temas selectos avanzados
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Temas selectosavanzados
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Objectives
Identify the objectives of the course, its operationand assessment modes
identify the distinction between corporate strategyand business strategy
identify structural characteristics that influence therate of profit of the sector
Define the concept and components of businessmodels and strategic advantage
identify the interest and limits of SWOT analysis
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Types of strategic decisions
Concerns the long term orientation of the company
Response to evolutions of the environment
Scope of activities of the company
Sustaining sources of competitive advantage
Exploitation and development of the resourcesand competencies of the company
Looking at expectations of shareholders andstakeholders
Beyond cost control, the creation and maintenance ofa valuable business model hard to imitate
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Developing the company's strategy,
is to choose the areas of activity inwhich the company intends to bepresent and allocate resources in a
way that it is maintained anddeveloped.
Strategic Analysis
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Business Strategy and CorporateStrategy
"Corporate Strategy" consists inmanaging the portfolio of business
activities through choices of resourceallocation between different businesses
"Business Strategy"consists in creating
and cultivating a sustainablecompetitive advantage in a particularfield of activity of the company
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Corporate Strategy
Business Strategy and CorporateStrategy
Resource allocation
Business Strategy Competitive advantage
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Strategy analysis toolbox
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Strategy: basic questions
What is the structure of the sector ofactivity?
What are the key factors of success in theindustry?
What is necessary to do to obtain and maintain a rate ofprofit superior to the average of the companies of thesame sector of actitivity?
What are the sources of sustainable competitiveadvantage?
Do I have the resources and capabilitiesto have a fit with the KFS of the sector of
activity?
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Industry Profitability (USA, 1975-95)
Drugs 21.4 11.8Printing and publishing 15.5 7.1Food 15.2 6.6Chemicals 15.1 7.5Petroleum and coal products 13.1 6.5Industrial chemicals and synthetics 12.9 6.2
Paper 12.5 6.0Aircraft, guided missiles, and parts 12.4 4.1Fabricated metal products 12.3 5.7Motor vehicles 11.6 5.6Rubber and plastic products 11.6 5.1Electric and electronic equipment 11.5 5.4
Machinery 11.1 5.8Stone, clay, and glass products 10.4 4.8Textile mill products 9.3 4.3
Nonferrous metals 8.3 3.9Iron and steel 3.9 1.5
ROE % ROA %
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2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certainproduct or service or otherwise on a password-protected website for classroom use. 1-11
ROI in Selected Industries(20042008)
Figure 1.3
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Firm Profitability (USA, 1975-95)
American Home Products 19Merck 16Bristol Myers Squibb 14Eli Lilly 14Schering Plough 13Upjohn 10Pfizer 9
American Cyanamid 7
Oregon Steel Mills 12
Worthington 10Nucor 9USX-US Steel 3Inland Steel 2
ARMCO -1Bethlehem -2
LTV -3
ROA %
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Choice of a segment
1) Demand substitutionExample: Jaguar and other cars
2) Synergies in production factors Example:Banks and insurance companies, cars and trucks
However: The extension of a sector is a question ofinterpretation
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Choice of a relevant segment
Cola
drinks
Tap water
Beer
wine
SpiritsMineral
water
Powder
Carbonated
drinks
Rehydrating
beverages
TeaCoffee
Milk
Juice
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What makes a sector attractive?
The level of attractiveness of a sector is measured
according to three criteria:* static: the size of the market (value of the
product or service to the consumer), the rate ofprofit (structure) and the duration of potential
value streams* Dynamics: the rate of maturity of the marketand the prospects for growth of the market (lifecycle)
Analysis of the industry
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What makes a sector attractive?
The level of attractiveness of a sector is measured
according to three criteria:* static: the size of the market (value of theproduct or service to the consumer), the rate ofprofit (structure) and the duration of potential
value streams.* Dynamics: the rate of maturity of the marketand the prospects for growth of the market (lifecycle)
Analysis of the industry
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5 force framework
1. Identify new entrants, substitutes,clients, suppliers and competitors in agiven sector of activity
2. Evaluating:
Threats of new entrants and substitutes
The bargaining power of clients and suppliers
Intensity of competition
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Suppliers
PotentialEntrants
Competitors Buyers
Substitutes
Portersfive forces
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New entry into an industry expands supply. This in turndepresses prices and profits. Thus a high risk of new entry
constitutes a strategic threat that decreases the profitrate of an industry.
A low risk of new entry allows established companies toraise their prices, therefore it constitutes an opportunity.The risk of entry by potential competitors is a function ofthe height of barriers to entry.
Potential entrants try to detect sectors where barriers arelow to enter profitably, while incumbents try to buildbarriers to entry to protect their profit margins
Threat of Entry Internalrivalry
Potential
entrants
Suppliers Buyers
Substitutes
Potential
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The height of barriers are determined by severalfactors:
1. Importance of capital requirementsIf capital requirements are high, it will be more difficult toenter, and the rate of profit in the sector of activity mayincrease (all other things being equal).
Those investments can be physical assets (ex:shipbuidling,steel, car and aircraft manufacturing) or marketinginvestments (ex: toothpaste, cigarettes, yoghurts) orinventories(ex: retail distribution).
Threat of EntryInternal
rivalry
Potential
entrants
Suppliers Buyers
Substitutes
Potential
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The height of barriers are determined by several factors:
2. Scale economiesThe more the volume (cumulated production) the less the unit costs.
These economies arise when firms that produce at larger volumesenjoy lower costs per unit because they can spread fixed costs overmore units, employ more efficient technology, or command better termsfrom suppliers.The more the economies of scale, the more difficult it will be to enter,
the rate of profit of the sector of activity may increase (all other thingsbeing equal).Ex: shipbuidling, car and aircraft manufacturing, microelectronics: Inmicroprocessors: scale economies in research, chip fabrication, andconsumer marketing. In small-package delivery, economies of scalearise in national logistical systems and information technology.
Threat of EntryInternal
rivalry
Potential
entrants
Suppliers Buyers
Substitutes
Potential
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The height of barriers are determined by several factors:
3. Network effects
Industries where a buyerswillingness to pay for a companysproduct
increases with the number of other buyers who also patronize thecompany. Buyers may also value being in a network Ex: onlineauctions Demandside benefits of scale discourage entry by limiting thewillingness of customers to buy from a newcomer and by reducing theprice the newcomer can command until it builds up a large base ofcustomers and complementary products
4. Entrenched consumer loyalty. Ex: luxury products, beverages
5. Existence of switching costs Ex: air travel
Threat of EntryInternal
rivalry
Potential
entrants
Suppliers Buyers
Substitutes
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6. First mover advantage: Possession of patents and proprietarytechnological know-how, favorable locations
7. Cost advantage not related to scale: access to the best and
cheapest raw materials, lower borrowing costs.
8. Access to distribution networksThe more that existing competitors have tied them up, the tougherentry into an industry will be. Ex: upstart low-cost airlines
9. Government politics Ex: banks, airlines, transportation companies
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Threat of Entry
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The lower the price of substitutes and the higher the qualityand performance of substitutes, the more intense are thecompetitive pressures posed by substitute products, and
hence the lower the potential rate of profit in the industry.Ex:video rental outlets with cable and satellite video-on-demand services,online video rental servicesThe higher the potential rate of profit in the industry when it
isdifficult or costly for customers to switch to substitutes.Switching costs include:the cost of purchasing additional equipment,employees retraining costs,the time and costs to test the quality for technical help needed
to make the changeover.
Threat of substitutes
Potential
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Relative concentration ex: retail distribution, Microsoftsnear monopoly in operating systems, coupled with thefragmentation of PC manufacturers
Sensitivity to price: impact on supplier and clientvolume and value
Existence of substitutes
Switching costs linked withstandardization/differentation
Impact on buyer quality, ex: micro processors
Threat of forward / backward integration
Internal
rivalry
Potential
entrants
Suppliers Buyers
Substitutes
Power of buyers/ suppliers
Potential
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Determinants of Internal Rivalry
Every thing that makes a sector
different from PURE AND PERFECTCOMPETITION is good for profitability
If: great nb of atomistic players
perfect mobility: no barriers to entry, exit no scale effect
perfectly substitutable products = nodifferentiation
=> profit = zero !
Internal
rivalry
Potential
entrants
Suppliers Buyers
Substitutes
Internal rivalry
Potential
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Determinants of Internal Rivalry
Industry growth
Distribution of market shares
Possibilities of differentiation
Importance of fixed costs -> strong rilvary
Barriers to exit
Internal
rivalry
Potential
entrants
Suppliers Buyers
Substitutes
Internal rivalry
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Distribution of Market Sharesand Internal Rivalry
Business A
A1 = 10%
A2 = 10% A3 = 10%
A4 = 10%
A5 = 10%
A6 = 10%
A7 = 10%
A8 = 10%
A9 = 10%
A10 = 10%
Business B
B1 = 60%
B2 = 30% B3 = 10%
Situacion B mejor
opcion por losmrgenes
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Sector structure
Perfectcompetition
Oligopoly Duopoly Monopoly
Concentration Manycompanies
Some Two firms One
Barriers No Significative Significative High
Differentiation Homogeneous Potential of
differentiation
Potential of
differentiation
Potential of
differentiation
Information Perfect Imperfect Imperfect Imperfect
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What makes a sector attractive?
The level of attractiveness of a sector is measured
according to three criteria:* static: the size of the market (value of the
product or service to the consumer), the rate ofprofit (structure) and the duration of potential
value streams* Dynamics: the rate of maturity of the marketand the prospects for growth of the market (lifecycle)
Analysis of the industry
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Life cycle of the sector
Steps
Indicators
User attitude
Growth potential
Nb of competitorsType of compeitition
Technology
Rights of entry
Key factors of
success
Emergence
Pioneers
Important
StrongSpread out
In its infancy
Weak,
technological
Innovation
Start
Extension
Very strong
GrowingNew entrants
Evolutive
Average,
marketing as a key
Development
Growth
Selective
Still good
Diiminishing
Concentration
Cristallization
Strong and
diverse
Distribution,
brand, capacityof production
Maturity
Saturation / Replacement
Null
WeakMarket share, efficiency
Fixed
Very strong and complex
Quality
Effiiciency
Decline
Abandon, substitute
Negative
WeakExit
Fixed
Non relevant
Rationalization
What is it? Which oneto buy?
Where canI buy it?
How much?
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Driving forces of change
The structure of an industry evolves over time under theinfluence of driving forces of change
Economic and societal changes Globalization / Government policy changes / Societal
changes Technological changes
Internet-related technology applications / Technologicalinnovations in industry / Technological diffusion andconvergence
Changes in the industry structure
LT industry growth rate and industry life cycle / Reduceduncertainty over time / Entry or exit of major firms /Changes in production costs
Changes in customer behavior Product innovation / Changes in customer base /
standardization
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Key factors of success (KFS)
The factors necessary to enter thecompetitive game in a sector ofactivity
they can be related to technology,production, distribution,marketing, access to capital
they are deducted from the sectoranalysis
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Key factors of success
Who are the customers? What do
they want?
What is necessary to survive in this
sector to face and fightcompetition?
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The key factors of success
What do
consumers want
How to survive in
front ofcompetition?
Key factors ofsuccess
Steel
clients sensitive to prices, to
technology and reliability
Fashion:
very segmented demand,exclusive products
Distribution
Low prices, location,selection, service
Competition on priceTechnological improvements
Low entry andexit barriers
Competition on price;bargaining power withsuppliers, scale in operations,A&P
Factories with efficient scale
Adjusting capacity to demand
Technical differentiation
Differentiation
Rapidity of response
Modifications of style
Volume
Location
Selection
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The "Resource-Based View"
Rare or unique
Exploitable
Difficult to imitate Non substituable
Competitive advantage lies in theexploitation of key resources, with thefollowing characteristics:
The "Resource-Based View"
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Rareness
Relevance
Durability
Mobility
Replicability
Property rights
Power of negotiation
Embededness
Size andscope of theadvantage
Durability
Appropriability
Strategicpotential ofthe resource
The Resource-Based View
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Key resources and strategyformulation
For a given strategy
What are thenecessary resources
to implement thechosen strategy?
For a given setof resources
What strategy canmake the best use ofavailable resources?
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