draft report in seoul

7/28/2019 Draft Report in Seoul

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Those theories of analysis have a purpose to analyze the competitive advantages of the firm from

external environment that can affect to the condition of the company.

And then prof. Tohyun Kim explains the industry live cycle which have four phases. First is embryonic,

in this phase the industry begins to develop and rivalry based on perfecting products, educating

customers, and opening up distribution channels. Second phase is growth which means that the

demand (and supply) takes off with new customers and has low rivalry because focus more is on

keeping up with high industry growth. Third phase is mature which indicate market saturates with

low to no growth, the company just stuck with the condition. And rivalry intensifies with excess

productive capacity, the lack of innovation that can make the rivalry each industry become

increasing.


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July 4

This day Professor Tohyun Kim explains about analyzing the internal environment of the

organization. Internal analysis defines as identifying the strengths and weaknesses of an

organization in terms of resources and capabilities required for achieving its goals. Resources means

that what the organizations have that be able to use in order to achieves the goal. For example

tangible resources are physical asset, plant, land, building, machinery, equipment, cash, and many

others. For intangible resources are brand, goodwill, skills, knowledge, reputation, culture, and many

others. Then capabilities means that what the organization can do based on the resources it

possesses. So its like how the organizations cultivate the resources with efficiently in order to

achieve the goal. To achieve the competitive advantage, the organization has to use their core

competencies that have VRIO criteria.

Value: Is the firm able to exploit an opportunity or neutralize an external threat with theresource/capability? So it means that the valuable of the resources and capabilities in

order to take over the competitive advantages.

Rarity: Is control of the resource/capability in the hands of a relative few? It means thatthe resources and capabilities that owned by the organization is the rare one.

Inimitability: Is it difficult to imitate, and will there be significant cost disadvantage to afirm trying to obtain, develop, or duplicate the resource/capability? It means that the

resources and capabilities that the organization has are hard to imitate by their rivals.

Organization: Is the firm organized, ready, and able to exploit the resource/capability? Itmeans that the structure, information system, culture, corporate governance, etc. in good

condition to process the resources and capabilities in order to get the competitive

advantages.

The core competencies itself means that capabilities that serve as a source of competitive advantage

for an organization over its rivals. For the sources of inimitability there are 4 things that organization

must be able to have:

Physical uniquenessThe organization has material, process, or capabilities to produce a product.

Path dependencyResources are unique and scarce because of all that has happened along the path

followed in their development and/or accumulation.

Causal ambiguityIt is difficult to disentangle the causes (or possible explanations) of either what the

valuable resource is or how it can be re-created.

Social complexityResource development requires interpersonal relations among managers, organizational

culture, and reputation with suppliers and customers.

Another model that used in analyzing the internal environment is Value Chain Analysis. Value Chain

the path by which products are created and sold to customers. At each step, the product becomes

more valuable. And also the organizations resources and capabilities should be examined alongside

consideration of its value chain.


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the ability to sense and seize new opportunities, generate new knowledge, and reconfigure

existing assets and capabilities.

July 5

Today Professor Tohyun Kim explains about Strategy Formulation. The definition itself isdecisionmaking regarding choosing strategies that lead to attaining an organizations mission and vision

by creating and sustaining its competitive advantage. He explains strategy formulation especially

in business level strategy. So business level strategy means that integrate and coordinate set of

commitments and actions the firm uses to gain a competitive advantage by exploiting core

competencies in specific product markets. That explanation can make some question, How to

compete in a particular industry? the important thing in business level strategy is c ustomer

satisfaction, satisfying customers is the foundation of successful business strategies. And also

strategic competitiveness results when a firm can satisfy customers by using its competitive

advantages.

WHO is to be satisfied?

Market segmentation: The way customers can be grouped based on important differences in their

needs or preferences

No market segmentationA product is targeted at the average customer

High market segmentationA different product is offered to each market segment

Focused market segmentationA product is offered to one or a few market segments

WHAT is to be satisfied?

Customer needs: The desires, wants, or cravings that can be satisfied through product attributes.

Customers choose a product based on:

The way the product is differentiated from other products of its type The price of the product


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HOW customers are to be satisfied: Determining core competencies necessary to satisfy customer

needs.

Core competencies: Resources and capabilities that serve as a source of competitiveadvantage for firm over its rivals

Cost Leadership Strategy: Integrated set of actions designed to produce or deliver goods or services

with features that are acceptable to customers at the lowest cost, relative to competitors.

Aggressive construction of efficient-scale facilitieso Economies of scale

Vigorous pursuit of cost reductions from experienceo Experience curve effect (or learning curve effect)

Avoidance of marginal customer accountso No-frill, standardized goods

Tight cost and overhead controlo Cost minimization in all activities in the firms value chain

Merits of Cost Leadership

o Protects a firm against rivalry from competitors Continuously improving levels of efficiency and cost reduction can be difficult

to replicate

oServes as significant entry barriers to potential competitors

Economies of scale and cost advantageso Provides more flexibility to cope with demands from powerful suppliers for input cost

increases

Absorb supplier price increases and relationship demands Force suppliers to hold down their prices

o Protects a firm against powerful buyers Lower cost structure

o Puts the firm in a favorable position with respect to substitute products Flexibility to lower prices to retain customers

Pitfalls of Cost Leadership

oAll rivals may share a common input or raw material Sources of cost advantage may become obsolete

oErosion of cost advantages when the pricing information available to customers increasesoThe strategy can be imitated too easilyoToo much focus on one or a few value-chain activities


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Uniqueness that is not valuable Too much differentiation The means of differentiation may cease to provide value for which

customers are willing to pay

Experience can narrow customers perceptions of the value of a productsdifferentiated features

Focus Strategy: Firm selects a segment or group of segments (niche) and tailors its strategy to serve

them. Firm achieves competitive advantages by dedicating itself to these segments exclusively.

Reasons are:

May lack resources to compete in the broader marketFirms can direct resources to certain value chain activities to build competitive

advantage

May be able to more effectively serve a narrow market segment than largerindustry-wide competitors

Larger competitors may overlook small niches

Two types of focus strategies

Focused cost leadership Focused differentiation

Merits of Focus Strategy

Creates barriers due to customer loyalty: Most effective in niches that are leastvulnerable to substitutes or where competitors are weakest

For Examples:

o Buyer groups Youths/senior citizens

o Product line segments Professional painter groups

o Geographic markets Urban vs. rural areas

Pitfalls of Focus Strategy

o Focused products and services still subject to competition from new entrants and fromimitation

o A competitor may be able to focus on a more narrowly defined competitive segment and"outfocus the focuser

o A company competing on an industry-wide basis may decide that the market segmentserved by the focus strategy firm is attractive and worthy of competitive pursuit


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o Customer needs within a narrow competitive segment may become more similar to thoseof industry-wide customers as a whole

Combination Strategy (or Best-Cost or Broad Differentiation)

Efficiently produce products with differentiated attributes Efficiency: Sources of low cost Differentiation: Source of unique value

Simultaneously concentrate on TWO sources of competitive advantage: cost anddifferentiation

Merit: Difficult for competitors to duplicate or imitate strategy Must be competent in many of the primary and support activities

Sources of flexibility useful for combination strategy:

Flexible manufacturing systems (FMS) Computer controlled process used to produce a variety of products in

moderate, flexible quantities with a minimum of manual intervention

Allows mass customization Eliminates the tradeoff between low cost and product variety that is

inherent in traditional manufacturing technologies

Total Quality Management (TQM) systems

Emphasizes firms total commitment to the customer and continuousimprovement of every process through data-driven, problem-solving

approaches based on empowering employees

Information networks Coordinating the extended value chain by linking suppliers, distributors,

and customers

Pitfalls of Combination Strategies

Firms that fail to attain both strategies may end up with neither and become stuckin the middle

Cost structure is not low enough for attractive pricing of products andproducts not sufficiently differentiated to create value for target customer

therefore, fail to successfully implement either low cost or differentiation

strategy

Underestimating the challenges and expenses associated with coordinating valuecreating activities in the extended value chain


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July 8

Today Professor Tohyun Kim explains about chart of value creation frontier.

This chart just show that where is the position of your organization or rivals, whether in

differentiation or cost leaders strategy or maybe in combination. Then he give us an examples to use

the charts.

In these charts shows some example of US Company at retail industry. Kmart use the cost leaders but

not as well as Wal-mart. So the Wal-mart has implemented the strategy very well. And for the

Nordstrom use the differentiation strategy and they did it very well. Then Saks Fifth Avenue using thecombination strategy but they didnt do it very well. Then Professor Tohyun Kim explain the


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corporate level strategies. In this chapter, he explains how to manage the organization that have

different business or have multiple businesses. Corporate-Level Strategy is integrated and

coordinated set of commitments and actions the firm uses to gain a competitive advantage by

selecting and managing a group of different businesses and competing in different product markets.

How do we sustain competitive advantages in our current businesses? and What new businesses

or industries do we wish to enter? Corporate strategy is used to identify:

1. Businesses or industries that the company should compete in2. Value creation activities which the company should perform in those businesses3. Method to enter or leave businesses or industries in order to maximize its long-run

profitability

Concentration Strategies which mean that staying only within a single industry, so the company just

concentrate in one business.

Advantages

Focus resources Resources devoted to competing successfully in one area Company stays focused on what it does best

Disadvantages

It can be dangerous if the industry matures and begins to decline It may cause firms to miss the opportunity to leverage their distinctive competencies

in new industries

It can cause firms to develop a tendency to rest on their laurels and not engage inconstant learning

Vertical Integration has two directions, backward and forward integration.

Backward Vertical Integration

Company expands its operations into an industry that produces inputs to the companysproducts

Forward Vertical Integration

Company expands into an industry that uses, distributes, or sells the companys productsAdvantages of Vertical Integration

Facilitating investments in efficiency-enhancing specialized assets Lowered cost structure or better differentiation.


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Enhancing or protecting product quality To strengthen its differentiation advantage through either forward or backward

integration

Improved scheduling Makes it easier and more cost-effective to plan, coordinate, and schedule the

transfer of product within the value-added chain

Enables a company to respond better to changes in demandIf we have the raw material and components, we dont have to worry about the bargaining power

from suppliers or buyers depend on what your direction, backward or forward integration.

Disadvantages of Vertical Integration

Increased Cost Structure Company-owned suppliers may develop a higher cost structure than those of the

independent suppliers

Bureaucratic costs of solving transaction difficulties Loss of Flexibility

Vertical integration may lock into old or inefficient technology Prevent company from changing to a new technology that could strengthen the

business model

Unpredictable Demand Creates risk in vertical integration investments

Alternatives to Vertical Integration

Short-term contracts and competitive bidding May signal a companys lack of commitment to its supplier/buyer

Strategic alliances and long-term contracting Enables creation of a stable long-term relationship Becomes a substitute for vertical integration


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Diversification Strategy: A companys decision to enter one or more new industries (that are distinct

from its established operations) to take advantage of its existing distinctive competencies and

business model.

Advantages of Diversification

Leveraging competencies to create new businesses e.g., Using R&D competencies to create new business opportunities in

diverse areas

Sharing resources and capabilities to realize economies of scope Business units may pool, share, and utilize resources and capabilities.

Managing rivalry in multipoint competition where companies compete with eachother in different industries

Signaling that competitive attacks in one industry will be met by retaliatoryattacks in another industry

Mutual forbearance from signaling may result in less intense rivalry. Exploiting general organizational competencies that enhance performance within all

business units

They help each business unit perform at a higher level than if it operated asan individual company.

Conditions that can make diversification disadvantageous:

Changing Industry- and Firm-Specific Conditions Future success of this strategy is hard to predict. Over time, changing situations may require businesses to be divested.

Diversification for the Wrong Reasons Must have clear vision as to how value will be created. Extensive diversification tends to reduce rather than improve profitability.

Bureaucratic Costs of Diversification Costs are a function of

The number of business units in a companys portfolio, and


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The extent to which coordination is required to gain the benefits.Two Types of Diversification:

Related diversification Entry into a new business activity in a different industry that:

Is related to a companys existing business activities and Has commonalities between one or more components of each

activitys value chain

Based on leveraging competencies and sharing resources Unrelated diversification

Entry into industries that have no obvious connection to any of a companysvalue chain activities in its present industry or industries

Based on using only general organizational competencies to increaseprofitability of each business unit

Related diversification means that the company has business in the related industry such as

Apple; they produce IPod, Laptop, etc. Unrelated diversification is doing multiple businesses in

unrelated industry such as Philip Morris, General Electronics, Yamaha, etc.

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