business strategy hnd 2nd

5/28/2018 Business Strategy Hnd 2nd

1/199

HND

BUSINESS STRATEGY

1


2/199

Functional Strategies

Functional strategies or operationalstrategies are goal oriented plans andactions of the functional areas of anorganization, they include:

Production-Operations Marketing

Research & Development

Human Resources Financial-Accounting

Information Technology & Support


3/199

Competitive Strategies

Competitive strategies or businessstrategies are goal directed plans andactions concerned with how an organization

competes in a specific business or industry Looks at all aspects of strategies and actions

Seeks to determine what the company

currently can do and what it wants to do Focus is on how it might more effectively

compete


4/199

CORPORATE STRATEGY

Corporate strategies are goal directedplans and actions that are concerned withwhat business or businesses a firm wants

to be in and what to do with thosebusinesses; for example

FedExs decision to acquire Kinko's

PepsiCos decision to spin off their fast-fooddivision


5/199

STRATEGYIMPLEMENTATION

It is not enough to formulate greatstrategies, they must be implemented

Strategy implementation is putting the various

stages of strategies into action

How a strategy is implemented must beconsidered

1- 5


6/199

Competitive Advantage

The key to strategic management, the challenge

is getting and keeping competitive advantage It is about doing something others cannot or doing it

better (distinctive capability)

Or, the organization has something others do not

(unique resource) An organizations competitive strategies are

designed to exploit its competitive advantage

However, other organizations are attempting todevelop their own competitive advantage in orderto compete.

Competition is in all markets and industries


7/199

What an External Analysis Is?

External analysis is the process of scanning andevaluating an organizations external environment It is how strategic managers evaluate the threats and

opportunities facing their organization

Opportunities Positive external trends or changes that may help an

organization improve performance

Threats

Are negative external trends or changes that mayhinder an organizations performance

Understanding the external environment isessential to creating adaptive strategies


8/199

What an External Analysis Is?

Opportunities Positive external trends or changes that may

help an organization improve performance

ThreatsAre negative external trends or changes that

may hinder an organizations performance

Understanding the external environment isessential to creating adaptive strategies


9/199

WHAT IS AN EXTERNAL ANALYSIS?

An external analysisis the process of scanning andevaluating an organization's external environment todetermine the opportunities and threats facing theirorganizations.

Opportunitiesare positive external trends or changesthat may help an organization improve itsperformance.

Threatsare negative external trends or changes thatmay hinder an organization's performance.

Its important to know whats happening in the external

environment so new strategies can be formulated or currentstrategies changed in response to the opportunities orthreats.

9


10/199

Environmental Scanning and

External Analysis

Environmental scanning allows strategic decisionmakers to know what's happening in the externalenvironment so they can identify and anticipateenvironmental changes. This means scanning the

environment and evaluating what the various data andtrends mean to the organization.

Note that it's not enough just to know what'shappening in an organization's environmenttheinformational needs of an organization also need to beassessed. In other words, an external analysis isneeded to determine the opportunities and threats

facing the organization. 10


11/199

n rgan za on s x ernaEnvironment

General environmentrefers to those externalenvironmental sectors that indirectly affect theorganizations strategic decisions and actions and

may pose opportunities or threats (e.g., economic,

demographic, sociocultural, political-legal andtechnological sectors).

Specific environment describes those externalenvironmental sectors that directly impact the

organization's decisions and actions by opening upopportunities or threats. (e.g., customers,competitors, suppliers and other industry-competitivevariables).

11


12/199

An Organizations External

Environment

Id tif i i t l


13/199

13

Identifying environmentalinfluencesPESTEL


14/199

General Environment

The general environment includes thoseexternal environmental sectors thatindirectly affect the organization's strategic

decisions and actions and may poseopportunities or threats. The five maingeneral environment sectors:

14


15/199

Economic The economic sector encompasses all the

macroeconomic data (i.e., current statistics,forecasted trends and changes) that reflect whats

happening with the economy. It doesn't include theeconomic statistics of an organizations industry.

For instance, industry sales forecasts and trendsaren't part of the general economic sector. However,you would look at those statistics in evaluating theindustry and competitive environment.

15


16/199

Economic The economic sector includes:

Interest rates

Exchange rates and the value of the dollar

Budget deficit or surplus

Trade deficit or surplus Inflation rates

Gross National Product (GNP) or Gross Domestic Product(GDP) levels and resulting stage of the economic cycle

Consumer income, spending and debt levelsEmployment-unemployment levels

Consumer confidence levels

Workforce productivity rates16


17/199

Evaluating the effect on theorganization:

Look at current information as well as forecastedtrends, and determine how the change may or maynot affect your organization.

International considerations:An additional challenge is to find convenient and

reliable information.

Most critical economic information may be theinflation rates, interest rates, currency exchangerates, and consumer-income-spending-debtlevels because these tend to be the most volatile

economic factors. 17


18/199

Demographics

The demographic sector evaluates current statistical dataand trends in population characteristics.

Gender

Age

Income levels Ethnic makeup

Education

Family composition

Geographic location

Birthrates

Employment status

18


19/199

Demographics

Evaluate changes and trends, and how the trendswould affect the organization. Also consider theinteraction of these variables, e.g., What is the

trend of the geographic location of baby boomers?Will this affect marketing?

International considerations: Demographics oncurrent or target customers is relevant regardless

of location. It may be difficult to find this informationin some of the semi-industrialized countries, butindustrialized and most larger semi-industrialized

countries collect census data.19


20/199

Demographics

What the country's culture is like and is it changing?What are society's traditions, values, attitudes, beliefs,tastes, patterns of behavior and how are thesechanging?

Evaluating shifts in beliefs, opinions, values, etc. todetermine how these values may influence peoples

behavior in shop, work, family rearing, etc. (e.g., Howhas the fear of terrorism influenced buyers? What about

low carb diet fads?) International Considerations: Important to understand

each countrys culture, and try to uncover any trends or

changes within the culture.

20


21/199

Political-Legal

The various laws, regulations, judicial decisions, and political

forces that are currently in effect at the federal, state, and locallevels of government. It might also include regulations enacted by professional

associations

Potential legal, regulatory, and political changes, or pending

judicial decisions that might take place and could impact yourorganization.

Evaluate the impact regulations may have on the organizationand the industry. Also consider how consumer attitudes may

change toward the industry/organization due to regulation (e.g.,vices [tobacco, alcoholic beverages, gambling]).

International Considerations: If operating in another country,your organization needs to know the relevant laws andregulations, and abide by them. It is also important to be awareof political changes. 21


22/199

Political-Legal Various trade alliances among countries are easing

political and economic restrictions on trade andcreating numerous opportunities and threats.

Trade alliances among countries include: the North

American Free Trade Agreement (NAFTA), theEuropean Union, the Central America Free TradeAgreement, the Association of Southeast AsianNations (ASEAN) and the African Union

22


23/199

Technological Scientific or technological improvements,

advancements and innovations create opportunitiesand threats for an organization, such as:

Communications

Computing

Transportation

Manufacturing

Robotics

BiotechnologyMedicine and medical

Telecommunications

Consumer electronics 23


24/199

Technological Two organizational areas impacted most by technological

innovations concern the product research anddevelopment and organizational work processes.

In evaluating this sector, consider how technologicalchanges will affect your organizations products (positively

or negatively) or how the changes will affect how youproduce your product (the process) (e.g., computerizationof an organizations activities).

International Considerations: a countrys level of

technological advancement is going to affect theassessment (e.g., Infrastructure required fortelecommunications).

24


25/199

Specific Environment

The specific environment consists of those externalsectors with which the organization directly interacts.In other words, the specific environment includesindustry and competitive variables.

Industryis a group(s) of organizations producingsimilar or identical products. These organizationscompete for customers to purchase their products andmust secure the necessary resources that areconverted into products.

The strategic manager can use Porters model to

determine external opportunities and threats by

evaluating the five forces. 25


26/199

Porter's Five Forces Model

Some industries are inherently more attractivethan others (i.e., the profit potential forcompanies in those industries is greater).

The strength and interaction of the five forcesare what influence profit potential

The existing firms in an industry are anorganization's current competitors. The moreintense the rivalry among existing firms, themore profitability will suffer.

26


27/199

Business Strategy

Unit 7aExternal Analysis

27

The five forces of industry competitionSource : Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from COMPETITIVE STRATEGY:

Techniques for analyzing industries and competitors by Michael E. Porter. Copy right 1980,1998 by The Free Press. All rights reserved.

Current Rivalry Among Existing


28/199

Current Rivalry Among ExistingFirms

Porter lists eight conditions that contribute to intense rivalryamong existing competitors:

1. Numerous or equally balanced competitorsa. Constant competitive turmoil , constantly jockeying for position

2. Slow industry growthI. Battle for the limited market share

3. High fixed or storage costsa. e.g., Price cutting strategy keeps profits low

4. Lack of differentiation or switching costsa. Commodity-like product leads to differentiation by price and service

5. Addition of capacity in large incrementsa. Adding capacity is costly so competitors will cut prices to attract customers

6. Diverse competitorsa. Differing philosophies or circumstances between competitors make it difficult to predict strategies in the

market, which increases rivalry.

7. High strategic stakesa. Short run profitability may be sacrificed to succeed

8. High exit barriersa. Factors that keep companies competing even though they may be earning low or negative returns on

investment. Extreme tactics may be used to compete

28


29/199

Potential Entrants

In addition to current competitors,organizations should also be on the lookoutfor organizations moving into their industry.

Why?:

Bring new capacity to the industry Want to gain customers (market share)

May possess substantial resources that can be used tolaunch attacks against current competitors

Threat of potential entrants depends on thebarriers to entry and the reaction by currentcompetitors to entrants

29


30/199

Barriers to entry

Are obstacles to entering an industry. When barriers are high orcurrent competitors can be expected to take significant actionsto keep newcomers out, then the threat of entry is low.

A low threat of potential entrants is positive for an industrybecause profitability wont be divided up among more

competitors.

30

What are the major entry


31/199

What are the major entrybarriers?

Porter described seven:

1. Economies of scale2. Cost disadvantages from other than scale(e.g., favorable

access to raw materials, favorable location; governmentsubsidies, human resource advantages from cumulativeknowledge, learning and experience).

3. Product differentiation (e.g., brand loyalty with customers createsa high barrier).

4. Capital requirements: high initial investment will discouragenewcomers.

5. Switching costs: One-time cost facing the buyer who switchesfrom one suppliers product to anothers, may be monetary or

psychological (e.g., mobile phone or Internet service providers;new software).

6. Access to distribution channels: costs associated withdistributing the product such as price breaks to distributors. 31


32/199

Barriers to entry

Government policy: Licensing and otherstandards can be costly in time andmoney. The more government

regulations, the higher the barrier

32


33/199

Bargaining Power of Buyers

Buyers are the seller's customers. If they havea lot of bargaining power, they can force pricesdown, bargain for higher quality or moreservices, or even play competitors against

each other trying to see who will give them thebest deal.

33


34/199

The factors of buyer power are:1. Large volume purchasescustomer is more important to the seller than

seller is to the customer.

2. Products purchased represent a significant portion of the buyer's costs orpurchasescustomer is more likely to bargain hunt.

3. Products are standard or undifferentiatedthe customer sees littledifference in the sellers (competitors) products with customer likely to

play one supplier against another to find the best deal.

4. Buyer faces few switching coststhis does not encourage brand loyalty.

5. Buyer has low profits (or has low income levels)if the customer isearning low profits, the customers will be looking for ways to reduce costs,hence reduce purchasing costs.

6. Buyer's ability and resources to produce the products themselvesifcustomer can make the product its buying, then its in a powerful position

to ask for concessions from the supplier.

7. Product's quality isnt important to the quality of the buyer's products orservices.

34


35/199

The factors of buyer power are: If buyers dont need the industrys products to

get desired levels in their products or services,they have the power to bargain with theindustry over prices and services offered.

Buyer has full information/knowledge aboutproduct demand, market prices, and suppliercostsgives the customer good ammunition to getthe best possible prices from suppliers.

35


36/199

Bargaining Power of Suppliers

If an industry's suppliers have bargainingpower, they can raise prices or reduce thequality of products that an industry purchases.

An industry's suppliers include any of the

providers of resources or inputs: raw materialssources, equipment manufacturers, financialinstitutions and even labor sources.

36


37/199

The factors of supplier power are:

Domination by a few suppliers and moreconcentration than the industry

Availability of substitute products (inputs)

Multiple industries demanding the products of

suppliers Importance of the product (input) to the industry

Suppliers products are differentiated or if customer

has switching costsavailability of substitute orundifferentiated products

Ability of the supplier to enter the customer's industryand start making the product that the customer

makes 37


38/199

Substitute Products

The best way to evaluate the threat ofsubstitute products is to ask whether otherindustries can satisfy the consumer need thatour industry is satisfying.

38


39/199

Evaluating the Five Forces


40/199

Evaluating the Five Forces


41/199

Finding Information on the ExternalEnvironment and Evaluating it

Finding valuable information andinterpreting it is essential to organizationalsuccess. Examples include:

Data specific to the context Statistics

Analyses

Trends

Predictions and forecasts

Inferences or statements by experts


42/199

Finding Information on the ExternalEnvironment and Evaluating itcontd

External information can be found usinginformal and unscientific observations; aswell as formal and systematic searches

Examples of informal approaches Discussions with customers and suppliers

Reading industry journals or news periodicals

Examples of formal approaches Surveys Scientific analysis


43/199

Finding Information on the ExternalEnvironment and Evaluating itcontd

External information system

Is information system that provides managerswith needed external information on regular basis

Purpose is to identify potential trends andchanges that might positively or negatively impactorganizational performance

Information is valuable because external

environment is complex and dynamic The challenge: having enough, but not too much

information


44/199

For Your Information

Spotting Trends: The art of picking up onwhat is hot or popular

Suggestions for trend spotting:

Remember that valuable information can befound anywhere

Gather information and file it away for later use

Determine whether something is a fad or a trend;trends have staying power

Trends are not obvious, require effective analysis


45/199

Responsibilities for External Analysis atDifferent Managerial Levels

In smaller and medium sized companies,all employees should monitor changes inthe specific industry and competitive

environment In small companies, front line employees

have the greatest interaction with customers

and suppliers Such interactions provide valuable information

for strategic decision makers


46/199

Responsibilities for External Analysis atDifferent Managerial Levelscontd

In large organizations, doing a singleanalysis for the entire organization can beinsufficient

The large structure, with its many units andfunctions, creates varying needs for information

The value of the information will depend on theorganizational level and function

The role of different level managers will varybased on whether their role is to gather,disseminate, or utilize the information gathered


47/199


Competitor Intelligence, a form ofenvironmental scanning

Seeks to identify who competitors are, what

they are doing, how their actions will affectyour firm

It does not involve spying or illegal actions

It can involve buying competitors products to

understand them, accessing publishedmaterials, interacting at trade shows

What role does this place in external

analysis?

L i R i


48/199

Learning Review:

What does the five-forces model look at andhow is it used?

What is examined in each of the fivecomponents and the general environment?

How is external analysis done for a companythat is doing business globally?

How is information on the externalenvironment found and evaluated?

Describe the different responsibilities fordoing an external analysis.

B fit f D i


49/199

Benefits of Doing anExternal Analysis

Enables managers to be proactive, notreactive

Anticipate change

Create plans for those changes

Influence the organizational performance

External analysis is key

To providing information to use in planning,decision making, and strategy formulation

B fit f D i


50/199

Benefits of Doing anExternal Analysiscontd

External analysis enables strategies toAdapt to opportunities and threats

Neutralize competitor moves

Improve organizational opportunities Altering strategies should align the

organization based on information about:

Markets Customers

Technology

B fit f D i


51/199


Environment is a source of resource

The ability to acquire and control neededresources depends on understanding the

environment and taking advantage of theresources available

Dynamic environment requires awareness

of Turbulent and fragmented markets

Changing customer tastes

Innovative technologies

B fit f D i


52/199


Intense global competition makes itimperative to complete an externalanalysis

Research shows that firms doing anexternal analysis have higher performance

Performance evaluated on financial

measures like return on assets or increasedprofit

Ch ll f D i


53/199

Challenges of Doing anExternal Analysis

Rapidly changing environment

Keeping track of current situation andchanging trends can be a challenge

New technology New competitors

New laws

New customers

Ch ll f D i


54/199

Challenges of Doing anExternal Analysiscontd

Doing an external analysis is time consuming

Key is making the process efficient and effective

Requires making value judgments about what to

monitor and evaluate No process of analysis provides perfect

information

Forecasts are not factAnalysis that is flexible and open is more likely tobe able to create adaptive strategies


55/199

Review

Describe what an external analysis is

External analysis

Process of scanning and evaluating the

external environment in order to identifyopportunities and threats

Opportunities

Positive external trends or changes that mayhelp to improve the organizations

performance


56/199

Review

Threats Negative trends or changes that may hinder

the organizations performance

Open systems The concept that organizations interact with

and respond to their environment

Environmental uncertainty The greater the change and complexity in the

environment, the greater need for information


57/199

Review: Learning Outcome

Environment is a source of resources

The more hostile the environment, the greaterthe need to obtain and control resources

Managers monitor the environment in order toacquire and control those needed resources

It is important to scan and evaluate the

external environment


58/199


Explain how to do an external analysis of

an organizations specific and general

environments

Specific external environments include: Customers

Competitors

Suppliers

Other industry-competitive variables


59/199

Review: Learning Outcome contd

General external environments include:

Economic

Demographic

Sociocultural

Political-Legal

Technological


60/199


Specific environment analyzed usingPorters five-forces model

Current rivalry

Potential entrants

Bargaining power of buyers

Bargaining power of suppliers

Threat of substitute products



61/199

Review: Learning Outcomecontd

The general environment requires lookingat:

Economic data

Demographic characteristics

Sociocultural values, attitudes, behavior

Political-Legal regulations, decisions, forces

Technological innovations


62/199


External information Includes data, analyses, trends, forecasts,

inferences, expert opinions

External analysis Formal or informal

Provides managers with needed information

In small companies, analysis done by all

In larger companies, analysis more oftendone by management or special groups


63/199


Discuss the benefits and challenges ofdoing an external analysis

Benefits

Makes managers proactive, anticipating andplanning for change instead of reacting

Provides information for planning, decisionmaking, and formulating strategy

Helps get needed resources Helps cope with uncertainty


64/199


Challenges

Rapidly changing environment is hard to keepup with

The process of analysis is time consuming Forecasts and trend analysis are not perfect

Building Your Skills as Strategic


65/199

Building Your Skills as StrategicDecision Maker

1. Looking at the US/UK Census data, howmight this benefit strategic decision makers?

2. What is the value of the following questions/

What is happening in the world today? What does it mean for us? For others?

What would have to happen for us to achievethe desired results?

What do we have to do? Whats next?

Is our external analysis good? Why?



66/199

Building Your Skills as StrategicDecision Makercontd

3. Find three different sources of onlineeconomic data. Are they valuable? Why?

4. What strategic implications

(positive/negative) do trends toward aUS/UK workforce that is smaller, movediverse, more mobile, and more

vulnerable to global competition?



67/199

Building Your Skills as StrategicDecision Makercontd

5. What opportunities and threats might arisefor companies, in light of the aging babyboomers and struggling financial markets?

6. Two of the major competitors in fast-foodWendys and McDonalds have positionedthemselves differently. How would theirunique interpretation of trends and changesaffect their choice of strategy? Which mightbe better positioned? Why?


68/199

Business Strategy

Unit 7bInternal Analysis

68

Th L i O


69/199

4- 69

Three Learning Outcomes

1. Describe what an internal analysis is

2. Explain how to do an internal analysis

3. Discuss why an internal analysis is

important


70/199

Learning Outcome

Describe What an Internal Analysis Is

To formulate appropriate and effectivestrategies, it is important to know what an

organization can and cannot doparticularly well and what assets it does ordoes not have

Internal analysis is the process of evaluatingan organizations assets, skills, and work

activities; what it does well or what is lacking

4- 70


71/199

Organizational Resources

Resources are simply the assets anorganization has for doing whatever it is inbusiness to do (e.g., make burgers, providehealthcare, create and sell greetings cards)

Resources can be financial, physical, human,tangible, intangible, structural-cultural

Among the financial resources are debt

capacity, credit lines, available equity, cashreserves

4- 71


72/199

Organizational Resourcescontd

Other examples of Resources Human resources, which include experiences,

knowledge, judgment, skills, accumulated

wisdom, competencies of employees The value of resources is context

dependent; based on it seeks to do to

make money Resources can be a source of competitive

advantage for a company

4- 72

The Strategic Role of Organizational


73/199

The Strategic Role of OrganizationalResources and Organizational Capabilities

4- 73

From Resources to


74/199

From Resources toOrganizational Capabilities

An organizations resources are that which

are needed to perform its work

For example: A top chef needs pots, pans,

utensils, spices, raw food materials to do theirjob

To reach its goals an organization must

generate value from its resources anddoes so through capabilities

Using the same example: A chef needs skillsto combine ingredients to create a qualitymeal

From Resources to


75/199

Organizational Capabilitiescontd

Organizational capabilitiesAre the various routines and processes that

transform resources (inputs) into

products/services (outputs) Organizational routines and processes

Are regular, predictable, sequential workactivities done by organizational members

Complex network of these routines andprocesses encompass all work activities

4- 75

rom esources o


76/199

Organizational Capabilities

contd Employees learn how to best use organizationalresources and processes, creating corecompetencies and distinctive organizational

capabilities Capabilities result from learning and are more than

the mere possession of resources

Some organizations do it better than others; theyare unable to develop capabilities to survive in anincreasingly dynamic and competitive marketplace

From Resources to


77/199


contd Southwest Airlines is an example of a firmthat has developed valuable capabilitiesand competitive advantages

Loading, unloading planes Reservations

Safety inspections

Customer service

rom esources oO C


78/199


contd Capabilities are not self-sustaining intodays complex and dynamic environment

Future conditions and competitors change

Todays environment demands dynamiccapabilities

The ability to build, integrate, and reconfigure

capabilities to address the rapidly changingenvironment

4- 78

Characteristics of Distinctive


79/199

Characteristics of DistinctiveOrganizational Capabilities

4- 79

From Capabilities to Core


80/199

Competencies and DistinctiveCapabilities

Core competencies Value creating capabilities that an

organization possesses that are essential to

their business Contribute to improving and enhancing other

organizational capabilities

They are the result of accumulated knowledgeand actual work activities

4- 80



81/199

Competencies and DistinctiveCapabilitiescontd

Examples of usable core competencies Product design and customer research

(Nokia)

Organizational capabilitiesAre fundamental building blocks of core

competencies that are created out of

processes and routines

4- 81



82/199

Competencies and DistinctiveCapabilitiescontd

Distinctive organizational capabilities These are special and unique organizational

capabilities that distinguish an organization

from its competitors Examples of distinctive capabilities

Southwest Airlines: gate turnaround, ticketing,

and employee-customer interactions Hallmark: creative product design

4- 82

Characteristics of


83/199

Characteristics ofDistinctive Capabilities

1. Must contribute to superior customervalue and offer real benefits to customers

Being good at what customers value

Requires adaptiveness

2. Must be difficult for competitors to imitate

Requires balancing a complex array of

employee skills and knowledge Harnessing learning in the organization

Utilizing cross-functional interaction4- 83

Characteristics of


84/199

Characteristics ofDistinctive Capabilities

3. A distinctive capability should be used ina variety of ways

Organizational routines and processes

developed in one area should be transferableto other areas

Examples of transferred capabilities

Reliable, fuel efficient drive trains for cars,motorcycles, boats, lawnmowers, snowblowers, power generators (Honda)

Energy conservation (United Technologies)4- 84

Competitive Advantage and


85/199

Competitive Advantage andPerformance Results

Competitive advantage Sets the organization apart from competitors

Must come from unique resources or

distinctive capabilities Will positively affect performance results

Benefits may be short or long term

Demands that decision makers know thestrengths and weaknesses of its resources,capabilities, and competencies

4- 85

The Role of Strengths and


86/199

The Role of Strengths andWeaknesses

Strengths

These are resources that the organizationpossesses and capabilities that is has

developed These can be exploited and developed into a

sustainable competitive advantage

Not all strengths will lead to competitiveadvantage, but they can be competitiveweapons if nurtured and reinforced

4- 86

The Role of Strengths and


87/199

gWeaknessescontd

Weaknesses Are resources and capabilities that are lacking

or deficient and prevent the organization from

developing competitive advantage Organizational weaknesses must be corrected ifthey are in critical areas that prevent theorganization from competing effectively

Organization with limited resources to correct theproblem will simply seek to minimize the impact

87

Value Chain Analysis


88/199


Every organization (for profit or not-for-

profit) needs customers to survive The premise is that there is a demand for some

type of value in the goods/services they

purchase or obtain To assess the ability to provide value it is

important that strategic decision makers use

a systematic process to examineorganizational activities and how theyproduce value

4- 88

V l Ch i A l i td


89/199

Value Chain Analysiscontd

Value chain activities are specificorganizational routines and processes thatcreate varying levels of customer value

and organizational costs The concern for organizations is that the

value created outweighs the cost of creatingthat value (often referred to as the margin)

The effort is to assess the organizations

ability to create value through its workactivities

V l Ch i A l i td


90/199


Value chain analysis evaluates the internalenvironment, the organizations strengths

and weaknesses

Value chain analysis assesses nineactivities

Five primary

Four support

Val e Chain Anal sis


91/199


91

Value Chain Analysis contd


92/199


Primary activitiescreate customervalue

Inbound logisticsroutines and processes that

bring resources into the organization Operationsprocessing the resources into

goods and services

Outbound logisticsphysically distributing theseto customers

Marketing/Salesappealing to customers

Customer serviceserving customer needs 4- 92



93/199


Support activitiessupport primaryactivities and each other

Procurementgathering resources

Technologyprovide efficiencies and improveoperational efforts

Human Resourcesrecruit, select, train, retain

employees Infrastructurecapabilities to identify externalopportunities and threats

4- 93



94/199

Value Chain Analysiscont d

Assessment of both primary and supportactivities is essential

The effective or efficient performance of these

activities helps create potential competitiveadvantage

This analysis is not easily done becauseorganizational activities do not always fitnicely and neatly into the analytical framework

4- 94

Assessing the Primary Activities


95/199

g yof the Value Chain

4- 95

Assessing the Support Activities


96/199

g ppof the Value Chain

4- 96

Product Life Cycle


97/199

Product Life Cycle

The product life cycle is the natural lifespan of a particular product or service.

There are five (5) stages of the product life

cycle:1. Introduction

2. Growth

3. Maturity4. Saturation

5. Decline.97


98/199

The product lifecycle

Introduction


99/199

Introduction

High costs, low salesand no profit ismade

Aim to recover development costs

Successful new product will move togrowth phase.

Growth


100/199

Growth

Steady costs, sales increase rapidlyand high profits can be made bypioneering firms.

Aim to attract first-time customers andbuild market share.

Maturity


101/199

Maturity

Steady costs, sales increase moreslowly and profits peak

Aim to keep existing customers and

persuade other consumers to switchfrom competing brands.

Saturation


102/199

Saturation

Steady costs, sales peak (no moregrowth) and reasonable profits

Profit margins start to decline, owing

to increased price competition.

Decline


103/199

Decline

Low costs, falling sales and fallingprofitsmaybe loss making

Withdraw loss-making product

Keep decline product if it makes aprofit in a niche market.


104/199

Product lifecycle and extension strategies

Extending the product


105/199

g p

lifecycle (Continued)

product developmentwhich is minor product

modification or improvement

e.g. new model of a carVauxhallCorsa.

Extending the product


106/199

Aim to keep the product in thesaturation phase of lifecycle as:

profits are reasonable

sales peak

costs are steady.

g p

lifecycle (Continued)

Customer growth matrix


107/199

Customer growth matrix

Customer loyalty

Customer extension

Customer acquisition

Customer diversification.


108/199

The customer growth matrixSource: Jenkins, M (1997), The Customer Centred Strategy, Prentice Hall. Reproduced with permission

Customer loyalty


109/199

y y

Loyal customers will bring greaterprofitability by:

making frequent repeat purchases

telling friends of the benefits of thecompanys products.

Customer extension


110/199

Customer extension is: extending the range of products and

services available to customers

achieved via product developmentand diversification.

Customer extension (Continued)


111/199

Product development is used bycompanies:

structured around product divisions

with strong R & D anddesign functions.

( )



112/199

whose products have short lifecyclese.g. consumer electronic companieslike SONY.

( )



113/199

Product diversification occurs when acompany moves away from currentproducts

Related diversificationremains insame industry

Unrelated diversificationchangesindustry.

( )

Customer acquisition


114/199

q

Customer acquisition is: expanding the number of customers

for existing products

easiest in growing markets

difficult in mature markets.

Customer acquisition (Continued)


115/199

If home markets are mature, thenseek new customers in overseasmarkets

Engage in IB activities, e.g. Exportingor locating production or marketingactivities overseas.

q ( )

Customer diversification


116/199

Customer diversification: is achieved by selling a new product

or service to new customers

often involves innovative use oftechnology.

The BCG matrix


117/199

Question marks

Stars

Cash cows

Dogs.


118/199

The Boston Consulting Group matrixSource: Henderson, B (1970) The Product Portfolio, Boston Consulting Group. Used with permission of The Boston Consulting Group

Question marks


119/199

High growth markets Low market share

Another product is current marketleader.

Unlikely to be profitable

High investment is required if aquestion mark is to become a marketleader

Stars


120/199

Successful question marks becomestars.

Stars are market leaders in growth

markets.

require investment to maintain

market leadership in a high growthmarket

are marginally profitable

Cash cows


121/199

Cash cows: are mature products

occupy slower growth markets

need less investment are the most profitable products in a

portfolio

are used to fund products in otherquadrants.

Dogs


122/199

Dogs: occupy no growth markets

have low market share

may be previous cash cows

may be marginally profitable

should be withdrawn before theybecome loss making.

A successful / unsuccessful product


123/199

A successful

product movesaround the BCGmatrix

A question markto a star to

a cash cow to a dog or back

to a question

mark

A less

successfulproduct remainsin right-hand

side of the BCGmatrix, and istherefore a low

cash generator. A question mark

may move to

a dog

BCG matrix and

d t lif l li k


124/199

product lifecycle links

BCG ----------- plc Q marks ------- introduction

Stars ----------- growth

Cash cow ----- maturity andsaturation

Dogs ---------- decline.

Balanced BCG matrix


125/199

Tomorrow's products: question marks and stars

Today's products:

cash cows

Yesterdays products

Dogs.

The Seven S Model


126/199

126

Describes the interconnectivity of an

organisation by a series of seven elementswithin the organisation.

These elements are mutually independent &

serves as an trigger mechanism to themanagement to coordinate the wholeorganisation.

Structure

The Seven S sModel


127/199

127

Strategy Systems

Super-ordinate

Goals

Skills Style

Staff

The Seven S s Model


128/199

128

Super-ordinate goals

Aspirations of theorganisationvalue,beliefs, principles & aims.

Strategy

The organisations futureplans & directions.

How it will overcomeexternal factors &

competition within theindustry.

Market it operates &products & servicesprovided.

Structure

Organisation structuralframework, decisionmaking process (topdown/bottom up),planning process.

Systems

The organisations

internal process.(operating standards/

working procedures, etc)

The Seven S s Model


129/199

129

Style

Culture of theorganisation.

Belief systems of itsemployees.

Staff Human resources of an

organisation. Capabilities &

competences internally.

HR management policies(bonuses/rewards,compensation,advancement, etc

Skills

Core competence of theorganisation and notskills of staff.


130/199

HND

Business Strategy

Lesson 3

130

SWOT SWOT stands for Strength (internal) Weaknesses


131/199

SWOT stands for Strength (internal), Weaknesses(internal), Opportunities (external) and

Threats(External). The SWOT analysis points to the strategic issues

organizational decision makers need to address intheir pursuit of sustainable competitive advantage and

high performance levels. A swot analysis allows managers to identify key

internal and external issues they need to take intoaccount in order to understand the context in whichthe organisation operates.

By identifying key issues, it begins to focus managerson areas where they need to make choices and helpsto identify some of the constraints and risks involved.131

Competitive Strategies


132/199

p g

Competitive strategyis the wayorganizations set themselves apart tocreate a sustainable competitiveadvantage.

The choice of a competitive strategy isbased on the competitive advantage(s) thatthe organization has been able to develop.

132

Porters Generic Competitive

Strategies (1980)


133/199

Strategies(1980) Porters approach is based on an organizations

competitive advantage.

Competitive advantage can come from only one of twosources:

1. Having the lowest costs in the industry2. Possessing significant and desirable differences

from competitors

Another important strategic factor is the scope of theproduct-market in which the organization wishes tocompetethat is, broad (i.e., all or most marketsegments) or narrow (i.e., only one segment or a fewsegments). 133

Porters Generic Competitive

Strategies (1980)


134/199

Strategies(1980)

He identifies three strategies:(1) cost leadership:a strategy in which an organization strives to

have the lowest costs in its industry and produces products fora broad customer base;

(2) differentiation: a strategy in which an organization competesby providing unique (different) products in the broad market thatcustomers value, perceive as different, and are willing to pay apremium price for; the differentiator works hard to establishbrand loyalty:customers consistently and repeatedly seek out,purchase, and use a particular brand;

(3) focus: a strategy where an organization pursues either a costor differentiation advantage in a limited customer segment.

134

Cost Leadership


135/199

p Cost leader

Chooses to compete on the basis of having the lowest costs. The main goal is to have the lowest (total unit) costs in the

industry (emphasis on costs, not prices).

With the lowest costs in its industry, the cost leader:

Can potentially charge the lowest prices and

Still earn significant profits, even during a price war

135

Cost Leadership


136/199

Successful pursuit of the cost leadership strategy

Everything the cost leader doesevery strategic decision made, every

strategic action takenis aimed at keeping costs as low as possible. Efficiency in all areas of operations is the main objective, and all

resources, distinctive capabilities, and functional strategies are directedat that.

The cost leader isnt going to have deep and wide product lines as

providing these product or service variations is expensive.

The cost leader has chosen to compete on the basis of low costs, not onbeing different than competitors.

The cost leader will market products aimed at the average customer.

Little or no product frills or differences will be available. No fancy artwork orplush office furniture at corporate headquarters and no corporate jets.

Cost leader wont have an elaborate high-tech, multimedia interactive Website unless its an extremely cost effective and efficient way to reach masses

of potential customers. 136

er c arac er s cs o cosleaders include:


137/199

Strict attention to production controls

Rigorous use of budgets

Little product differentiationjust enough tosatisfy what the mass market might demand

Limited market segmentationproducts orservices aimed at the mass market

Emphasis on productivity improvements

Resources, distinctive capabilities and corecompetencies found in production-operationsand materials management 137

raw ac s o e cosleadership strategy:


138/199

The main danger is that competitors mightfind ways of lowering costs even further;taking away the cost leaders cost

advantage.

Competitors might be able to easily imitatewhat the cost leader is doing and erode thecost advantage.

Cost leader, in its all-out pursuit of loweringcosts, might lose sight of changingcustomer tastes and needs.

138

Differentiation Strategy


139/199

Organization competes by providing unique (different) products

with features that: Customers value,

Perceive as different, and

Are willing to pay a premium price for

The main goal of the differentiator is to provide products orservices that are truly unique and different in the eyes ofcustomers.

Doing this, the differentiator can charge a premium price

because customers perceive that the product or service isdifferent and that it uniquely meets their needs.

This premium price provides the profit incentive to compete onthe basis of differentiation.

139

A Successful Differentiator


140/199

All its capabilities, resources and functional strategies are

aimed at isolating and understanding specific market segmentsand developing product features valued by customers in thosevarious segments.

Has broad and wide product linesthat is, many different

models, features, price ranges and so forth. Has countless variations of market segments and product

features so that the customer perceivesthe product or serviceas different and unique and worth the extra price.

Because the differentiation strategy can be expensive, thedifferentiator also needs to control costs to protect profits, butnot to the extent that it loses its source of differentiation.

140

Other characteristics ofdifferentiators include:


141/199

differentiators include:

Differentiating themselves along as manydimensions as possible and segmenting themarket into many niches.

Establish brand loyalty, where customers

consistently and repeatedly seek out, purchaseand use a particular brand. Brand loyalty can be avery powerful competitive weapon for thedifferentiator.

The differentiators distinctive capabilities tend to

be in marketing and research and development.

141

raw ac s o e eren a onstrategy


142/199

Must remain unique in customers eyes,which may be difficult depending oncompetitors abilities to imitate and copy

successful differentiation features. Customers might become more price

sensitive, and product differences might

become less important.

142

Focus Strategy A focuser:


143/199

A focuser:

Concentrates on serving a limited (narrow)customer group or segment known as a marketniche

a. Geographicalniche can be defined in terms of region or

locality.b. Type of customerniche focuses on a specific group of

customers.

c. Product lineniche would focus on a specific and

specialized product line.

143

Focus Strategy Pursues either a cost or differentiation advantage


144/199

Pursues either a cost or differentiation advantage

Cost focuser competes

By having lower costs than the overall industry costleader in specific and narrow niches

Also successful if an organization can produce complexor custom-built products that dont lend themselves easilyto cost efficiencies by the industrys overall cost leaders

Differentiation focuser can use whatever forms ofdifferentiation the broad differentiator might use,

such as:a. Product featuresb. Product innovations

c. Product quality

d. Customer responsiveness

e. Specializes in one or a few segments instead of all market segments.144

Advantages of the focus strategy:


145/199

The focuser knows its market niche well and

can build strong brand loyalty by respondingto changing customers needs

The focuser who can provide products or

services that the broad competitors cant orwont, will have the niche all to itself.

145

Drawbacks of the focus strategy The focuser often operates on a small scale making it difficult to


146/199

The focuser often operates on a small scale making it difficult tolower costs significantly.

However, with technological advancements such as flexiblemanufacturing systems, this drawback is not as critical as itonce was.

As information and computer technology become more

affordable, focusers have discovered that economies (costefficiencies) dont necessarily have to come from large-scaleproduction runs.

The niche customers might change their tastes or needs.

Because it is often difficult for a focuser to change niches easilyand quickly, this could be a serious problem.

In addition, any technological changes that might impact theniche can have a similar effect. 146

Stuck in the Middle Happens when an organization is not


147/199

Happens when an organization is not

successfully pursuing either a low-cost or adifferentiation competitive advantage

Occurs when an organizations:a. Costs are too high to compete with the low-cost leader.

b. Products and services arent differentiated enough tocompete with the differentiator.

This is not a preferred or profitable strategic direction.

Becoming unstuck means making consistentstrategic decisions about what competitive advantageto pursue and then doing so by aligning resources,distinctive capabilities and core competencies. 147

Top down


148/199

By definition, top managers are

ultimately responsible for everydecision and action of everyorganizational employee, thereforewill need to be strategic leaders.

Top managers can also be

strategic leaders through theirability to anticipate, envision,maintain flexibility, thinkstrategically and work with othersin the organization to initiate

changes that will create a viableand valuable future for theorganization.

Specifically top managers can bestrategic leaders by:

Determining the organizations

purpose or vision;

Exploiting and maintaining theorganizations core

competencies;

Developing the organizationshuman capital;

Creating and sustaining astrong organizational culture;Emphasizing ethical

organizational decisions andpractices; and

Establishing appropriatelybalanced organizational control.

148

Strategic Planning Techniques


149/199

PIMS (Profit Impact on MarketingStrategies)

The Growth Share Matrix

The scenario or Vision Building Approach

149

PIMS (Profit Impact on MarketingStrategies)


150/199

The model is based on the belief that there are three major

factors which determines a business unit performance;

It strategy

Its competitive position and

Market or industry characteristics which it competes (Moore1992)

It collects information from member companies relating to suchfactors as market share, profitability, product quality andinvestment.

PIMS, then answers questions such as: What profit rate is normal for a given business?

What strategic changes are likely to improve performance?

What are the likely effects of profitability, cash flow, etc, of adopting a

articular strate ?

151

The Growth Share Matrix


151/199

The BCG is based on the relation between

growth, investment and return. Growth-Shared Matrix is based on two

concepts:

1. The company with the largest market shareshould also have the greatest competitiveadvantage and it follows the highest profitmargin.

2. Also the companies with the highest rate ofreturn on investment can theoretically growththe fastest.

152

BCG GROWTH-SHARE MATRIX


152/199

BCG GROWTH-SHARE MATRIXTh t i th t t


153/199

The matrix pre-supposes that most

organisations are composed of more thanone business.

The collection of businesses within an

organisation is termed business portfolio. It posits that an organisation portfolio can be

classified into stars, cash cows, dogs and

problem children (Smith 1985)

154

Growth Strategies A growth strategy is one that expands


154/199

A growth strategy is one that expands

products offered or markets served orexpands its activities or operations throughcurrent or new businesses

Growth helps achieve goals through increasingrevenues, profits, or other measures

155

Growth Strategies


155/199

156

Possible Growth Strategies


156/199

Concentration

When an organization focuses on its primaryline of business and looks for ways to meet itsgrowth goals by expanding its core business

There are three concentration options Productmarket exploitation

Product development option

Market development option

Concentration Strategies


157/199

Product-Market exploitation

Attempt to increase sales of current productsin current markets and might includeincentives or advertizing

Product development option Creates new products or new features on

current products, which would be sold incurrent markets

Market development option

When selling current products in new markets

Concentration Strategiescontd


158/199

A concentration strategy is one that looks

for ways to grow the core business usingdifferent combinations of products andmarkets

Product market diversification is not usuallyviewed as a concentration option as itinvolves expansion into both new productsand new markets

Concentration Strategiescontd The advantage of a concentration strategy


159/199

The advantage of a concentration strategy

is an organization becomes good at what itdoes

The develop knowledge of the industry and oftheir competitors

Functional and competitive strategies can betuned to know what customers want and howto best provide it

Everyone can concentrate on exploitingresources, competencies, and capabilitiescritical to success

7- 160

Concentration Strategiescontd


160/199

The main drawback is that theorganization is vulnerable to changes inthe industry and the external environment

The key is to recognize significant trends andadjusting the organizations direction

Concentration strategy may be effectivefor small companies, but larger often startoff by this approach and may continueusing it

Concentration Strategy Options


161/199

Concentration Strategy Options

Vertical Integration Is a strategy that grows by gaining control of its


162/199

Is a strategy that grows by gaining control of its

inputs (backward) or its outputs (forward) Backward integration

The organization becomes its own supplier

Example: eBay bought an online payment business Forward integration

The organization becomes its own distributor

Example: Apple Computer opened retail outlets

Vertical Integrationcontd


163/199

Vertical integration strategy is a growthstrategy because an organization expandsits activities and operations by becoming a

source of supply or distribution However, expanding into industries connected

to its primary business means it is still a singlebusiness organization

It is taking another path to meeting growthgoals by controlling different parts of the valuechain

Horizontal Integration


164/199

This strategy is used to grow the organization

by combining operations with its competitors It keeps the organization in the same industry,

but provides a way to expand market share and

strengthen its competitive position In the US, Federal Trade Commission and

Department of Justice regulates such

activities through antitrust laws, assessingthe impact of such combinations to allow faircompetition

7- 165

Horizontal Integrationcontd


165/199

The European Union regulates efforts

toward horizontal integration within membercountries

As a growth strategy, horizontal integration

an be appropriate if: It enables the company to meet growth plans

It can be strategically managed to attain

competitive advantage It satisfies legal and regulatory guidelines

The Global Perspective


166/199

Horizontal integration knows no borders Coca-Cola sought to buy one of Chinas

biggest beverage makers, Huiyuan Juice

Group Ltd for $2.3 Billion It would have given Coke a strong market

presence

The deal was rejected by the Chinese Ministryof Commerce, which indicated it would havehurt competition in the local market

Figure 7.4Types of Related Diversification


167/199

yp

7- 168

Diversification This strategy enables a company to grow


168/199

This strategy enables a company to grow

by moving into a different industry. There are two types of diversification

Related

Unrelated Related Diversification

Is diversifying into a different industry, but

related to the companys current business

7- 169

DiversificationcontdUnrelated diversification


169/199

Unrelated diversification

Diversifying into a completely different industry,not related to the companys current business

Diversification is an attempt at a strategic

fit Effort is to transfer resources, distinctive

capabilities, and core competencies to the newindustry

It is an attempt at synergy that seeks toenhance performance of both businesses

Diversificationcontd


170/199

Synergy occurs when shared resources,capabilities, and competencies enablegreater performance by two entities when

combined. Unrelated diversification is when an

organization seeks growth by moving intoindustries in which there is no strategic fit.



171/199

Unrelated diversification can occur when acompany does not believe its core industryoffers growth potential

This approach is challenging because of theneed to develop an ability to effectivelymanage different businesses

An example is Fortune Brands; which owns

separate business that sell liquor, padlocks,cabinets, and golf balls

7- 172



172/199

Research shows that relateddiversification is superior to unrelateddiversification because it allows the

effective use of current resources,capabilities, and core competencies

However, unrelated diversification can be avaluable strategy at times, depending on how

effectively the diverse operations aremanaged

7- 173

Implementing theGrowth Strategies


173/199

g

There are three basic ways that growthstrategies can be implemented:

Mergers/Acquisitions

Internal development Strategic partnering

Mergers-Acquisitions

Involves the purchase of an organization thatenables a firm to combine operations with thatcompany it has merged with or acquired

Implementing theGrowth Strategies - contd


174/199

Merger is a legal transaction in which twoparties combined operations through anexchange of stock to create a new entity

Usually they take place betweenorganizations of similar size and it isconsidered friendly, it is acceptable to all

parties

Acquisition is an outright purchase of onecompany by another

Can be hostile and involve different sized

firms

7- 175

Implementing theGrowth Strategiescontd


175/199

The popularity of mergers and acquisitionsgo in cycles

The main feature of either effort is to implementgrowth strategies

Internal development involves creating anddeveloping new business activities within

Rather than face risks and challenges ofcombining new businesses, a company seeks todevelop crucial capabilities to meet desired goals

For Your InformationThinking Small


176/199

Thinking Small

IBM was reorganized into smaller, integratedglobal enterprise centers of expertise focusedon industries and technical skills

Rather than continuing to use massive divisions,the company create a more nimble globalnetwork that helped improve performance

This effort also included decentralized decision

making that was more conducive to creativity,collaboration, and innovation

Strategic Management in Action


177/199

General Electric (GE) entered the airportsecurity market by purchasing firms

These acquisitions enabled GE to leverage itsbrand, size, and credibility with the acquiredfirms technology

Why do you think GE chose acquisitions as itsway to grow?

Mergers-Acquisitions orInternal Development


178/199

Strategic Partnering

Strategic alliance


179/199

Strategic alliance

Two or more organizations share differentresources, capabilities, or competencies topursue some business purpose; requires trust

Different than joint venture because there is noseparate legal entity formed

The effort seeks to encourage productinnovation, bring stability to cyclical

businesses, expand product lines, or cementrelationships with suppliers, distributors, orcompetitors


Wh Alli M k S


180/199

Why Alliances Make Sense

Flexibility and informality of arrangementspromote efficiencies

Provide access to new markets or

technologies Less complexity when creating/disbanding

Risks and expenses are shared

Brand identification is kept and exploited Synergies created

Avoids issues related to antitrust7- 181

Strategic Management in Action

Not all alliances work out


181/199

Not all alliances work out

Amazon.com and Toys R Us created analliance in 2000 that combined the resourcesof a bricks and mortar business with an

internet company

It failed, each party claiming to be deceived bythe other

Amazon violated its promise to only sell those

toys, games, and baby products on its site Toys R Us failed to provide certain items

Signs of Declining Performance


182/199

7- 183

Renewal Strategies There are two main renewal strategies


183/199

There are two main renewal strategies

Retrenchment

Turnaround

Retrenchment

Short run strategy designed to addressweaknesses that are leading to performancedeclines

Not necessary to have negative financialreturns, usually occurs if unable to meetstrategic goals

7- 184

Renewal Strategiescontd


184/199

Retrenchment (contd) Is a military term refers to going back to the

trenches to stabilize, revitalize, and prepare

for entering battle again

The point is to address issues before theylead to severe problems

7- 185

Renewal Strategiescontd

Turnaround


185/199

Turnaround

Is designed for situations in which theorganizations performance are more serious

Often when the organization is facing severe

external and internal pressures and must makestrategic changes in order to remain viable

There is no guarantee the turnaround willaccomplish the desired results, but without itthe organization will not survive

7- 186

Implementing RenewalStrategies


186/199

Cost cutting Reducing costs to bring performance resultsback in line with expectations

It can be across the board or selective

The effort should avoid cutting costs in thoseareas critical to retain or exploitcompetitiveness

Redundancies, inefficiencies, or waste inactivities should be eliminated

Restructuring/downsizing are severeapproaches 7- 187

Restructuring


187/199

This includes refocusing on the primarybusinesses and involve

Selling or divestment

Spin off Liquidation

Downsizing

Divestment might occur when thebusiness is desired by another companyand is no longer a strategic fit

Restructuringcontd


188/199

Spin off Involves removing a business unit and setting

it up as a separate, independent business bydistributing its shares of stock

Liquidation

When no buyer exists or there is nopossible spin off, a business unit will bediscontinued

This is a strategic action of last resort

Restructuringcontd

Downsizing


189/199

Downsizing

Is a quick way to cut costs by elimination jobs It can be effective when done strategically

BENCHMARKING Benchmarkingis the search for the best


190/199

practices inside or outside an organization. Benchmarking is from other leading

organizations (competitors or

noncompetitors) that are believed to havecontributed to their superior performance.

191

Common CharacteristicsOf Contemporary Benchmarking

Its key purpose is to gather various types of


191/199

Its key purpose is to gather various types of

business information about other companies; the purpose of this information is to create new

business knowledge;

new business knowledge is gained by analysingand comparing the specifics of various businessfactors of different companies; and

on this basis, companies can make better

business decisions and consequently enjoymore successful and more effective business.

192

n erna n x ernaBenchmarking Internal benchmarking focuses on activities within

the organization One area of the organization is


192/199

the organization. One area of the organization is

compared with another.

External benchmarking can either be competitiveor functional.

In competitive benchmarking, an organizationfocuses on companies within their own market,sometimes direct competitors, studying theirbusiness performance and processes.

Functional benchmarking is performed bycompanies wanting to study a particularprocess. They choose organizations with

i il dl f th i i d t

193

Internal And ExternalBenchmarking

The goal of benchmarking of strategies is


193/199

The goal of benchmarking of strategies isto create knowledge about the specifics ofstrategies used by competitors and othercompanies that lead to the successful

achievement of objectives. The purpose is to use this knowledge in

order to improve the effectiveness of

strategies that lead to the realization ofstrategic objectives in the long run.

194

The Benefits Of Benchmarking In StrategicManagement (Bogan, 1994; Harrington, 1995;Karlof Et Al., 2001; Coers Et Al., 2001)

It enables more effective strategic planning and controlling;


194/199

It enables more effective strategic planning and controlling;

It lowers the costs of incorrect business decisions;

It enables a companys efficiency to increase through the

successful design and Implementation of restructuring businessprocesses and their continuous improvement;

It helps in solving business problems;

It adds an important element to the continuous education ofemployees, encourages their Innovativeness, creativity andcontributes to the creation of new ideas;

It enables a relative assessment of the business success andeffectiveness of diverse business factors; and

It encourages changes and fosters special knowledge, whichenables greater flexibility and faster adaptation to the changing195


195/199

196

Planning

Eff ti l l if di ti ti t


196/199

Effective plans can clarify direction, motivatepeople, use resources efficiently and allowpeople to measure progress towards objectives.

Plans can be at strategic, tactical and operational

levels; and in new businesses people preparebusiness plans to secure capital.

Strategic business units also prepare plansrelatively independently of the parent.

197

The process of planning


197/199

Seven iterative tasks in making a plan

Planning Planning is an iterative task, made up of seven


198/199

g , p

main stepsgathering information; developing amission; setting goals; identifying actions andallocating resources; implementing plans;monitoring progress and evaluating results.

Planners draw information from the competitive andgeneral environments using tools such as Porters

Five Forces analysis.

They can do this within the framework of a SWOTanalysis, and also use forecasting, sensitivityanalysis, critical success factors and scenarioplanning techniques. 199


199/199

Goal-setting theory predicts that goals canbe motivational if people perceive thetargets to be difficult but achievable.

Goals can be evaluated in terms ofwhether they are specific, measurable,attainable, rewarded and timed.

business strategy hnd 2nd

Documents