMS
• Numerous or equally balanced competitors • Slow industry growth• High fixed or storage costs • Lack of differentiation or switching costs• Capacity augmented in large increments –
economies of scale • High Exit Barriers – economic, strategic and
emotional factors that keep firms competing though they may be earning low or negative returns on their investments
INDUSTRY ANALYSIS- FEW caveats
04/22/2023 Value Net 45
Company
Customers
Complements(Nintendo)
suppliers
Substitutes
Transactions
Interactions
Transactions
Interactions
Bargaining Power of Suppliers
• Threat to raise prices or reduce quality of purchased goods and
services is omnipotent. The profitability can always be squeezed.
The powerful groups can always assert in the following manner:
• Dominated by few companies
• Not obliged to contend with substitute products for sale to industry
• Industry is not an important customer of the supplier group
• Suppliers’ product is an important input to the buyers’ business
• Products are differentiated or switching costs have been built up
• Threat of forward integration is persistent
04/22/2023 46
THREAT OF INTRODUCTION OF SUBSTITUTE PRODUCTS OR SERVICES
• Substitutes limit the profitability of industry by placing a
ceiling on the prices (price war)
• More attractive the price/performance ratio ---- tighter the
lid on profitability of industry
• Travel by executives v/s teleconferencing is one example
causing losses to airline, hotelling and automobile
industry
• Discussion forums – Twitter, Bloggers etc
04/22/2023 47
04/22/2023 48
STRATEGIC GROUPS WITHIN INDUSTRY
• No two firms are totally different
• No two firms are exactly the same
• What value is the strategic group concept?
• Strategic groupings help a firm identify barriers to mobility that
protects a group by other groups
• It helps a firm identify groups whose competitive position may be
marginal.
• It helps chart future directions of firm’s strategies.
• Strategic groupings is helpful in thinking through implications of
each industry trend for the strategic group as a whole
World Automobile Industry
04/22/2023 Prepare Pakistani Model ------- 49
Toyota Ford, GM,
Honda, Nissan
BMW,Mercedes
Ferrari,Lexus
Hyundai, Kia,
Suzuki
High
Price
LowHigh Breadth of product Line
Thank you
• Quiz-1 ----- next week • Assignment -1 issued separately
04/22/2023 Wk-2 last slide of LP-2 50
LP-3 –Wk 428 Sep 15
•Chap – 3 ----- Internal Analysis•Learning Objectives:
•How does a firm achieve CA over its rival (2nd part)•Why one firm outperforms than the other •What is value chain analysis ---- its importance and impact on business strategy • How best we can achieve results from resources available to the firm •What is balanced scorecard ?
04/22/2023 51
HOW CAN WE DO INTERNAL ANALYSIS?
1. Strengths may not necessarily lead to an advantage
2. Focus on external environment is too narrow 3. One-shot view4. Undue emphasis on single attribute of a
product or service. 5. Therefore, we move on to the next stage of our
answer: the alternative
04/22/2023 52
Most common technique is SWOT. But it has certain limitations like:
INTERNAL ANALYSIS
• Value Chain Analysis --- Better than SWOT– Resource Based View – Inter-relationship between the Firm, Suppliers and
Customers gets established
• Making meaningful comparisons – With past performances– With success factors in the industry – With competitors (Benchmarking)
04/22/2023 53
VALUE CHAIN DEFINED • Value chain
– A perspective in which business is seen as a chain of activities that transforms inputs into outputs that customers value
• Value chain analysis• An analysis that attempts to understand how a business
creates customer value by examining the contributions of different activities within the business to that value, and:
• The actions include: – Eliminating wasteful activities – Combining duplicated activities – Minimizing bottlenecks – Enhancing market responsiveness – Enhancing productivity by reducing throughput variety
04/22/2023 54
VALUE CHAIN ANALYSIS• Views the org as a sequential process of value-
creating activities for the purposes of CA (Competitive Advantage)
• Value is the amount that buyers are willing to pay for what a firm provides them.
• Value is measured by total revenue, a reflection of the price a firm’s product commands and the quantity it can sell.
• A firm is profitable to the extent that the value it receives exceeds the costs involved in creating its product or service.
04/22/2023 55
THE VALUE CHAIN
04/22/2023
For details Refer to Exhibit 3.2 & 3.3 of your book 56
General Admin
HRM
Technological Development
Procurement
Support Activities
Inbound Logistics
OperationsOutbound Logistics
Marketing and sales
Service
Primary Activities
Margins
Mar
gins
1. Inbound Logistics: It is associated with receiving, storing, and distributing inputs to the products incl material handling, warehousing, inventory control, vehicle scheduling, and return to suppliers.
• JIT is one such example. (JIT – Toyota 5 days).
04/22/2023 57
VALUE CHAIN ANALYSIS - 5 PRIMARY ACTIVITIES
2. Operations• It includes all activities associated with
transforming inputs into the final product form, such as machining, packaging, assembly, testing, printing, and facility operations. The factors for success are:
– Efficiency of plants in cost minimization– Level of automation– QA/QC Systems and procedures
04/22/2023 58
VALUE CHAIN ANALYSIS - 5 PRIMARY ACTIVITIES
3. Outbound logistics: Activities associated with collecting, storing, and distributing the product or service to buyers through wholesalers, retailers or directly. It includes: • Shipping procedures and how to reduce freight
charges • Finished goods warehousing, processing and
handling of products incl Insurances etc
04/22/2023 59
VALUE CHAIN ANALYSIS - 5 PRIMARY ACTIVITIES
4. Marketing and Sales: Activities associated with purchases of products and services by end users and the inducements used to get them to make purchases. • Level of motivation and competence of Sales
Force• Innovative approaches to promotion and
advertising • Selection of efficient distribution channels • Segmentation of Customers and their needs • Effectiveness of Pricing strategy
04/22/2023 60
VALUE CHAIN ANALYSIS - 5 PRIMARY ACTIVITIES
5. Services: Activities associated with providing services to enhance or maintain the value of the product such as installation, repair, training, parts supply and product adjustment. • Procedure to receive customer feedback and further
action • Warranty and Guarantee policies • Level of response to customer • Ability to furnish replacement parts and their
inventory• Quality of service personnel• Use of Internet and e commerce etc
04/22/2023 61
VALUE CHAIN ANALYSIS - 5 PRIMARY ACTIVITIES
• Support Activities: Defined as competing in any industry and can be divided into four categories:
1. General Admin: It includes activities like management, planning, finance, accounting, legal, government affairs, QA/QC, and information systems.• Effective planning systems• Ability to obtain funds at the lowest rates• Visibility due Org culture, reputation, and values
2. HR Mgmt: It includes activities like recruiting, hiring, training, development, and compensation of all types incl industrial relations. • Reward and incentive programs to motivate all employees • Environment to maximize overall employee performance• Relations with trade unions
04/22/2023 62
VALUE CHAIN ANALYSIS – 4 SUPPORT ACTIVITIES
3. Technology Dev: Technology development related to the product and its features that support the entire value chain. • Effective R&D• Culture to enhance creativity and innovation• State of the art facilities and equipment
4. Procurement : It is a function of purchasing inputs used in the firm’s value chain.• Activities to minimize costs• Development of collaboration with suppliers (win-win)• Effective procedures to purchase advertising and media services• Search for alternate sources • Ability to make proper lease v/s buy decisions
04/22/2023 63
Value Chain Analysis – 4 Support Activities - Contd
RBV A method of analyzing and identifying a firm’s strategic advantages based on examining its distinct combination of skills, assets, capabilities, and intangibles as an organization.
RBV of the firm combines 2 perspectives: 1. The internal analysis of phenomena within a company
and 2. An external analysis of the industry and its competitive
environment • It is important to note that resources by themselves
typically do not yield CA unless integrated with other value creating activities.
04/22/2023 64
RESOURCE BASED VIEW (RBV) OF THE FIRM
VCA – Linkages within and outside Firms
• Utilization of HR --- do not dump them but reposition them
• Manage inventory • Continue to Create customer value by remaining
competitive (invention, innovation, digitization, revisiting processes and procedures) --- TQM---and repositioning your products, and better still backing up your products with after sales support, and in corporate terms keep up your promises.
04/22/2023 65
TYPES OF valuable RESOURCES
1. Tangible:• Financial: Firm’s ability to raise cash, cash
equivalent, equity, and borrowing capacity etc• Physical: Plant and facilities, locations, and
machinery and equipment etc • Technological: Trade secrets, innovative
production processes, Patents, Copyrights, and trademarks etc
• Organizational: Strategic planning processes, evaluation and control systems
04/22/2023 Refer to Exhibit 3.5 66
2. Intangible:• Human: Resources indicating experiences, skills,
practices and procedures
• Innovation and Creativity: Technical and scientific skills and capacity for innovation
• Reputation: Brand name, reputation with customers for quality and reliability, and reputation with suppliers for fairness, non-zero-sum relations
04/22/2023 67
TYPES OF RESOURCES – Contd
3. Organizational Capabilities:• Firm’s competences or skills the firm employs to transfer inputs to outputs• Capacity to combine tangible and intangible resources, using organizational processes to attain desired end
• Standard of Customer’s services • Product development capabilities • Ability to hire, motivate and retain human capital
04/22/2023 Refer to Ex 3.5 pg 85 68
RESOURCE BASED VIEW OF THE FIRM
GENERATION AND DISTRIBUTION OF FIRM’S PROFITS
• An extension of resource based view of the firm• 4 factors that would determine share taking of the profit:
• Employee bargaining power ---- Clients move with the managers and professionals, consultants , experts etc• Employee Replacement Cost ---- Employee with rare expertise demand more salaries• Employee Exit Costs ---- An individual may face high costs when leaving the org• Manager Bargaining Power ---- The power would depend as to how best they create resource based advantage
04/22/2023 69
EVALUATING FIRM’S PERFORMANCE2 Approaches
1. Financial Ratio Analysis Approach: How a firm is operating according to its balance sheet, and income statement.
• Short term solvency or liquidity • Long term solvency measures• Asset management• Profitability • Market Value
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RATIO ANALYSIS – Factors depending upon
• The financial worth of the firm must not be worked out in isolation. Comparison must be carried out in Historical perspective, with industry and its key competitors.– Historical Comparisons ---- at least last 10 years – Comparison with Industry Norms ---- Reputation
with lending agencies etc – Comparison with Key Competitors ---- Sales v/s
R&D budget is one example
04/22/2023Refer to Appendix to Chap 3 page
102-11271
• Stakeholders’ perspective
• Customers’ perspective --- top priority for the Firm
• Internal business perspective --- Processes, actions and decisions that occur throughout the Org
• Innovation and Learning perspective --- The parameters company considers most critical to success
• Financial perspective --- Typical goals include profitability, growth and shareholders’ value.
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EVALUATING FIRM’S PERFORMANCE – 2nd Approach
SUSTAINABLE CA ---- HOW
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Resources CA in -----------------
Tangible Ownership costs %age allocated to ownership v/s Industry costs
Intangible • Brand reputation• Employee Loyalty
• Minimum promotional costs
• Lower labor costs V/s Industry
Capabilities • Supplier chain • Managerial Judgment
• Lower costs and higher quality of goods sold
• Fewer layers of hirerachy
Give examples out of Pakistani Industry and Products ------------
The Balanced Scorecard
• The Managers do not need to look at their job as primarily balancing stakeholder demands. They need to avoid the mindset, i.e.,
• “How many units in employee satisfaction do I have to give up to get some additional units of customer satisfaction or profits.”
• Balanced scorecard provides a Win-Win approach. It is the combination of Financial Ratio Analysis and four key business perspectives discussed earlier (S- 25”& 26)
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LP - 5 5/6 Oct 2015
• Ch – 4 • Recognizing a Firm’s Intellectual Assets • Learning Objectives
– Why Management of Knowledge professionals and knowledge itself are critical in today’s Org
– How leveraging human capital is critical to strategy formulation – “Hiring for attitude, training for skill”
– Key role of social capital in leveraging Human capital– Vital role of technology in leveraging knowledge and
human capital
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Basic Concepts • Knowledge is the primary means of wealth generation in today’s economy• Human capital - being a resource is the foundation of intellectual capital. Therefore, while attracting human capital, issues such as “hiring for attitude, training for skills” must be addressed.•Social Capital – networks relationships among a firm’s members play a pivotal role in achieving value.• Technology is dominant in leveraging human capital• Finally, Leveraging human capital is vital to formulation of strategy
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Leveraging Human Capital
• Strong human capital often leads to useful relationships among others, within the firm, promoting a social infrastructure that is often vital for gaining consensus on major decisions, integrating multiple administrative levels, promoting cooperation, and sharing information across departmental boundaries. • XEROX is not such a company. Why?
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XEROX – Human Leveraging at the lowest
• In 1990, Paul Allaire becomes CEO with a mission --- To ensure XEROX to be major Technology Player. In 1997, Rick Thoman joins ex IBM as COO.
• By 1999, the stocks soared to all-time high - $64. The BOD appointed Paul Allaire Chairman and Thoman the CEO. Together they launched millennium goals. However, the plan failed due poor management of human and social capital inherent in XEROX’s executive ranks.
• In 1999, The CFO (Barry Romeril) faired badly causing huge losses to XEROX. There was plethora of law suits, penalties by S & E Commission for falsification of profits, and loan write offs etc. However, CFO could not be fired being a close friend of Chairman.
• Thomas Dolan, president of global sales and her sister a director prevailed upon Chairman not to restructure XEROX despite stiff competition by Japanese firms. The move adversely affected morale of sales force.
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• The Uncertainty prevailed throughout the firm resulting into loss of Sales Reps and with that: – Loss of product knowledge and – Valuable social relationship with the clients
• In May 2001, inevitable happened: – Thoman (CEO) was fired – Dolan’s (President Global Sales) sister (Business Director) made COO– Romeril (CFO) retained the job
• By 2003, XEROX was facing bankruptcy and:
– Experienced problems leveraging its talent and technologies into successful products and services
– Human and social capital eroded due dysfunctional organizational politics at the top
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XEROX – Human Leveraging at the lowest
THE ROLE OF KNOWLEDGE IN TODAY’S ECONOMY
• Until yesterday, most Managers directed maximum efforts towards 2 traditional factors of production, -- Labor and Capital – and were duly interested in:
• Tangible resources – Land, Machinery, Finance and
• Intangible resources – Brand names, Image of the firm, and Customer loyalty etc
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WHY AND HOW DO ORG GROW? • Decisions made by its Executives (HR) based on Knowledge
• People don’t buy Microsoft’s stock because of its software factories; it doesn’t own any. Rather, the value of Microsoft is bid up because it sets standards for personal-computing software, exploits the value of its name, and forges alliances with other companies.
• Similarly, Merck didn’t become the “Most Admired” company, for seven consecutive years in Fortune ’s annual survey, because it can manufacture pills, but because its scientists can discover medicines. P. Roy Vagelos, former CEO of Merck, the $47 billion pharmaceutical giant, during its long run atop the “Most Admired” survey, said, “A low-value product can be made by anyone anywhere. When you have knowledge no one else has access to—that’s dynamite.
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COMPANY” WORTH • Start with the “big three”
– financial statements: income statement, balance sheet, and statement of cash flow. If these statements tell a story that investors find useful, then a company’s market value * should roughly (but not precisely, because the market looks forward and the books look backward) be the same as the value that accountants ascribe to it—the book value of the firm. However, this is not the case.
• A study compared the market value with the book value of 3,500 U.S. companies over a period of two decades. – In 1978 the two were similar: Book value was 95 percent of market value.
However, market values and book values have diverged significantly. Within 20 years, the S&P industrials were—on average—trading at 2.2 times book value. Robert A. Howell, an expert on the changing role of finance and accounting, muses, “The big three financial statements . . . are about as useful as an 80-year-old Los Angeles road map.”
• The gap between a firm’s market value and book value is far greater for knowledge intensive corporations than for firms with strategies based primarily on tangible assets.
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Ratio of Market Value to Book Value for Selected Companies
Company Ratio of
Annual Sales ($ billions)
Market Value($ billions)
Book Value($ billions)
Market toBook Value
Apple 157 510 17 4.4
Google 47.3 237 58 4
Oracle 37 162 44 3.7
Microsoft 73 229 66 3.5
Intel 54 106 46 2.3
Nucor 20 14 7.5 1.9
Southwest Airlines
17 7.9 6.9 1.1
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COMPARISON OF MACHINE V/S KNOWLEDGE BASED ECONOMIES
Machine age • Physical world • It consisted of things• Companies made and
distributed things (Products)• Management allocated
things (capital budgets) • Management invested in
things (Plant and equipment)
• Peoples ancillary and things central.
Knowledge / Information age • Things are ancillary • Knowledge is central• Company’s values derive
from knowledge, know-how, intellectual assets, and competencies ---- all imbedded in people.
• Wealth is created through the management of knowledge workers
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INTELLECTUAL CAPITAL
• The difference between the market value of the firm and the book value of the firm, including assets such as:– reputation, – employee loyalty and commitment,– customer relationships, – company values, – brand names, and – the experience and skills of employees
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• Times have changed and with that the emphasis:– 50% of GDP in developed economies is due to
Knowledge based economy --- Intellectual assets as well as intangible peoples’ skills.
– In USA, 76% of GDP is from the services. R & D plays a pivotal role in Manufacturing sector
– A comparison of machine v/s knowledge based economies is on the next slide:
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THE ROLE OF KNOWLEDGE IN TODAY’S ECONOMY -
HOW TO CREATE VALUE IN KNOWLEDGE – INTENSIVE ECONOMIES
1. Consider Human Capital --- individual capabilities, knowledge, skills, and experiences of employees and managers
2. Social capital is critical in sharing and leveraging knowledge and in acquiring resources
3. The Concept of knowledge --- 1. Explicit --- codified, documented, easily reproduced and widely
distributed (Drawings, software etc)2. Tacit --- That rests in the minds of employees and is based on
experience and backgrounds shared only through consent
4. The new knowledge is constantly being created through a mix of Explicit and Tacit knowledge .
5. Knowledge management is being stressed upon by Org
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INTELLECTUAL CAPITAL --- MARKET VALUE OF FIRM---- BOOK VALUE OF THE FIRM
• Human capital is the “ individual capabilities, knowledge, skills, and experience of the company’s employees and managers.”
• Social capital is “the network of relationships that individuals have throughout the organization.” Third is the concept of “knowledge,” which comes in two different forms. First, there is
• Explicit knowledge that is codified, documented, easily reproduced, and widely distributed,
• such as engineering drawings, software code, and patents. 18 The other type of knowledge is
• Tacit knowledge . It’s the knowledge acquired and held by the employees.
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• In today’s world, talent is so critical to the success of what you’re doing—their
• core competencies and how well they fit into your office culture. The combination
• can be, well, extraordinary. But only if you bring in the right people. 35
• Mindy Grossman, CEO of HSN (Home Shopping Network)• The knowledge worker (KW) has risen to prominence in recent times. It is a source
of CA and is changing the balance of power in today’s org. • The KW places professional development and personal enrichment above
company loyalty.• Attracting, recruiting and hiring the “best and the brightest” is a critical first step in
the process of building intellectual capital. The other two equally critical steps are Developing and Retaining human capital.
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Human Capital – Foundation for Intellectual Capital
ATTRACTING HUMAN CAPITAL
• Hiring for Attitude, Training for Skills ---- Due emphasis on general knowledge, experience, social skills, values, beliefs and attitude of employees
• Sound recruiting approaches and Networking ---- – Best and the brightest out of thousands of
applications. – The other best practice could be recruiting the
one proposed by a current employee
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DEVELOPING HUMAN CAPITAL
• A $ spent on training is worth $30 in terms of productivity gains.
• The Org must not lose in terms of morale, values turnover and productivity.
• Therefore: – Ensure adequate Training to maintain High growth and
high quality of product– Encourage widespread involvement of leaders at all levels
of the Org– Mentoring and Sponsoring --- Monitor progress and track
development – Evaluate Human Capital
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• Employees must identify with the Org Mission and Values ----
Your Satisfaction is our pride or duty before self
• Provide challenging work and Stimulating Environment ---
Create internal market for employees by lowering barriers to
mobility
• Ensure timely availability of due financial and nonfinancial
rewards --- criterion must be known and well publicized
• Sound Recruiting Approaches and Networking
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RETAINING HUMAN CAPITAL
What are some of the “best practices” to attract Millennia's and keep them engaged?
• Don’t fudge the sales pitch. High-tech sales presentations and one-on-one attention may be attractive to undergrads.
• Let them have a life. Typically, they are unenthusiastic about their parents’ 70-• or 80-hour workweeks. Millennia's strive for more work-life balance, so liberal• vacations become very important. At KPMG, 80 percent of employees used 40
hours of paid time off in the first six months of a recent year.• No time clocks, please. Recent graduates don’t mind long hours—if they can work
them on their own schedule. As noted by its CEO, Dan Rosensweig, “If you provide them with the right environment, they’ll work forever.”
• Give them responsibility. A chance to work on fulfilling projects and develop new ones on their own is important. Google urges entry-level employees to spend 20 percent of their time developing new ideas.
• Feedback and more feedback. Career planning advice and frequent performance appraisals are keys to holding on to young hires.
• Giving back matters. Today’s altruistic young graduates expect to have opportunities for community service. Wells Fargo encourages its employees to teach financial literacy classes in the community.
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THE SOCIAL CAPITAL – VITAL ROLE
• Social capital is defined as friendships, and working relationships among talented individuals
• Notwithstanding the critical roles of recruiting, developing and retaining Human Capital, the development of social capital has gained importance, because it ties KW to a given firm.
• An indulgent, mutually acceptable, and tolerant attitude helps in retainer ship of employees
• The downside of Social capital is Group Think and is equally dangerous and needs to be curtailed
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Enhancing Human Capital: The Role of Diversity in the Workforce
• The effective management of diversity can enhance the social responsibility goals of an organization.
• However, there are many other benefits as well. Six other areas where sound management of diverse workforces can improve an organization’s effectiveness and competitive advantages are:
• Cost • Resource acquisition• Marketing• Creativity,• Problem-solving, and • Organizational flexibility.04/22/2023 95
TECHNOLOGY AND LEVERAGING HUMAN CAPITAL AND KNOWLEDGE
• Modern Tech is helping dissemination of information within and outside the Org in the most speedier and effective way
• The Tech has given rise to Virtual World and Virtual Teams• In order to make gains and ensure CA, the knowledge has
been codified – an expensive preposition • It is becoming exceedingly difficult to retain knowledge once
the employee leaves the org. The reverse is also true in cases where the information is available on net.
• Wikileaks -------- ?
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Protecting the Intellectual Assets of the Organization: Intellectual Property and Dynamic Capabilities
• Protecting a firm’s intellectual property requires a concerted effort on the part of the company. After all, employees become disgruntled and patents expire.
• The management of intellectual property (IP) involves, besides patents, contracts with confidentiality and non competing clauses, copyrights, and the development of trademarks.
• Dynamic capabilities entail the capacity to build and protect a competitive advantage. This rests on knowledge, assets, competencies, and complementary assets and technologies as well as the ability to sense and seize new opportunities, generate new knowledge, and reconfigure existing assets and capabilities.
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LEVERAGING HUMAN CAPITAL AND STRATEGY FORMULATION
• Business-Level Strategy --- Managers must integrate the primary and support activities in their firms’ value chain. (External Analysis)
• Corporate Level Strategy --- Managers must determine what important relationships (products, markets, technologies) exist across businesses and how they can be leveraged. (Internal Analysis)
• International - Level Strategy --- How to achieve economies of scale and how to adopt to local market demands
• Internet Strategies --- Internet based technologies create CA by relaying information, enhancing speed of decision making and resolution of ideas.
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• Ch – 5• Creating and Sustaining CA through Business-
Level Strategies
• The three generic strategies are:• Overall cost leadership• Differentiation• Focus
• Industry Life Cycle– Understanding and developing strategies
• Turn around Strategies ----- Why and How?
LP- 5 12-13 Oct 15
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Case Study ---- Food Lion
• Few Corporations have rewarded their (100) original backers as much as Food Lion has done.
• A share bought for $10 in 1957 was split into more than 12,000 shares by 1991 with a value of over $200,000. But,
• In 1967, The CEO lowered the prices of all its products 3,000 in number and had its sales increased by 50%.
• In 1990, Food Lion opened 100 stores. • The first blow came in 1992.
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• Bad publicity – a real one --- a compromise on quality --- a misadventure based on lack of control
• By 1993, over 1,000 violations registered and being countered
• Problem– Management team out of touch with operations– Continued traditional methods and missed the message ---
for CA one should have greater product variety and a high level of customer services (Outbound Logistics)
• Net Results– In 1994, forced to retreat and closed down more than half
the stores it had opened in 1991. • Solution
– Generate business strategies in line with the market forces
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Case Study ---- Food Lion
THE THREE GENERIC BUSINESS STRATEGIES
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Differentiation Overall cost Leadership
Focus
Competitive Advantage
Uniqueness perceived By the customer Low cost position
Str
ateg
ic T
arg
et
ParticularSegment only
Industry wide
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THE THREE GENERIC BUSINESS STRATEGIES
1. Overall Cost Leadership --- is based on creating a low-cost position relative to a firm’s peers.
2. The firm must maintain the relationship throughout its value chain and be devoted to lowering costs throughout the entire chain.
3. Differentiation --- requires a firm to create products /services that are valued and unique
4. Focus --- a firm must direct its attention toward:1. Narrow product lines, 2. Buyer segments, and / or 3. Targeted geographic markets. 4. And simultaneously, it must take advantage of Overall
cost leadership and Differentiation strategies. 5. Refer Ex 5.1 Pg 150.
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THE VALUE CHAIN
04/22/2023 104
General Admin
HRM
Technological Development
Procurement
Support Activities
Inbound Logistics
OperationsOutbound Logistics
Marketing and sales
Service
Primary Activities
Margins
Mar
gins
04/22/2023 105
1. OVERALL COST LEADERSHIP (OCL)• Definition --- is based on creating a low-cost position relative to a
firm’s peers. The firm must maintain the relationship throughout its value chain and be devoted to lowering costs throughout the entire chain.
Interrelated Tactics to achieve OCL1. Highly efficient economy of scale facilities2. Vigorous pursuit of cost reductions from experience3. Tight cost and O/H controls4. Avoidance of marginal customer accounts5. Cost minimization in all the activities in the value-chain of
the firm --- 6. Consult Exhibit 5.3, which provides sufficient details in each segment of
value chain
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POTENTIAL PITFALLS IN OVERALL COST LEADERSHIP STRATEGIES
• Too much focus on one or few aspects of value-chain activities ---- Exhibit 5.3 Pg 152
• All rivals share a common input or raw material --- vulnerable to price fluctuations and quantities vis-à-vis availability (Example--?)
• The strategy is imitated too easily by competitors (Example ---?)
• A lack of parity on differentiation (Example --?)• Erosion of cost advantage v/s informed customer
(Example --?)
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2. DIFFERENTIATION
• Definition --- Creating differences in the firm’s product or services by creating something that is perceived industry-wide as unique and valued by customers. (Example) The --- (Ex 5.5 Pg157)
• Creativity may include:• Prestige or brand image • Use of innovative Technology• Innovation coupled with Technology• Features ---- • Customer Services• Dealer Network • Handling of Mistakes / Technical anomalies (Toyota in Jun
15 and VW in Sep 15) 04/22/2023 107
TOYOTA AND VW ----- Creating Value?
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Toyota: • As of January 28, 2010, Toyota had announced recalls of
approximately 5.2 million vehicles for the pedal entrapment/floor mat problem, and an additional 2.3 million vehicles for the accelerator pedal problem.
• Sales of multiple recalled models were suspended for several weeks as a result of the accelerator pedal recall with the vehicles awaiting replacement parts.
VW• Volkswagen is poised to recall up to 11m vehicles as the
carmaker prepares its response to the emissions scandal that has rocked the automotive industry.
• Out of these affected, 5m are Volkswagen-branded cars, including the sixth-generation Golf, the seventh-generation Passat and the first-generation Tiguan. The other vehicles include 2.1m Audis, 1.2m Skodas, 700,000 Seats, and 1.8m light commercial vehicles.
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• Uniqueness that is not valuable to customers
• Too much differentiation ---- Software Languages
• Too high a price premium for a comparable worth
• Easily imitable differentiation techniques / features
• Losing CA (Brand Name) by adding new low cost
products
• Varying of perceptions between buyers and sellers
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POTENTIAL PITFALLS IN DIFFERENTIATION STRATEGIES
THE use of VALUE CHAIN – Low cost & Differentiation strategies
04/22/2023 110
Reduce Mgmt levels ---- General Admin ---- Knowledge based activities
Low turnover --- HRM ---- enhance tech competence
Pursue process innovation ----Technological Development ---Use Cutting Edge Tech
Long term contracts ----Procurement----- TQM
Support Activities
Inbound Logistics
Operations Outbound Logistics
Marketing and sales
Service
Margins
Mar
gins
Online suppliers
Economy Of scale
Computerizedrouting
CooperativeActivities
Subcontracting
Cost Leadership
Purchase superior quality
Material
High level of TQM
Coord JIT
BuildBrand Image
Allow discretion to service people
Differentiation strategy
Cost Ldrship
Diffstrat
3. FOCUS STRATEGIES
• Definition: A firm must direct its attention toward narrow product lines, buyer segments, or targeted geographic markets.
• Strategies• It could be done by improving CA and CP by applying Porters’
Five Forces. It requires:– Low cost position with a strategic target or the exploitation
of a particular market niche that is different from the rest of the industry
– High differentiation, i.e., Achieve CA by dedicating itself exclusively to the segmented market
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• Erosion of cost advantage within the narrow segment
• Competition / Threat to Strategies• Focusers can become too focused to satisfy
buyer needs
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POTENTIAL PITFALLS IN FOCUS STRATEGIES
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COMBINATION STRATEGIES*
• Integrated strategy is the best strategy • Remain Innovative• Adopt modern day automated and
manufacturing systems• Continue to REVISE Processes and Procedures • Exploit the profit pool concept across the
industry
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COMBINATION STRATEGIES
• Ideal Solution: Integrating Overall Low Cost and Differentiation Strategies
• The successful combination is harder for the competitors to imitate.
• An integrated strategy enables a firm to provide two types of value to customers:– Differentiated attributes like quality, features etc– Lower Prices due firms’ Overall Low Cost strategy
• How can we achieve the above ---- next slide
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OPTIONS TO ACHIEVE CA THROUGH INTEGRATED BUSINESS STRATEGIES
• Adopt Automatic and Flexible Manufacturing Systems
• Exploit the Profit Pool concept • Exploit full benefits of Information Technology • Make use of Porters’ Five Forces
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• Get stuck in the middle. • Understand challenges and expenses associated with
coordinating activities in the extended value chain • Miscalculating sources of revenue and profit pools in
the firm’s industry • What did J C Penny did between 1998 - 2000?
– Improved Store presentations– Radically re-thought of merchandise – Marketed the company brand items more effectively– Slashed costs, closed down 44 stores, and cut 5,000 jobs
POTENTIAL PITFALLS IN ADOPTING INTEGRATED STRATEGIES
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INDUSTRY LIFE CYCLE STAGES --- STRATEGIC IMPLICATIONS
• Introduction Stage – Developing the product and finding a way to get the
customers to try it– Generating enough exposure so the product emerges as
the standard by which all other competitors’ products are evaluated
• Growth Stage – Strong increase in sales – Primary concern is to build consumer preferences fro
specific brands – Revenues increase at an accelerated rate – Competitors attempt to manipulate the business situation
by brining in substitute and alternative products » Contd
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• Maturity Stage – Demands begin to slow down– Innovative measures are required to re-coup the
sales • Decline Stage
– Maintain the product – Harvest the profits from the firm’s portfolios– Consider Exiting from the market – Consolidate with other firms
INDUSTRY LIFE CYCLE STAGES --- STRATEGIC IMPLICATIONS --- Contd
INDUSTRY LIFE CYCLE STAGES & STRATEGIES
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Stage / Factor Introduction Growth Maturity Decline
Generic Strategies
Differentiation Differentiation DifferentiationOverall cost leadership
Overall cost leadershipFocus
Mkt Growth rate Low Very large Low to moderate Negative
Number of segments
Very few Some Many Few
Intensity of competition
Low Increasing Very intense Changing
Emphasis on product design
Very high High Low to moderate Low
Emphasis on process design
Low Low to moderate High Low
Major areas of concern
R&D Sales & Marketing
Production General management & finance
Overall objective Increase market awareness
Create consumer demand
Demand Mkt share & extend product Life cycle
Consolidate, maintain, harvest or exit
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TURNAROUND STRATEGIES
• Carefully analyze internal and external environment
• Generalized Strategies – Asset and Cost surgery to raise cash – Undertake selective product and market pruning – Consider Piecemeal productivity improvements – Business strategies
• Re-engineering• Divestment • Outsourcing • Privatization etc etc