7031-AS2-2 - Queen Essays

September 26, 2025 Claire B 0 Comments

A 2500-word assignment on "Global Strategy and Innovation."
"Assignment Submission Form AS2 MN7031SR Aug 24" is the grading rubric for this assignment. I need you to strictly follow the rubric when completing the assignment.
"Assessment 2" provides the background materials for this assignment. Please note that this is very important, and the assignment must be completed based on these background materials.
"AS2 example" is a sample structure provided by the professor. You can follow the structure in this file to complete the assignment.
The other files are course materials for this subject, and you must read them before completing the assignment.
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Assignment Submission Form

Module Code:	MMN7031SR
Module Title:	Global Strategy and Innovation
Assessment Title:	Assessment 2: Individual Report
Lecturer Name:
Student ID Number:
Student Name:
Assessment due date:	13 November 2024
Student Declaration:	By submitting this assignment, I/ we confirm that I/we have not sourced or used any information from any online ‘essay’ provider nor any other third party not acknowledged in my/our assignment. I/ We declare that the work submitted is my/our own. Students should note that the University has a formal policy on plagiarism which can be found at https://student.londonmet.ac.uk/your-studies/student-administration/rules-and-regulations/academic-misconduct/

Guildhall School of Business and Law

Feedback/Feedforward Coversheet

MN7031SR Global Strategy and Innovation	Academic Year 2024/25 Assessment 2 Individual Report Word counts: 2,500 (+/-10%)
First Marker:
Second Marker:
Title of report: Business Plan of WearWorld
Assessment criteria	Level of achievement	1st Marker	2nd Marker
Executive Summary and Recommendations (15 marks)	An overview of the key points and recommendations.
Customer Value Proposition (10 marks)	A report on · The product offering · Consumer problem · Unique selling proposition of the product(s)
Customer Segmentation (15 marks)	A report on detailed customer segment(s) of the product(s) offering
Marketing Strategy (25 marks)	A Strategic plan with · Porter’s Generic Strategy
Financial Forecasts (20 marks)	A financial report for 3 years including · Forecast of sales (in units) · Revenue projection · Cost of production
Evidence of research (5 marks)	Provide evidence of secondary research
Presentation (10 marks)	1. Appropriate academic writing and language 2. In-text citation and referencing
Total (100 marks)
Areas for Improvements
From First Marker
Knowledge and understanding
Analysis and evaluation
From Second Marker
Knowledge and understanding
Analysis and evaluation
Agreed Mark First marker’s marks/date: Second marker’s marks/date:

Please upload the Turnitin Report

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Content Page:

A Business Plan for Zonna Product

1. Executive Summary 1.1 Introduction to WearWorld and Zonna 1.2 Key Points of the Business Plan 1.3 Summary of Value Proposition and Spin-offs

2. Customer Value Proposition 2.1 The Product Offering 2.2 Consumer Problem 2.3 Unique Selling Proposition

3. Customer Segmentation 3.1 Target Customer Segments 3.2 Quantifying the Segments

4. Marketing Strategy 4.1 Porter’s Generic Strategy 4.2 Product Strategy 4.3 Pricing Strategy 4.4 Promotion Strategy 4.5 Distribution Channels

5. Promotional Strategy 5.1 Launch Campaign 5.2 Ongoing Promotions 5.3 Community Engagement

6. Financial Forecasts 6.1 Sales Forecast 6.2 Revenue Projection 6.3 Cost of Production 6.4 Marketing Costs

7. Spin-off Products or Services 7.1 Battery Subscription Service 7.2 Extended Warranty Options 7.3 Accessory Line 7.4 Health Monitoring App

8. Evidence of Research 8.1 Summary of Key Findings 8.2 Support for Strategic Recommendations

9. Reference

1. Executive Summary (Approx. 250 words)

1.1 Introduction to WearWorld and Zonna (80 words)

– **Hint**: Provide a brief introduction to WearWorld, the company behind Zonna, and outline what Zonna is (a wearable tech product).

– **Example**: "WearWorld is a pioneering brand in the wearable technology industry, known for creating innovative and user-friendly devices. Their latest product, Zonna, is designed to meet the rising demand for health-focused wearable tech."

1.2. Key Points of the Business Plan (90 words)

– **Hint**: Summarize the main objectives of your business plan, such as the market opportunity, Zonna’s unique selling proposition, and growth potential.

– **Example**: "This business plan highlights Zonna’s potential to capture a significant share of the health-conscious market by offering a high-quality, affordable alternative to premium wearable tech devices."

1.3. Summary of Value Proposition and Spin-offs (80 words)

– **Hint**: Summarize the value Zonna will deliver to customers and mention potential product spin-offs (e.g., accessories, apps).

– **Example**: "Zonna delivers comprehensive health monitoring at an affordable price. Future spin-offs include a battery subscription service and a health monitoring app."

2. Customer Value Proposition (Approx. 350 words)

2.1. The Product Offering (120 words)

– **Hint**: Explain what Zonna is and its main features.

– **Example**: "Zonna is a state-of-the-art fitness tracker equipped with features such as heart rate monitoring, sleep tracking, and GPS. It’s designed for active individuals who want a reliable health monitoring device."

2.2. Consumer Problem (120 words)

– **Hint**: Identify the specific problem Zonna solves for customers.

– **Example**: "Many fitness enthusiasts struggle to find affordable wearable tech that provides accurate health data. Zonna addresses this by offering high-end features at a lower price point."

2.3. Unique Selling Proposition (USP) (110 words)

– **Hint**: Describe what makes Zonna different from competitors.

– **Example**: "Zonna stands out due to its advanced features, competitive price, and integration with health apps. Unlike pricier competitors, Zonna offers premium functionality within an affordable range."

3. Customer Segmentation (Approx. 350 words)

3.1 Target Customer Segments (200 words)

– **Hint**: Identify and describe the groups of customers who will benefit from Zonna.

– **Example**: "Zonna primarily targets health-conscious millennials, fitness enthusiasts, and tech-savvy professionals looking for wearable tech that balances performance and price."

3.2. Quantifying the Segments (150 words)

– **Hint**: Use market research to estimate the size of your customer segments.

– **Example**: "According to recent studies, the global market for wearable tech is projected to reach $70 billion by 2025, with millennials comprising 60% of the customer base."

4. Marketing Strategy (Approx. 500 words)

4.1 Porter's Generic Strategy (100 words)

– **Hint**: Choose a strategy—cost leadership, differentiation, or focus—and justify it.

– **Example**: "Zonna follows a differentiation strategy by offering premium features at an affordable price, aiming to capture customers seeking quality without overspending."

4.2 Product Strategy (100 words)

– **Hint**: Outline the key product features and future development.

– **Example**: "Zonna’s product strategy focuses on continuous innovation, with plans to integrate AI-based health insights and personalized fitness recommendations."

4.3 Pricing Strategy (100 words)

– **Hint**: Explain how you will price Zonna compared to competitors.

– **Example**: "Zonna will be priced at $150, significantly lower than competitors like the Apple Watch ($399) while offering comparable features."

4.4 Promotion Strategy (200 words)

– **Hint**: Describe how you will promote Zonna (social media, influencer marketing, etc.).

– **Example**: "Zonna’s promotion strategy includes influencer partnerships, targeted social media ads, and collaborations with fitness bloggers. We will also offer early-bird discounts during the launch phase."

4.5 Distribution Channels (100 words)

– **Hint**: Specify how and where Zonna will be sold (e.g., online, retail stores).

– **Example**: "Zonna will be sold through the WearWorld website, major e-commerce platforms, and select retail outlets like Best Buy and Target."

5 Promotional Strategy (Approx. 400 words)

5.1 Launch Campaign (150 words)

– **Hint**: Detail the plan for launching Zonna.

– **Example**: "The launch campaign will feature a 30-day countdown on social media, teaser videos, and a product demo by fitness influencers. Early adopters will receive a 20% discount."

5.2 Ongoing Promotions (150 words)

– **Hint**: Describe long-term promotional efforts.

– **Example**: "Ongoing promotions will include monthly giveaways, referral discounts, and seasonal sales tied to fitness events like marathons."

5.3 Community Engagement (100 words)

– **Hint**: Explain how you’ll keep customers engaged.

– **Example**: "Zonna will engage with its community through an exclusive app offering workout challenges, health tips, and rewards for fitness milestones."

6 Financial Forecasts (Approx. 500 words)

6.1 Sales Forecast (150 words)

– **Hint**: Estimate sales volume based on research.

– **Example**: "Zonna is projected to sell 50,000 units in its first year, driven by competitive pricing and targeted marketing."

6.2 Revenue Projection (150 words)

– **Hint**: Provide a realistic revenue estimate.

– **Example**: "With a unit price of $150, first-year revenue is projected at $7.5 million, with growth expected to reach $15 million by year three."

6.3 Cost of Production (100 words)

– **Hint**: Breakdown production costs.

– **Example**: "The cost of producing each Zonna unit, including materials and labor, is estimated at $75, leaving a 50% gross profit margin."

6.4 Marketing Costs (100 words)

– **Hint**: Estimate marketing expenditures.

– **Example**: "Marketing efforts are expected to cost $1 million in the first year, with the majority allocated to social media ads and influencer partnerships."

7 Spin-off Products or Services (Approx. 250 words)

7.1 Battery Subscription Service (60 words)

– **Hint**: Describe the service.

– **Example**: "A yearly subscription service providing replacement batteries to ensure Zonna remains functional for long-term users."

7.2 Extended Warranty Options (60 words)

– **Hint**: Offer an extended warranty plan.

– **Example**: "Customers can opt for a two-year extended warranty covering repairs and replacements for an additional $20."

7.3 Accessory Line (60 words)

– **Hint**: Propose accessory products.

– **Example**: "Zonna will offer a range of accessories, including customizable bands and charging docks, enhancing personalization and functionality."

7.4 Health Monitoring App (70 words)

– **Hint**: Introduce a companion app.

– **Example**: "The Zonna app will provide users with detailed health reports, personalized insights, and the ability to set fitness goals, enhancing the product’s value."

8 Evidence of Research (Approx. 200 words)

8.1 Summary of Key Findings (100 words)

– **Hint**: Summarize the research that supports your plan.

– **Example**: "Market research indicates that the wearable tech market is growing at 20% annually, with increasing consumer demand for affordable health monitoring solutions."

8.2 Support for Strategic Recommendations (100 words)

– **Hint**: Explain how your research justifies your strategy.

– **Example**: "Based on the competitive analysis, Zonna’s differentiation strategy, combined with its lower price, positions it well to capture a substantial market share."

Reference

– **Hint**: Use in-text citations and a full reference list following the London Metropolitan University Harvard Referencing style.

Assessment 2 (80%)

Case study – WearWorld plc

In Autumn 2022, Joe Smith, Chief Engineer of WearWorld, led a cameraman around the product development labs of WearWorld’s R&D facility just outside Oxford. Like all labs of the company, they were off limits to protect from intellectual property theft. WearWorld has been working on a new product, The Zonna. A device with headphones and a face visor.

Zonna – The Product

The Zonna is a hybrid headset, utilising Bluetooth technology, and an air-purifying visor. A post covid-19 development of a product category. WearWorld has been known to break down product boundaries through innovation with several success stories in the past. Part of their success was attributed to previous air purification efforts. Joe Smith has been at the forefront of innovation, having invented office equipment, GPS devices, etc. Zonna is a test for Joe. The market for such, wearable, devices is uncertain and appears to be directly affected by the vagaries of the market including the economy and the impact of the recent pandemic, which is lingering on still.

WearWorld has been burned in the past when they tried to enter the market for vehicle air purification. They had installed 250 engineers in their facility in Oxford and invested £300 million on the development of an air purifying system (pollen, brake and airborne dust etc.) for car manufacturers to offer as an optional accessory to car buyers. The product failed miserably largely due to the high manufacturing cost and the heavy burden on car battery power requirements.

Zonna – The design

The WearWorld engineers deployed ingenuity and all their experience in developing the smaller appliance needed for air purification. Internal canals running from each headphone transport a continuous stream of purified air to the nose and mouth within a mouthpiece that does not touch the face. Through many prototypes, engineers finally arrived at a contact-free visor design that covered the nose and mouth. The more air is required, the more power is drained from the gadget’s battery. To achieve a high level of air purification, the engineers developed tiny motors inside the headphone cavity that sucked in outside air, purify it and send it down to the visor. The air filters are capable of removing ultrafine dust particles and pollutants down to 0.1 microns. The visor, connected to headphones, was another breakthrough achieved after substantive testing and R&D investment. The battery was designed to provide effective power for up to 3 hours (music, external noise cancelling and air purification) under normal use (say when commuting). During sports pursuits, with the increased exertion, the battery could only last for about 1 hour. The rechargeable battery is replaceable and WearWorld is thinking to offer replacements on a subscription basis. Joe was working on an improved battery but this would probably take 18 months or so.

Having invested £25 million in product development, they need to launch urgently…

Finally, the product’s manufacturing cost would depend heavily on the production levels. The engineers have costed Zonna as follows:

Production (units)	Cost per unit made (£)
10,000	450
50,000	370
100,000	325
500,000	250
1,000,000	145

Zonna – Your Brief

WearWorld plc invited you – as a Business Strategy Consultant – to prepare a Business Plan specific to the Product.

The Board will meet and review your proposal after 25th September 2024.

The CEO of WearWorld plc wants to know the following, specifically ( See Marking Scheme below):

· The specific customer segment(s) for the products (quantified in terms of numbers and profiles)

· The clear value proposition (how different is the product) for each segment

· The competitors (direct and indirect)

· Marketing Strategy – e.g. Porter's generic strategy (Product, Pricing, Promotion & Distribution Channels)

· Promotional Strategy

· Product-specific financial forecast for 3 years (Sales Units, Revenue streams, Costs production and marketing)

· Spin-off products or services (like battery subscriptions, extended warranties etc.)

Group size: Individual Work

Weighting: 80%

Word count: 2,500 +/-10%

Submission Date: 13 November 2024 at 1159 hours

Assessment Method

Description of Item

% weighting

Due on

Outcomes

Coursework

Group Presentation (ppt slides maximum 10 to 15)

20%

6 September 2024

1,2,3

Coursework

Individual Student Report (maximum 2,500 +/- 10% words)

80%

13 November 2024

1,2,3,4

Marking Scheme

Individual Essay	70+	60-69	50-59	40-49	below 40
Background An academic discussion of marketing and operational requirements in a chosen context Demonstrate an understanding of key marketing and operational academic concepts applied to practice Demonstrate a critical awareness of own self-reflection within organisation	Extensive critical awareness of learning style and additional areas demonstrated Key theory identified Demonstrate a high level understanding of key marketing and operational academic concepts and provide a detailed, critical review of relevant academic area chosen and use to justify/ enhance answers	As 70+ but level of understanding of key marketing and operational academic concepts may not be so thoroughly applied or discussion of findings may lack depth (does not go far beyond reiterating what is in a general background introduction	As 60+ but understanding of key marketing and operational academic concepts generally lack depth of information and the discussion is rather superficial. There may be a sense that one or perhaps two theories/ models are not well understood.	As 50+ but there is limited understanding of key marketing and operational academic concepts, or models, poorly applied. There may be very limited discussion of findings	At 40+ Key marketing and operational academic concepts are not really understood and concepts, or models, poorly applied. There may be very limited discussion of findings. There may be a strong sense that the student has not read the brief carefully enough or has missed some key aspect of it.
Scholarship: evidence of wide academic reading A record and critical discussion of theory applied to practice Revisions made as a result of formative feedforward Practical application Using the theory demonstrates evidence of evaluating and improving organisational performance and development Self-reflection	Good evidence of wide academic reading (at least 8 different academic sources). Citations are relevant and integrated well with the leadership issue i.e. not just citing things without connecting it to their discussion Excellent evaluation of critical incident and self-reflection – Also considers how theory can inform practice. Evidence of an integrative approach of theory to practice A number of relevant , practical solutions to improve organisational performance -informed by theory Excellent self reflection including detailed action plan	As 70+ but one of the sources might be an internet source or a different version of the same book. Citations might not be as well integrated e.g. a quote but with no real discussion of its relevance to the issue As 70+ but slightly less evidence of how theory can inform practice. Evidence and citations may not be as well integrated. As 70+ but slightly less evidence of detailed self-evaluation	As 60+ but with less evidence of wide academic reading. There is at least one good academic source e.g. the core text book As 60+ but with less evidence of how theory can be used to inform practice. Generally lacking depth of information, discussion, and application – somewhat superficial. Some solutions – limited practical application As 60+ but with less evidence of how theory can be used to inform practice.	As 50+ but with limited evidence of academic reading. A small number of references or an over-reliance on internet / non academic sources for theory e.g. Wikipedia or businessballs.com. As 50+ but with limited evidence of the application of theory to practice Not really informed by theory As 50+ but with limited evidence of the application of theory to practice	As 40+ but may have only internet references or no references at all. As 40+ but with very poor information on how theory can inform practice. performance –not informed by theory Limited self-reflection
Presentation Report/ Presentation: follows recommended structure. Logical and persuasive writing style. Well presented with good grammar and spelling. Harvard referencing style throughout. Submitted on time.	Excellent standard of presentation. Logical, articulate and scholarly writing style. Clearly conforms to the recommended structure. Good use of Harvard referencing throughout.	As 70+ but there may be one or two minor referencing errors or some minor spelling, presentation or grammatical errors	As 60+ but the writing style or presentation is weak in places. There may be a number of referencing errors	As 50+ but the writing style or presentation is weak. There may be a lot of referencing errors.	As 40+ but the writing style and presentation is poor and does not follow the recommended structure. Harvard referencing is poor.

Simplified Description

PERCENTAGE

CRITERIA

DISTINCTION

90-100%

(exceptional)

· As below, with highly sophisticated level of theorisation and innovative conceptualisation or methodology

80-89%

(superior)

· As below, with greater insight/originality and wider/deeper engagement with the literature

75-79%

(confident)

· Authoritative grasp of conceptual context

· Insight or originality in way topic is conceptualised or developed

· Comprehensive integration of relevant literature/debates

· Advanced scholarly style (of publishable quality)

70-74%

(solid)

· Strong grasp of conceptual context

· Insight in way topic is conceptualised or developed

· Good integration of relevant literature/debates

· Scholarly style (publishable with minor revisions)

MERIT

65-69%

(very good)

· Good conceptual understanding

· Critical analysis using an appropriate range of sources

· Clarity and precision in presenting arguments

60-64%

(competent)

As above, with less depth and criticality

PASS

55-59%

(promising)

As below, plus stronger on analysis

50-54%

(passable)

· Basic grasp of essential concepts/theory/sources

· Some analysis/interpretation

· Reasonably clear and orderly presentation

FAIL

45-49%

(borderline fail)

· Largely descriptive

· Limited interpretation

· Limited range of sources

· Lack of coherence and clarity

40-44%

(near borderline)

As above, with greater lack of interpretation

30-39%

(poor)

Descriptive, unfocused work, lacking in interpretative or conceptual dimension and use of sources

0-29%

(inadequate)

Incomplete or very poorly attempted work

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Topic 11 AND 12 PRACTICE CASE STUDY – GROUP DISCUSSION

In Spring 2024, Sarah Chen, Chief Technology Officer of BagWorld, guided a documentary crew through the innovation labs at BagWorld's R&D center in Silicon Valley. Access to these labs is strictly controlled to safeguard intellectual property. BagWorld has been developing a groundbreaking product called AI-bag, an intelligent schoolbag for children.

AI-bag – The Product

The AI-bag is a smart schoolbag that incorporates artificial intelligence technology to assist children in their daily school routines. This innovative product represents a post-pandemic shift in educational tools.

BagWorld has a history of pushing technological boundaries in everyday items, with several successful launches in the past. Their success can be attributed in part to their previous work in integrating AI into consumer products. Sarah Chen has been a driving force behind many innovations, having developed smart home devices and educational software. The AI-bag is a crucial project for Sarah. The market for such AI-enhanced educational products is still emerging and seems to be influenced by factors such as economic conditions and the lasting effects of the recent pandemic.

BagWorld faced setbacks in the past when they attempted to enter the market for AI-powered toys. They had assembled a team of 150 engineers at their Silicon Valley facility and invested $200 million in developing an AI-driven interactive plush toy for children. The product failed to gain traction, primarily due to high production costs and concerns about data privacy and security.

AI-bag – The design

BagWorld's engineers applied their expertise and creativity to develop a compact AI system suitable for a schoolbag. The bag features an integrated tablet-like display on the front, which serves as the primary interface for the AI. Through numerous iterations, the team finally arrived at a design that was both functional and appealing to children. The more features are used, the more power is consumed from the bag's battery.To achieve advanced AI capabilities, the engineers developed a custom chip that could process natural language and perform various educational tasks.

The AI system can help with homework, provide schedule reminders, and even offer basic tutoring in various subjects. The bag also includes sensors to detect its contents, reminding students if they've forgotten essential items.The display is made of flexible, durable material to withstand the rigors of daily use by children. This was a significant breakthrough achieved after extensive testing and R&D investment. The battery was designed to last up to 12 hours under normal use (such as a typical school day). During more intensive use, like extended tutoring sessions, the battery could last about 8 hours.

The rechargeable battery is replaceable, and BagWorld is considering offering battery replacements and software updates on a subscription basis. Sarah is working on an improved AI model, but this would likely take another year to develop fully.Having invested $40 million in product development, they are eager to launch as soon as possible.Finally, the product's manufacturing cost would heavily depend on production levels.

The engineers have estimated the costs for AI-bag as follows:

Production (units)

Cost per unit made ($)

10,000

600

50,000

500

100,000

450

500,000

350

1,000,000

250

AIBag – Your Brief

BagWorld plc invited you – as a Business Strategy Consultant – to prepare a Business Plan specific to the Product .

The Board will meet and review your proposal after 10th October 2024.

The CEO of BagWorld plc wants to know the following, specifically ( See Marking Scheme below):

· The specific customer segment(s) for the products (quantified in terms of numbers and profiles)

· The clear value proposition (how different is the product) for each segment

· The competitors (direct and indirect)

· Marketing Strategy – e.g. Porter's generic strategy (Product, Pricing, Promotion & Distribution Channels)

· Promotional Strategy

· Product-specific financial forecast for 3 years (Sales Units, Revenue streams, Costs production and marketing)

· Spin-off products or services (like battery subscriptions, extended warranties etc.)

Suggested Business Plan Layout

Using up to 2,500 words (excluding Executive Summary, bibliography and appendices);

1. Executive Summary (ensure that it contains the key proposal in bullet point form, you may include graphs) – This is not an introduction.

2. Value proposition (what does the product offer differently, what problem does it solve, and for whom)

3. Customer segments that will be served (quantify so you can arrive at the financial forecasts)

a. Who is your ideal customer, what is their profile, and what are their key characteristics)

b. Identify the target geographical markets at the launch and why

4. Marketing Strategy

5. Financial Forecasts

6. Proposal / Conclusion

© London Metropolitan University 2024

Page 1

Marking Scheme:

You should present a critical analysis and evaluation that is practical, specific to the product – AIBag – and includes an explanation of your recommendations.

Task

Marks %

A Suggested Approach

Executive Summary

15

High-level recommendations, in 1 or maximum 2 pages, bringing it all together (this is normally written in the end). This is not an introduction

Customer Value Proposition

10

What exactly does the product offer, what consumer problem does it solve,

what is compelling about it

Customer segmentation

15

Detailed and quantified customer segment (s) the

product is targeted to. What is their profile / persona

Implementation

Marketing & Sales Strategy Outline

Financial Forecasts –

Years 1-3

40 Marks in total 25

20

Provide a critical approach to the implementation of your recommended strategy, which may include an analysis of the threats and opportunities that may be encountered, an approach to leading market change and innovation.

Should address each of the following:

-Market positioning of the product,

-Communication strategy specific to the targeted segments,

-Suggested product pricing,

-Channels to market

– Sales (partners, B2C, B2B)

To include :

-Sales – unit projections,

-Revenue per year,

-Costs – production (in the brief) and marketing budget (forecast)

Evidence of research

5

Shown throughout the report to the board

Professional Presentation

10

Logical and coherent structure Bibliography and Referencing

Grammar, spelling

Total

100

MN7031 Topic 7 – How Is Your Company Performing and What Is Your Strategy?

londonmet.ac.uk

Maurizio Sammarco

Module Overview

Business Simulation – Cesim Global Challenge

1. How and Why Do Businesses Grow?

2. How Do We Diagnose Company Strategy?

5. How Do We Make Sense of the VUCA External Environment?

8. Does Your Simulation Company Need A New Strategy?

10. Why DO Firms Undertale Acquisitions, Mergers and Alliances?

7. How Is Your Simulation Company Performing?

11. How Do Companies Innovate Successfully?

12. Does Strategic Alignment Matter?

4. Why Are Some Industries More Profitable Than Others?

3. How Does A Company Create Competitive Advantage?

6. How Do We Identify future opportunities and threats?

9. Summative Assessment Presentations

Strategic Diagnosis

External

Internal

Global

National

Regional

Local

PESTEL

5 Forces

Blue Ocean Theory

Industry Lifecycle

Competitor Analysis

Scenario Planning

Resource Based View

Core Competencies

Organisational Structure

Culture

Systems

Market Analysis

Red Queen Theory

Theories and Frameworks

Business Model

We will look at competitors in a later topic.

Industry (or Sector)

Development stage

Markets and Competitors

Market Segments

Scope of activities

The Organisation

Resources

Capabilities

Competencies

Politics

The Macro-environment

Concentration

Value network

Products and/or services

Critical success factors

Resource commitment

Economics

Social

Technological etc.

Business Model

Business Model – How A Firm Makes Profit

Resource Base:

Manufacturing plants – number and location, environmental impact

Technologies and Features

People (HR)

Brand/Reputation

Activity System:

Use of outsourcing

Logistics

Product Offering

Techs

Features

Price

The Simulation Value Chain

R&D Headcount, Training and Policies

Component Suppliers

In-house R&D or Licence

Product

Price

Promotion

Make or Buy

Capacity

Plant Location

Plant Activity

Priorities

Financing

Tax

Environmental Impact

Product and Service Offerings

The key question is which products and services should be developed and which markets should be served

Companies that do not focus on a limited set of product-market combinations risk:

low economies of scale

Reduced experience curve effects

slow organisational learning

unclear brand image

unclear corporate image

high organisational complexity

limits to flexibility

Resources, Capabilities and Competencies

Resources, Capabilities and Competencies and the Link to Strategy

Hill et al, 2015

Able to do things

Able to do things successfully or efficiently

Distinctive Competencies

Competitive advantage is based upon distinctive competencies. Distinctive competencies are firm-specific strengths that allow a company to differentiate its products from those offered by rivals, and/or achieve substantially lower costs than its rivals.

Resources

A company’s resources can be divided into two types:.

Tangible resources are physical entities, such as land, buildings, manufacturing plants, equipment, inventory, and money.

Intangible resources are nonphysical entities that are created by managers and other employees, such as brand names, the reputation of the company, the knowledge that employees have gained through experience. We could also include the intellectual property of the company, including patents, copyrights, and trademarks.

Valuable resources are more likely to lead to a sustainable competitive advantage if they are rare, in the sense that competitors do not possess them, and difficult for rivals to imitate; that is, if there are barriers to imitation.

Capabilities

Capabilities refer to a company’s resource-coordinating skills and productive use.

These skills reside in an organisation’s rules, routines, and procedures.

More generally, a company’s capabilities are the product of its organisational structure, processes, control systems, and hiring strategy. They specify how and where decisions are made within a company, the kind of behaviours the company rewards, and the company’s cultural norms and values.

Resources, Capabilities, and Competencies

The distinction between resources and capabilities is critical to understanding what generates a distinctive competency.

A company may have firm-specific and valuable resources, but unless it also has the capability to use those resources effectively, it may not be able to create a distinctive competency. Additionally, it is important to recognize that a company may not need firm-specific and valuable resources to establish a distinctive competency so long as it has capabilities that no other competitor possesses.

In sum, for a company to possess a distinctive competency, it must—at a minimum— have either:

(1) a firm-specific and valuable resource, and the capabilities (skills) necessary to take advantage of that resource, or

(2) a firm-specific capability to manage resources (as exemplified by Nucor).

Distinctive competencies shape the strategies that the company pursues, which lead to competitive advantage and superior profitability. However, it is also very important to realise that the strategies a company adopts can build new resources and capabilities or strengthen the existing resources and capabilities of the company, thereby enhancing the distinctive competencies of the enterprise.

I worked for 10 years for Capgemini, a firm that had a wide range of technology capabilities that enabled it to provide the design and build large and complex IT systems successfully. These capabilities, combined with the intangible resources of the firm, gave Capgemini a distinctive competence in Systems Integration. At the time. however. Capgemini lacked the ability to win large IT service contracts and was losing market share in services to EDS.

I moved to EDS to understand the companies deal making Competence, which was very strong, but embedded in a relatively small number of people. Unfortunately the EDS delivery capability, particularly System Integration, was far less strong than Capgemini.

Ultimately Capgemini acquired the deal making competence mainly through selective recruitment of key people, but EDS failed to with a number of over-ambitious projects because it lacked the necessary capabilities and some key resources; for example the right project management culture, to create the necessary delivery competence.

Types of Firm Resources

Not All Resources Are Equal

Asian Plants

Techs 3 and 4

Short Term Debt

High Debt

Low Share Price

US Plants

Two Perspectives On Shaping The Business Model

Strategic Analysis of A Firm

Holistic Models

An alternative approach is to start by looking at the ‘big picture’ before drilling down to explore particular components in more detail.

This might be by a series of executive and senior management interview to gain an overview of possible problems as perceived from above.

Management

practices

Work unit

climate

Motivation

Individual and

organizational performance

Structure

Systems

(policies and procedures)

Tasks and individual roles

Individual needs and values

External

environment

Leadership

Mission

and

strategy

Organization

culture

Strategy Diagnosis – An Iterative and Incremental Process

Start with the 7 areas in the diagram, beginning with financial performance over the last 5 years:

Is the business profitable?

Is it growing or declining?

How does it compare with the rest of its industry?

Share price and capitalisation

Investigate the other 5 areas

The process of diagnosis may lead to questions in other areas e.g.:

Leadership

Ownership

Information Systems

Acquisition Integration

Culture

Sustainability

Etc..

Strategy

Diagnosis

Financial Performance

Competencies

Industries, Product Offerings and Market Segments

Resources – Tangible and Intangible

Business Model and Value Network

Capabilities

Competitive Advantage

The Components of Competitor Analysis

PORTER, M.E., 2004. Competitive strategy. 1. Free Press export ed. edn. New York, NY [u.a.]: Free Press.

Competitors Response Profile

Future Goals

Current Strategy

Assumptions

Capabilities

Strengths

Weaknesses

About itself

About its industry

How is the business competing?

All levels of management

Multiple dimensions

Sources of Competitive Advantage

Hill et al, 2015

What Is Quality and How Does A Firm Deliver It Consistently?

Strong governance to define the organisation's aims and translate them into action

robust systems of assurance to make sure things stay on track

a culture of improvement to keep getting better.

Fit for purpose

Intangibles

Four factors help a company to build and sustain competitive advantage:

superior efficiency

quality

innovation

and customer responsiveness

I am going to focus on quality and innovation.

Firstly quality – a simple way to understand quality if “fitness for purpose”. Does the product have the necessary attributes to satisfy my needs?

When customers evaluate the quality of a product, they commonly measure it against two kinds of attributes: those related to quality as excellence and those related to quality as reliability.

From a quality-as-excellence perspective, the important attributes are things such as a product’s design and styling, its aesthetic appeal, its features and functions. This is an are that Apple particularly understand.

With regard to quality as reliability, a product can be said to be reliable when it consistently performs the function it was designed for, performs it well, and rarely, if ever, breaks down. Apple in recent years have been less successful in this respect, as have a number of highly respected firms – Boeing, Toyota and Samsung currently to name but a few.

When products are reliable, less employee time is wasted making defective products, or providing substandard services, and less time has to be spent fixing mistakes—which means higher employee productivity and lower unit costs. Thus, high product quality not only enables a company to differentiate its product from that of rivals, but, if the product is reliable, it also lowers costs.

Innovation refers to the act of creating new products or processes. There are two main types of innovation: product innovation and process innovation.

Product innovation is the development of products that are new to the world or have superior attributes to existing products.

Process innovation is the development of a new process for producing products and delivering them to customers.

Innovation is linked very much to culture. In an organisation where there is a strong desire for centralised control, innovation will be less likely to occur. There is a tension then between control and creativity.

Positioning A Business

Where and How to compete?

Bases of competitive advantage:

Price, Features, Bundling

Efficiency

Quality

Innovation

Customer responsiveness

Availability

Image and relations

Porter’s three generic competitive advantages:

operational excellence

product leadership

customer intimacy

Stuck in

the Middle

Efficiency and Economies of scale

Efficiency – Measured by the quantity of inputs that it takes to produce a given output

Economies of scale: Reductions in unit costs attributed to a larger output

Ability to spread fixed costs over a large production volume and produce in large volumes

To achieve greater division of labor and specialization

Diseconomies of scale: Unit cost increases associated with a large scale of output

Learning Effects

Cost savings that come from learning by doing

More significant when a technologically complex task is repeated, as there is more to learn

Diminish in importance after a period of time

Triggered by changes in a company’s production system

Simulation

Developing and launching new products or features

Manufacturing a new phone

Commissioning new plants

Experience Curve

Systematic lowering of the cost structure, and consequent unit cost reductions – occur over the life of a product

A product’s per-unit production costs decline each time its accumulated output doubles – accumulated output – Total output of a product since its introduction

Useful in industries that mass-produce a standardised output

Hill et al, 2015

Examples of Price Declines

What’s Your Strategy?

SALES REVENUE

There are clearly two strategies in the game, which are visible from the turnover:

1. Volume-directed, based on economies of scale and learning effects in production that enable lower pricing.

2. Premium-price strategy, based on the launching of new technologies and higher pricing that covers the higher production costs.

Which of these two strategies is better, or any intermediate strategy in between, depends on the implementation of the strategy and the development of the markets.

The relevant target is to maximize the profit, i.e. the difference between turnover and costs.

VARIABLE PRODUCTION COSTS

Production costs are influenced by the location of plants, the capacity usage and the learning curve (production of new technologies is initially more expensive until learning curve starts reducing the average production costs).

Initially there are plants only in the U.S. and hence the variable production costs are all incurred in the USA. It is possible to reach lower production costs in Asia, especially in older technologies. Starting the production of a new technology in Asia is poor judgment, because initial competence is lower there and thus initial production of a new technology is costly. However, utilizing the lower production costs in Asia through more established technologies is worthwhile in Asia.

R&D

As the technological evolution forms an essential part of the simulation, R&D decisions are of great importance. There are two ways of developing new products: own development and technology license purchases. Difference between these two is in the costs and time-to-market. In-house R&D yields results with one period delay, whereas licensed technology becomes available immediately.

License purchases are paid as a lump sum. No annual fees are related to license purchases. Moreover, using in-house resources to develop technologies and features does not make license purchases more affordable.

It is notable that all R&D costs are expensed to the income statement immediately during the period when the investment is made. This can cause large fluctuations in the periodical results.

ADVERTISING

Marketing expenses are completely under the management's control through decisions. The amount spent on promotion should be in line with the company's volume of operations and the product contribution margin. A useful rule-of-thumb is:

[Marketing budget = product contribution margin*elasticity]

The advertising elasticities of demand in this case range from 0.1 to 0.3. Therefore, the amount spent on advertising should be on average 10-30% of product contribution margin.

Companies that have chosen an aggressive technology-strategy should also use relatively large investment-like advertising efforts when launching new products. This helps to create a positive image of the product to customers, and also has long-term effect. Despite the long-term impact, all advertising costs are expensed during the period when the investment is made.

Marketing affects not only the demand for the product being advertised but also the company's image in the particular market area. There are positive long-term effects associated with advertising.

OPERATING PROFIT (EBIT)

EBIT, earnings before interest and taxes, indicates the company's operating efficiency. Generally a team that has the highest EBIT relative to the capital employed makes the best results in the simulation, assuming that they have not jeopardized the future cash flows in order to maximize short-term wins. It should be noted that in the short-run (one or two periods) differences in marketing and R&D efforts affect the EBIT a great deal. These investment-like costs are reported as costs in the year in which they occur even though they have long-term impact. Normally the effect of these factors towards the end of the game tends to be much less than in the first few rounds.

NET FINANCING EXPENSES

Financing costs depend on the chosen leverage and the effectiveness of treasury management (one can move and repatriate funds to and from Europe and Asia). Interest rates vary between countries and the moving cash between group companies can be used to place the company debt wherever it is the cheapest. This requires both careful sales budgeting and cash flow budgeting.

It is easy to get into a situation where you have excess cash in some areas and debt in other areas. In such a situation the company is losing the difference between the cost of debt and the interest rate earned for cash (i.e. takes debt in one area and saves it in a bank account in another area).

Management of the debt-to-equity ratio is important. The objective is not to minimize the explicit financing expenses, which could be done with 100% equity. The leverage effect of debt should be taken into account when aiming for a high share price. The company can use share issues and buybacks to manage the company capital structure. Additional leverage can be searched through buying own shares when they are undervalued and selling when they are overvalued. Note that shares can be repurchased only if the company has accumulated sufficient funds in retained earnings.

Equity is an expensive method of financing growth. Not only will you dilute your control of the business, but the investors will also expect healthy returns. Injecting money into a business is a risky prospect for an investor, so they’ll typically expect to see a return of at least 10 percent to compensate for the risks. Debt can usually be sourced at a much lower rate.

Financial leverage has value due to the interest tax shield that is afforded by the U.S. corporate income tax law.

The use of financial leverage also has value when the assets that are purchased with the debt capital earn more than the cost of the debt that was used to finance them.

Blue Ocean Strategy

Companies can build competitive advantage by redefining their product offering through value innovation – creating a new market space

Blue Ocean – Wide open market space where a company can chart its own course

Red Ocean – fiercely competitive

W. Chan, K, & Mauborgne, R 2005, 'Blue Ocean Strategy: FROM THEORY TO PRACTICE', California Management Review, 47, 3, pp. 105-121, Business Source Complete, EBSCOhost, viewed 10 August 2016.

A New Value Proposition

Reduce

Create

Raise

Eliminate

Bibliography

De Wit, R & Meyer, R, (2017) Strategy, An International Perspective, Andover, Hampshire: Cengage Learning, 6th ed.

Prahalad, C. K. and Hamel, G. (1990) ‘The Core Competence of the Corporation’, Harvard Business Review, 68(3), pp. 79–91. Available at: http://0-search.ebscohost.com.emu.londonmet.ac.uk/login.aspx?direct=true&db=bth&AN=9006181434&site=ehost-live (Accessed: 10 May 2021).

Joseph, G. (2009) ‘Mapping, Measurement and Alignment of Strategy using the Balanced Scorecard: The Tata Steel Case’, Accounting Education, 18(2), pp. 117–130. doi: 10.1080/09639280802436731.

Osterwalder, A, & Pigneur, Y 2010, Business Model Generation : A Handbook for Visionaries, Game Changers, and Challengers, John Wiley & Sons, Incorporated, Chichester. Available from: ProQuest Ebook Central. [11 July 2019].

‘Porter’s generic strategies’ (2005) A to Z of Management Concepts & Models, pp. 272–277. Available at: http://0-search.ebscohost.com.emu.londonmet.ac.uk/login.aspx?direct=true&db=bth&AN=22366647&site=ehost-live (Accessed: 12 April 2021).

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MN7031 Topic 3 – How Does A Company Create Competitive Advantage?

londonmet.ac.uk

Daniel Jones

Module Overview

Business Simulation – Cesim Global Challenge

1. How and Why Do Businesses Grow?

2. How Do We Diagnose Company Strategy?

5. How Do We Make Sense of the VUCA External Environment?

8. Does Your Simulation Company Need A New Strategy?

10. Why DO Firms Undertale Acquisitions, Mergers and Alliances?

7. How Is Your Simulation Company Performing?

11. How Do Companies Innovate Successfully?

12. Does Strategic Alignment Matter?

4. Why Are Some Industries More Profitable Than Others?

3. How Does A Company Create Competitive Advantage?

6. How Do We Identify future opportunities and threats?

9. Summative Assessment Presentations

Today’s Agenda

Lecture

Sources of competitive advantage

Positioning – Porter’s Generic Strategies

Low cost and differentiation

Efficiency and economies of scale

Learning effects

Strategy creation

Mature industries

Declining Industries

Blue Ocean Theory

First mover advantages

Simulation

Round 1

Strategy in Firms

1st Goal of a firm: survive

Rate of return above the cost of capital

How do we make money?

Industry Attractiveness

Where do we compete?

Competitive Advantage

How do we compete?

Corporate Strategy

Scope of business

Big choices; sustainability, structure etc

(Top management)

Business Strategy

Markets, segments, (Divisional

management)

Resources, Capabilities and Competencies and the Link to Competitive Advantage

Hill et al, 2015

Able to do things

Able to do things successfully or efficiently

Distinctive Competencies

Resources

A company’s resources can be divided into two types:.

Tangible resources are physical entities, such as land, buildings, manufacturing plants, equipment, inventory, and money.

Capabilities

Capabilities refer to a company’s resource-coordinating skills and productive use.

These skills reside in an organisation’s rules, routines, and procedures.

Resources, Capabilities, and Competencies

The distinction between resources and capabilities is critical to understanding what generates a distinctive competency.

In sum, for a company to possess a distinctive competency, it must—at a minimum— have either:

(1) a firm-specific and valuable resource, and the capabilities (skills) necessary to take advantage of that resource, or

(2) a firm-specific capability to manage resources (as exemplified by Nucor).

Sources of Competitive Advantage

Hill et al, 2015

What Is Quality and How Does A Firm Deliver It Consistently?

Strong governance to define the organisation's aims and translate them into action

robust systems of assurance to make sure things stay on track

a culture of improvement to keep getting better.

Fit for purpose

Intangibles

Four factors help a company to build and sustain competitive advantage:

superior efficiency

quality

innovation

and customer responsiveness

I am going to focus on quality and innovation.

Firstly quality – a simple way to understand quality if “fitness for purpose”. Does the product have the necessary attributes to satisfy my needs?

When customers evaluate the quality of a product, they commonly measure it against two kinds of attributes: those related to quality as excellence and those related to quality as reliability.

Innovation refers to the act of creating new products or processes. There are two main types of innovation: product innovation and process innovation.

Product innovation is the development of products that are new to the world or have superior attributes to existing products.

Process innovation is the development of a new process for producing products and delivering them to customers.

Components of A Business Model

Determining Competitive Scope

Positioning A Business

Where and How to compete?

Bases of competitive advantage:

Price, Features, Bundling

Efficiency

Quality

Innovation

Customer responsiveness

Availability

Image and relations

Porter’s three generic competitive advantages:

operational excellence

product leadership

customer intimacy

Stuck in

the Middle

Low Cost Airlines

“What is the key indicator of an airline's cost efficiency?”

cost per available seat kilometer is the main cost indicator, i.e. the cost of flying one passenger, one kilometer.

Business Model Canvas – Low Cost Airline

Key Partners

Terminal Operators

Aircraft Maintenance

Catering

Aircraft suppliers

Air traffic control

Government

Key Activities

Marketing

Scheduling

Aircraft turnaround

Staff training and motivation

Key Resources

Staff – non-unionised, flexible

Terminal slots

Aircraft

Reputation

Value Propositions

Low seat price

Every thing else is an extra

High seat density

Transparent pricing

Friendly staff

Reliable

Safe

Cost Structure

Low fixed cost

Outsource for scale economies

Low margins – utilisation is key

Above average staff rewards

Revenue Streams

Ticket sales

Seat reservation

Baggage

In-flight Sales – food, drink, duty free, entertainment

Customer Segments

Price sensitive

Business travellers

Families

Young Independent Travellers

Channels

Online only

Customer Relationships

Online

Inflight – cabin crew

Terminal Staff

Are there Really Only 3 Business Level Strategies?

Strategies of Differentiation

Price Differentiation – charge a lower or higher price

Image Differentiation – marketing is sometimes used to feign differentiation where it does not otherwise exist

Support differentiation – during selling e.g. fast delivery, after-sales service, or providing a related or complementary product or services

Quality Differentiation – make it better

Design Differentiation – offer something truly different

Undifferentiation Strategy – the copycat approach

Scope Strategies

Unsegmented – one size fits all

Segmentation – comprehensive or selected segments

Niche – focus on a single segment

Customising – each customer represents a unique segment

Lampel J, Mintzberg H, Quinn J, and Ghoshal S. (2014). The strategy process. 5th ed. Harlow: Pearson.

Low Cost Versus Differentiated Companies

Low-cost companies

Charge low prices and still make profits

Absorb cost increases from suppliers

Offer deep discount prices for buyers

Differentiated companies

Withstand pricing pressure from powerful buyers and increase prices without buyer resistance

Absorb price increases from suppliers and pass them to customers without losing market share

Withstand substitute goods, as a result of brand loyalty

Comparison of Market Segmentation Approaches

Standardisation Strategy

Associated with lower costs than a segmented strategy

Segmentation

Strategy

Involves customisation of product offerings, which drive up costs as:

Focus

Strategy

Attempts to attain economies of scale through high sales volume

Achieving economies of scale is difficult

Production and delivery costs tend to be high

Have a higher cost structure as:

New product features and functions need to be added

Attaining economies of scale is difficult

Lowering Costs Through Functional Strategy and Organisation

Achieve economies of scale and learning effects

Adopt lean production and flexible manufacturing technologies

Implement quality improvement methodologies to produce reliable goods

Streamline processes

Use information systems to automate business process

Differentiation Through Functional-Level Strategy and Organisation

Customise product offering and marketing mix to different market segments

Design product offerings that have a high perceived quality regarding their:

Functions

Features

Performance

Reliability

Handle and respond to customer queries and problems promptly

Efficiency and Economies of Scale

Efficiency and Economies of scale

Efficiency – Measured by the quantity of inputs that it takes to produce a given output

Economies of scale: Reductions in unit costs attributed to a larger output

Ability to spread fixed costs over a large production volume and produce in large volumes

To achieve greater division of labor and specialization

Diseconomies of scale: Unit cost increases associated with a large scale of output

Learning Effects

Cost savings that come from learning by doing

More significant when a technologically complex task is repeated, as there is more to learn

Diminish in importance after a period of time

Triggered by changes in a company’s production system

Simulation

Developing and launching new products or features

Manufacturing a new phone

Commissioning new plants

Experience Curve

Systematic lowering of the cost structure, and consequent unit cost reductions – occur over the life of a product

A product’s per-unit production costs decline each time its accumulated output doubles – accumulated output – Total output of a product since its introduction

Useful in industries that mass-produce a standardised output

Hill et al, 2015

The Origins of the BCG Matrix

Examples of Price Declines

The BCG Matrix – Market Share Leadership = Profit Leadership?

Flexible Production Technology

Reduces setup times for complex equipment

Increases the use of individual machines through better scheduling

Improves quality control at all stages of the manufacturing process

Increases efficiency and lower unit costs

Enables better customisation of product offerings

Tradeoff Between Costs and Product Variety

Hill et al, 2015

3D Printing – Additive Manufacturing

Adidas Printed Trainers

Aerospace Components

Strategy Creation

Two Perspectives On Shaping The Business Model

The Outside-in Perspective

Firms should take their environment as the starting point when determining their strategy – externally oriented and market-driven

Strategy begins with an analysis of the environment to identify market opportunities

Insights into markets and industries is essential

Firms that are market-driven are often the first

to realise that new resources and/or activities need to be developed – ‘first mover advantage’

We take portable music for granted these days. Any commuter in any big city in the world is more likely than not to have a pair of earbuds or headphones on as they walk, bike, or ride to their destination. The thing is, personal portable music didn't exist for most of human history, at least not in any mainstream fashion. Not until the Sony Walkman came along.

The first of Sony's iconic portable cassette tape players went on sale on this day, July 1st, back in 1979 for $150. As the story goes, Sony co-founder Masaru Ibuka got the wheels turning months before when he asked for a way to listen to opera that was more portable than Sony's existing TC-D5 cassette players. The charge fell to Sony designer Norio Ohga, who built a prototype out of Sony's Pressman cassette recorder in time for Ibuka's next flight.

After a disappointing first month of sales, the Walkman went on to become one of Sony's most successful brands of all time, transitioning formats over the years into CD, Mini-Disc, MP3 and finally, streaming music. Over 400 million Walkman portable music players have been sold, 200 million of them cassette players. Sony retired the classic cassette tape Walkman line in 2010, and was forced to pay a huge settlement to the original inventor of the portable cassette player, Andreas Pavel. But the name lives on today in the form of new MP3 players and Sony's Walkman app. They heyday of the Walkman may be over, with kids today baffled and disgusted by the relative clumsiness of cassettes. But the habit it spawned — listening to music wherever and whenever you want — is bigger than ever.

http://www.theverge.com/2014/7/1/5861062/sony-walkman-at-35

The Inside-Out Perspective

Strategy should be built around a company’s strengths

Successful companies build up a strong resource base which offers them access to unfolding market opportunities in the medium and short term

The starting point is which resource base it wants to have

Importance of a firm’s competences over its physical assets

But – companies with competence specialisation may be locked in by past choices and cannot adapt to a changing market

Fragmented Industry

Composed of a large number of small- and medium-sized companies

Reasons for fragmentation

Lack of scale economies

Brand loyalty in the industry is primarily local

Low entry barriers due to lack of scale economies and national brand loyalty

Focus strategy works best for a fragmented industry

Can competitive advantage in the industry be created by consolidation e.g. by chaining and franchising?

Stages in the Industry Life Cycle

Hill, C., Jones, G. & Schilling, M. (2015) Strategic Management; Theory & Cases: an integrated approach, 11e, Stamford, Cengage

Embryonic Industries

An embryonic industry refers to an industry just beginning to develop (for example, personal computers and biotechnology in the 1970s, wireless communications in the 1980s, Internet retailing in the late 1990s, and AI today).

Growth at this stage is slow because of factors such as buyers’ unfamiliarity with the industry’s product, high prices due to the inability of companies to reap any significant scale economies, and poorly developed distribution channels.

Rivalry in embryonic industries is based not so much on price as on educating customers, opening up distribution channels, and perfecting the design of the product.

Growth Industries

Once demand for the industry’s product begins to increase, the industry develops the characteristics of a growth industry. In a growth industry, first-time demand is expanding rapidly as many new customers enter the market. We can see this happening today in the taxi ride platform industry, with now numerous companies seeking to grow their marker share – Uber, Gett, Juno, Kabbee, Hailo etc

Industry Shakeout

Explosive growth cannot be maintained indefinitely. Sooner or later, the rate of growth slows, and the industry enters the shakeout stage. In the shakeout stage, demand approaches saturation levels: more and more of the demand is limited to replacement because fewer potential first-time buyers remain.

Expect this soon in taxi app platforms!

Mature Industries

The shakeout stage ends when the industry enters its mature stage: the market is totally saturated, demand is limited to replacement demand, and growth is low or zero. Typically, the growth that remains comes from population expansion, bringing new customers into the market, or increasing replacement demand.

As a result of the shakeout, most industries in the maturity stage have consolidated and become oligopolies.

Declining Industries

Eventually, most industries enter a stage of decline: growth becomes negative for a va- riety of reasons, including technological substitution (for example, air travel instead of rail travel), social changes (greater health consciousness impacting tobacco sales), demographics (the declining birth rate damaging the market for baby and child products), and international competition (low-cost foreign competition helped pushed the U.S. steel industry into decline).

It is important to remember that the industry life-cycle model is a generalization and that the time span of these stages can also vary significantly from industry to industry.

A criticism of industry models is that they overemphasize the importance of industry structure as a determinant of company performance, and underemphasize the importance of variations or differences among companies within an industry or a strategic group.

Research by Richard Rumelt and his associates, for example, suggests that industry structure explains only about 10% of the variance in profit rates across companies.

Strategies to Deter Entry In Mature Industries

Product proliferation strategy – Catering to the needs of all market segments to deter entry by competitors

Limit price strategy – Charging a price that is

lower than that required to maximise profits in the short run

above the cost structure of potential entrants

Strategic commitments – Investments that signal an incumbent’s long-term commitment to a market or a segment of the market

Strategies to Manage Rivalry

Price signaling – Companies increase or decrease product prices to:

Convey their intentions to other companies

Influence the price of an industry’s products

Price leadership – When one company assumes the responsibility for determining the pricing strategy that maximises industry profitability

Non-price competition – Use of product differentiation strategies to deter potential entrants and manage rivalry within an industry

Market penetration – a company concentrates on expanding market share in its existing product markets

Product development – Creation of new or improved products to replace existing products

Market development – When a company searches for new market segments to increase the sale of its existing products

Product proliferation – Large companies in an industry have a product in each market segment

Capacity Control

Companies devise strategies to control or benefit from capacity expansion programs

Factors causing excess capacity

New technologies that produce more than the old ones

New entrants in an industry

Economic recession that causes global overcapacity

High growth of demand in an industry that triggers rapid expansion

Strategy Selection in a Declining Industry

Hill et al, 2015

Cheque Processing

Camera Film

Blue Ocean Strategy

Companies can build competitive advantage by redefining their product offering through value innovation – creating a new market space

Blue Ocean – Wide open market space where a company can chart its own course

Red Ocean – fiercely competitive

W. Chan, K, & Mauborgne, R 2005, 'Blue Ocean Strategy: FROM THEORY TO PRACTICE', California Management Review, 47, 3, pp. 105-121, Business Source Complete, EBSCOhost, viewed 10 August 2016.

A New Value Proposition

Reduce

Create

Raise

Eliminate

References

De Wit, B. (2017). Strategy An International Perspective. 6th ed. Andover: Cengage

Grant, R.M. 2012. Contemporary strategy analysis : text and cases 8th ed. New York: John Wiley and Sons Ltd.

Hill, C., Jones, G. & Schilling, M. (2015) Strategic Management; Theory & Cases: an integrated approach, 11e, Stamford, Cengage

Porter, M.E., 2008. The Five Competitive Forces That Shape Strategy. Harvard Business Review 86, 78–93.

Reeves,M, Moose,S and Venema,V. (2014). BCG Classics Revisited: The Growth Share Matrix. Available: https://www.bcg.com/publications/2014/growth-share-matrix-bcg-classics-revisited.aspx. Last accessed 26th November 2019.

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MN7031 Topic 4.2 – Successful Innovation and Strategic Renewal

londonmet.ac.uk

Daniel Jones

Module Overview

Business Simulation – Cesim Global Challenge

1. How and Why Do Businesses Grow?

2. How Do We Diagnose Company Strategy?

5. How Do We Make Sense of the VUCA External Environment?

8. Does Your Simulation Company Need A New Strategy?

9. Why Do Firms Undertale Acquisitions, Mergers and Alliances?

7. How Is Your Simulation Company Performing?

10. How Do Companies Innovate Successfully?

12. Does Strategic Alignment Matter?

4. Why Are Some Industries More Profitable Than Others?

3. How Does A Company Create Competitive Advantage?

6. How Do We Create Strategies?

11. Summative Assessment Presentations

Today’s Agenda

Innovation

Definition

Four dimensions

Process

Innovation and the free market

Government organisations as engines of innovation

Global innovation

New Product Development

Strategic Innovation

Strategic renewal

Exploitation and Exploration

First mover advantages

Dominant Designs and Technical Standards

Organisations, Culture and Innovation

Innovation

What Is Innovation?

“the generation, acceptance, and implementation of new ideas, processes, products, and services.”

“conceptually a process beginning with an original idea and concludes with a market introduction”

“Innovation is a multi-faceted process, not a single or discrete act”

“Innovation must add value to meet customer’s unique needs”.

Roach, O. O., McLaughlin, G. C. and McLaughlin, H. M. (2020) ‘Innovation and Value: Customer Perception, Application, and Concept’, Journal of Management & Public Policy, 12(1), pp. 4–16. doi: 10.47914/jmpp.2020.v12i1.001.

W. Chan, K, & Mauborgne, R 2005, 'Blue Ocean Strategy: FROM THEORY TO PRACTICE', California Management Review, 47, 3, pp. 105-121, Business Source Complete, EBSCOhost, viewed 10 August 2016.

Four Dimensions of Innovation Space

Tidd and Beasant state that there are “Four Dimensions of Innovation Space”:

Product innovation (a new product / service)

Process innovation (a new process, or a change to a process)

Position innovation (adapting to your industry / market – business model)

Paradigm innovation (a new concept altogether)

Each of these four ‘dimensions’ can either apply to:

‘incremental development’ (i.e. improving something to make it better, easier, simpler, more efficient), or (ii)

‘radical development’ (i.e. coming up with something radically new)

Simplified Model of the Innovation Process

The Simplified Model of Innovation is in Four Stages:

Select

Implement

Capture

The Theory And Practice Of ‘Innovation’ Has Many Paradoxes:

is ‘innovation’ a personal thing, i.e. it resides in the individual, or is an ‘organisational’ thing, i.e. it resides in the ‘collective’?

can innovation be taught and developed, or is something that some individuals and organisations have, and others do not have?

does innovation reside in the organisation, or can it reside in a whole nation / country?

Is Innovation Best Left to the Free Market?

But one thing almost all economists, business analysts, technology theorists, and philosophers agree on is that innovation, and its associated areas (creativity, artistry, invention, enterprise), is at its best when it is left to the ‘free market’, and not run by the ‘state’.

In other words, the state ‘gets in the way’ of innovation, as it is too bureaucratic, slow, dull, and lacks the spark of ideas that true innovation processes require…

…on the other hand, the free market of hi-tech-savvy individuals, entrepreneurs, venture capitalists, crowd-funders, and designers are creating a dynamic economy and culture, based around innovation, and leaving governments a step behind…

“Governments have always been lousy at picking winners, and they are likely to become more so, as legions of entrepreneurs swap designs on-line, turn them into products, and market them globally. As the business –technology revolution rages, governments should stick to the basics, like schools. Leave the rest to the revolutionaries.” (Economist, 2012)

Government Organisations as Engines of Innovation

But one person who disagrees with this is Professor Mariana Mazzucato, see: http://marianamazzucato.com

Mazzucato says the reverse: the State (or the government, or government departments) are the true ‘engines’ of innovation, and the ‘free market’ companies simply reap the financial / commercial benefits.

The Entrepreneurial State

And in her influential book, The Entrepreneurial State, Mazzucato explains that Apple (yes Apple!) is not innovative, and that the technology behind it was actually developed in the publically-funded State / university world, not within the ‘free market’.

“Without the frequently targeted investment and intervention of the US-government it is likely that most would-be Apples, would be losers in the global race to dominate the computing and communications age…it is indisputable that most of Apple’s best technologies exist because of the prior collective and cumulative efforts of the driven by the State.” (Mazzucato, 2014: 112)

Is the idea then that the ‘free market’ is more innovative than the State a complete myth?

Innovation, Like Many Things, Is Increasingly ‘Global’.

This means that organisations and firms involved in innovation are doing so across nation states, across continents, and across industries.

This has changed the research and development (R&D) function of many organisations and industries, as R&D is no longer ‘located’ in one place, but is ‘networked’ across a range of organisations, places, and nations, and is also ‘virtual’ or ‘digital’, making its location on-line only.

Clustering

One of the paradoxes of ‘globalisation’ is clustering’. For firms to ‘cluster’, they need to be close to each (finance in the City; retail in the West End; digital start-ups in Shoreditch; jewellers in Hatton Garden; the ‘Garment District’ in NYV; Silicone Valley in California; car manufacturing in Wolfsburg). But this ‘paradox’ goes against ‘globalisation’ and ‘digitisation’.

Michael Porter (one of the advocates of ‘clustering’), recognises this paradox: “In theory, location should no longer be a source of competitive advantage. Open global markets, rapid transformation and high-speed communications should allow any company to source any thing from any place at any time. But in practice, location remains central to competition…” (from Trott, page 243)

Innovation networks: some critics say that contemporary-sounding phrases such as ‘innovation networks’ is just a new term to describe old things that have been going on for years (such as supply chains; import-export; cartels; access to markets; trade quotas; vertical integration).

New Product Development

“conceptually a process beginning with an original idea and concludes with a market introduction”

Prod-ject

Albaidhani et al (2018)

New Product Development Stage Gate Process

Smolnik and Bergmann (2020)

Stage Gate Process

Smolnik and Bergmann (2020)

Strategic Innovation and Strategic Renewal

Nokia – A Long History Of Strategic Renewal

1865 – Nokia founded as a wood-pulp mill making paper.

1922 – partnership with Finnish Rubber Works and Kaapelitehdas (the Cable Factory)

1967 – new Nokia Corporation, restructured into four major businesses: forestry, cable, rubber and electronics.

1981 – builds world’s first mobile network

1982 – launches its first mobile phone

1992 – sell off of the non-tech businesses

1998 – the best-selling mobile phone brand in the world

2007 – Apple launches the iPhon

2008 – first Android device launched

2011- Strategic partnership with Microsoft to adopt Windows Phone 7

2014 – sells mobile phone business to Microsoft to focus on Network equipment

2016 – licensing deal with HMD Global, who now make Nokia mobile phones

2020 – New business groups are Mobile Networks, IP and Fixed Networks, Cloud and Network Services and Nokia Technologies

Innovation

Resources and Capabilities growth and contraction

Turnaround

Partnerships

Mergers and Acquisitions

Licensing

Outsourcing

Disruption

The Issue Of Strategic Renewal

There are 4 different processes for strategic renewal:

Strategising

Entrepreneuring

Changing

Investing

Strategising and Entrepreneuring

Strategic innovation as a Strategising Process

Strategising managers must be aware of the unfolding opportunities and threats in the environment and the evolving strengths and weaknesses of the organisation

Strategists are working in a context of ‘bounded creativity’, constrained by, e.g. lead time and resource availability

Strategic innovation as an Entrepreneurial Process

Companies make use of entrepreneurial managers for strategic activities e.g. finding new markets for existing products and services, applying new technologies in current markets and setting up new businesses

Changing and Investing

Strategic Innovation as a Change Process

The company’s business model needs to be adjusted.

Some strategic innovation processes require organisational restructuring

Organisational processes may need to be redesigned and a change of the firm’s culture may be needed.

Strategic innovation as an Investing Process

Strategic innovation requires resources

Investments in innovation compete with mergers, acquisitions and entering new countries

Investments that promise to generate returns in the long term are riskier than short-term options

Managers must think of the entire process of change

Strategic innovation combines: Strategising, Entrepreneuring, Changing and Investing processes

Inhibitors of Strategic Innovation

Effects of innovation results – strategists may be reluctant to explore alternatives which have not been successful in the past

Effects of inertia and bias

Effects of feedback – when innovation results are satisfying strategists are not challenged to explore innovations that could be even more successful

Business Model Renewal

In order to prepare for a competitive future, strategising managers may need to renew several elements of the business model

Strategists can renew each element of the company’s business model:

resource base

value chain

product offering

The Issue of Strategic Renewal

Outside-in Renewal – Managers can renew their value proposition by increasing the perceived product and service value and lowering prices, e.g. improve reliability of its products or create new markets or market segments with existing products

Inside-out Renewal – Managers can renew the company’s resource base to create new products and services and improve existing ones e.g. invest in technological R&D, marketing campaign and training of staff

Value Chain Renewal – Managers can renew some or all elements of the value chain e.g. IKEA has redesigned its processes, from standardising production processes, developing flat pack designs and lowering transportation costs.

The Paradox of Exploitation and Exploration

Should the company renew itself by improving the current organisation (exploitation) or by radically rejuvenating the organisation through disrupting technologies and processes (exploration)?

Renewal processes of exploitation can be measured in terms of realised client value (lower price and higher quality).

Radical renewal by exploration is measured by the extent to which a new industry is created or new customer value is realised.

Innovators, Followers and Winners

The Demand for Sustained Renewal

Refers to the process of permanently improving products and services to strengthen the company’s competitive position

Standards are continuously raised

Based on factual information e.g. customer feedback and market research as well as ideas from within and outside the firm

The Demand for Disrupting Renewal

Refers to the process in which current competitive positions are challenged by introducing new technologies and business models

Disruptive innovations do not follow from the facts but need to be invented

Creative thinking is necessary

2005: Steven Sasson poses with his 1975 prototype and Kodak’s latest digital camera offering, the EasyShare One

The Strategic Improvement Perspective

Companies should focus on improving their business model

All employees should be committed to improving all elements of the business model

Radical innovation initiatives are risky and absorb the most precious resources for corporate renewal

The Radical Rejuvenation Perspective

Companies should focus on breakthrough innovations

The more radical the departure from the industry rules, the more difficult it will be for competitors to follow and the higher the benefits for the innovator will be

Old ways must be discarded before new methods can be adopted – ‘creative destruction’

Strong company leadership is essential

Sustained improvement comes at the expense of strategically more effective innovations

The Emergence of Dominant Designs and Technical Standards

Emergence of a dominant design paradigm

Model T in autos

IBM 360 in mainframes

Douglas DC3 in passenger aircraft

Emergence of technical standards

Emerge in industries where they are network externalities

Entrenchment of the dominant designs and technical standards

Learning effects: incremental improvement of the dominant design

Switching costs

Need for coordinated action by multiple players

Dominant Design – Cars

1886 – Benz No.1

Companies that Own or Owned Technical Standards

Company	Product Category	Standard
Microsoft	PC operating systems	Windows
Intel	PC microprocessors	X86 series
Sony/Philips	Compact disks	CD-ROM format
ARM (Holdings)	Microprocessors for mobile devices	ARM architecture
Oracle Corporation	Programming language for web apps	Java
Rockwell & 3Com	56K modems	V90
Adobe Systems	Common file formats for creating and viewing documents	Acrobat Portable Document Format
Adobe Systems	Web page animation	Adobe Flash
Adobe Systems	Page description language for document printing	PostScript
Bosch	Antilock braking system	ABS & TCS (Traction Control System)
IMAX Corporation	Motion picture filming/projection system	IMAX
Apple	Music downloading system	iTunes/iPod
Sony	High definition DVD	Blu-ray

Parallel Processing

Involves separating exploitation and exploration processes in different organisational units while integration takes place at a different (higher) organisational level – ‘spatial separation’

Parallel processing internally – build a separate R&D unit that develops new technologies – outcomes are then transferred to other organisational units

Parallel processing with external partners

Navigating – the entrepreneur explores and then exploits – navigates over time ‘temporal separation’

Balancing – processes can be combined in the same unit

Apple, Alphabet, Microsoft, IBM and Facebook

Global Revenue

Apple 2001 2002 2003 2004 2005 200 6 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 5363 5742 6207 8279 13931 19315 24006 32479 42905 65225 108249 156508 170910 182795 233715 215639 229234 265595 Alphabet 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 86.4 439.5 1465.9 3189.2 6138.6 10604.9 16594 21795.6 23650.6 29321 37905 50175 59825 66001 74989 90272 110855 136819 Microsoft 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 25296 28365 32187 36835 39788 44282 51122 60420 58437 62484 69943 73723 77849 86833 93580 91154 96571 110360 IBM 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 85866 81186 89131 96293 91134 91424 98786 103630 95758 99871 106916 102874 98367 92793 81741 79919 79139 79591 Facebook 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 3711 5089 7872 12466 17928 27638 40653 55838

Strategic Innovation – an International Perspective

Countries differ in the strategies they prefer. Japanese companies generally favour the gradualist approach while Western companies generally favour the leap forward.

Geography and individual brilliance – differences in developmental trajectories are determined by the possibilities to foster technologies that enabled progress.

Governmental support – proactive governmental support is often crucial, e.g. development of aviation to support the war.

Culture and Technology

Tangible knowledge can be codified and transferred but culture plays an important role and its values are intangible

Countries that are considered to be the most individualistic, US and UK, are capable of great innovations. The US leads the world ranking of Nobel Prizes.

Collectivist cultures have different merits, e.g. Japanese very good at improving processes and products.

Different cultures deal differently with time – Kaizen sees time as a circle improving production methods also seen as a circle.

Ownership of inventions – Eastern societies have a different attitude towards private intellectual ownership. The teachings of Confucius stress that knowledge is for the benefit of everybody – an obligation to share your wisdom with others. What in the West is considered to be stealing intellectual property rights, in the East is seen as copying and improving on the findings of an honorable father figure.

Innovation In Practice

Paradox Of Control And Chaos

Managers want to control the development of the organisation but understand that letting go of control is often beneficial

Need for top-down imposition and bottom-up initiative

Demand for top management control – top managers need to be able to direct developments in the organisation and to have the power to make the necessary changes. They need strategic control.

Demand for organisational chaos – a period of disorder is often a prerequisite for strategic renewal, allows experimentation, pilot projects, encourages self-organization and frees the way for bottom-up ventures

WLGore

References

Chandler-McDonald, K (2013) Innovation: How Innovators Think, Act, and Change our World, Kogan Page

De Wit, B. (2017). Strategy An International Perspective. 6th ed. Andover: Cengage

Grant, R.M. 2012. Contemporary strategy analysis : text and cases 8th ed. New York: John Wiley and Sons Ltd.

Hill, C., Jones, G. & Schilling, M. (2015) Strategic Management; Theory & Cases: an integrated approach, 11e, Stamford, Cengage

Tidd, J and Bessant, J (2013) Managing Innovation: Integrating Technological, Market and Organizational Change, 5th Edition, John Wiley & Sons, (Chapter 1)

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MN7031 Topic 2 – How Do We Diagnose Company Strategy?

londonmet.ac.uk

Daniel Jones

Module Overview

Business Simulation – Cesim Global Challenge

1. How and Why Do Businesses Grow?

2. How Do We Diagnose Company Strategy?

5. How Do We Make Sense of the VUCA External Environment?

8. Does Your Simulation Company Need A New Strategy?

10. Why DO Firms Undertale Acquisitions, Mergers and Alliances?

7. How Is Your Simulation Company Performing?

11. How Do Companies Innovate Successfully?

12. Does Strategic Alignment Matter?

4. Why Are Some Industries More Profitable Than Others?

3. How Does A Company Create Competitive Advantage?

6. How Do We Identify future opportunities and threats?

9. Summative Assessment Presentations

Strategic Diagnosis

External

Internal

Global

National

Regional

Local

PESTEL

5 Forces

Blue Ocean Theory

Industry Lifecycle

Competitor Analysis

Scenario Planning

Resource Based View

Core Competencies

Organisational Structure

Culture

Systems

Market Analysis

Red Queen Theory

Theories and Frameworks

Business Model

We will look at competitors in a later topic.

Industry (or Sector)

Development stage

Markets and Competitors

Market Segments

Scope of activities

The Organisation

Resources

Capabilities

Competencies

Politics

The Macro-environment

Concentration

Value network

Products and/or services

Critical success factors

Resource commitment

Economics

Social

Technological etc.

Today’s Agenda

Lecture

Business models

Value Chains

Company Resources – Tangible and Intangible

Core Competencies

Evaluating company resources

Strategy – Outside-In or Inside Out?

Structure, Culture and Systems

Paradox of Control and Chaos

How To Analyse A Company

Strategy Mapping

Simulation – Practice Round 2

Business Model

Business Model – How A Firm Makes Profit

A business model is the configuration of resources, activities and product/service offerings intended to create value for customers – the way a firm conducts its business

It shows how a firm is executing its strategy currently

A firm must be able to:

design a product or service more closely fitted to client needs than rival firms

develop and supply the superior product

Value Chain

A value chain is an integrated set of value creation processes leading to the supply of product or service offerings

Value chains differ significantly but primary activities are:

inbound logistics

operations

outbound logistics

marketing and sales

service

Each firm also needs: procurement, technology development, human resource management, and firm infrastructure

The Value System

Johnson, G. et al., 2013, Exploring Corporate Strategy: Texts and Cases, 10th, Harlow: Pearson p 87

Product and Service Offerings

The key question is which products and services should be developed and which markets should be served

Companies that do not focus on a limited set of product-market combinations risk:

low economies of scale

slow organisational learning

unclear brand image

unclear corporate image

high organisational complexity

limits to flexibility

M&S

Food

Clothing

Home Furnishings

Resources, Capabilities and Competencies

Resources, Capabilities and Competencies and the Link to Strategy

Hill et al, 2015

Able to do things

Able to do things successfully or efficiently

Distinctive Competencies

Resources

A company’s resources can be divided into two types:.

Tangible resources are physical entities, such as land, buildings, manufacturing plants, equipment, inventory, and money.

Capabilities

Capabilities refer to a company’s resource-coordinating skills and productive use.

These skills reside in an organisation’s rules, routines, and procedures.

Resources, Capabilities, and Competencies

The distinction between resources and capabilities is critical to understanding what generates a distinctive competency.

In sum, for a company to possess a distinctive competency, it must—at a minimum— have either:

(1) a firm-specific and valuable resource, and the capabilities (skills) necessary to take advantage of that resource, or

(2) a firm-specific capability to manage resources (as exemplified by Nucor).

Types of Firm Resources

British Plaster Board

British Plaster Board (BPB) achieved sustainable competitive advantage by gaining control of the locations in the UK where gypsum mining was possible.

3M: Evolution of Products & Capabilities

Carborundum

mining

Sandpaper

Scotchtape

Road signs

& markings

Post-it notes

Audio tape

Surgical tapes

& dressings

Videotape

Acetate

film

Floppy disks &

data storage

products

Pharmaceuticals

Housewares/kit-

chen products

Abrasives

Adhesives

New-product

development &

introduction

Thin-film

technologies

PRODUCTS

CAPABILITIES

Materials sciences

Health sciences

Microreplication

Flexible

circuitry

Minnesota Mining and Manufacturing

Not All Resources Are Equal

Core Competencies and Dynamic Capabilities

Core Competencies – Prahalad and Hamel(1990)

Those competencies that define a firm’s fundamental business

A core competence may be distinctive when a firm is markedly better than its competitors, or the competency is difficult to replicate

Should a firm outsource an activity that is part of a core competency?

Dynamic Capabilities

The firms ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments

Two Perspectives On Shaping The Business Model

Outside-in versus inside-out perspective

Structure, Culture, and Systems

Linking Individuals to the Business Model

Organisational Structure – Refers to the clustering of tasks and people into smaller groups

Organisational Processes – Refers to the arrangements, procedures and routines used to control and coordinate the people and units within the organisation.

Organisational Culture – Refers to the worldview and behavioral patterns shared by the members of the same organisation.

McKinsey 7 S Framework

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/enduring-ideas-the-7-s-framework#

Components of the Organisational System

Organisational Processes Depend on the Enabling Information Systems

As organisations grow and acquire information systems in support of their processes they, to an extent, “hard-wire” their ways of working. Changing their information systems can be expensive and time consuming, particularly when change is radical.

See Mckensey article on Digital Transformation.

https://www.itwire.com/business-it-news/storage/73038-machine-learning-helps-manage-complex-it-infrastructure.html

Organisational Structuring Criteria

Paradox Of Control And Chaos

Managers want to control the development of the organisation but understand that letting go of control is often beneficial

Need for top-down imposition and bottom-up initiative

Demand for top management control – top managers need to be able to direct developments in the organisation and to have the power to make the necessary changes. They need strategic control.

Organisational Leadership Versus Organisational Dynamics Perspective

Different Leadership Styles Among European Executives

Sweden and Finland consensus’ style (lower power distance, low masculinity)

Germany and Austria ‘working towards a common goal’ (specialists working together within a rule-bound structure)

France ‘managing from a distance’ (focus on planning, high power distance)

UK, Ireland and Spain ‘leading from the front’

Where was the company founded and where is the main centre of power?

Ikea – Sweden

Standard Bank – South Africa

Fujitsu – Japan

Capgemini – France?

Strategic Analysis of A Firm

Component Models

One approach to diagnosis is to start by using component models to examine how the many different aspects of an organisation are working.

… and to combine these assessments to build a ‘big picture’ of how the organisation is functioning as a whole.

Difficult to do from outside the organisation.

Management

practices

Work unit

climate

Motivation

Structure

Systems

(policies and procedures)

Tasks and individual roles

Individual needs and values

Leadership

Mission

and

strategy

Organisation

culture

Holistic Models

An alternative approach is to start by looking at the ‘big picture’ before drilling down to explore particular components in more detail.

This might be by a series of executive and senior management interview to gain an overview of possible problems as perceived from above.

Management

practices

Work unit

climate

Motivation

Individual and

organizational performance

Structure

Systems

(policies and procedures)

Tasks and individual roles

Individual needs and values

External

environment

Leadership

Mission

and

strategy

Organization

culture

Strategy Diagnosis – An Iterative and Incremental Process

Start with the 7 areas in the diagram, beginning with financial performance over the last 5 years:

Is the business profitable?

Is it growing or declining?

How does it compare with the rest of its industry?

Share price and capitalisation

Investigate the other 5 areas

The process of diagnosis may lead to questions in other areas e.g.:

Leadership

Ownership

Information Systems

Acquisition Integration

Culture

Sustainability

Etc..

Strategy

Diagnosis

Financial Performance

Competencies

Industries, Product Offerings and Market Segments

Resources – Tangible and Intangible

Business Model and Value Network

Capabilities

Competitive Advantage

Key Sources

Company Web Site – particularly investor information and company presentations and reports.

Financial Data e.g. Yahoo Finance or

Research Reports e.g. Marketline

Industry Reports

Market Reports

Industry Publications

Investment Analysts

New Papers and Magazines – on and offline

1st Sep 2014 –

Dave Lewis

Appointed

Mar 2011 –

Phillip Clarke

Appointed in Place of Terry Leahy

What’s The Problem?

New Entrants – from Germany

Changing consumer Habits

More frequent shopping

Local shopping

Online – home delivery and “click and collect”

Willing ness to switch in search of value

Reputation

Horsemeat

Profit Reporting

Killing the High Street

Strategy Mapping

Balanced Scorecard

Financial – The outcome for all profit-making organisations is a financial result for stockholders measured by a range of metrics such as return on capital, net profit margin, or growth in revenues.

Customer – In most cases, it is a positive response from the customer that creates value for the organisation by profitable sales. The metrics may include sales penetration as well as the level of customer satisfaction and loyalty.

Internal Business Processes – To increase the quality of the customer relationship, operating processes will be continually improved to enhance the quality flexibility while reducing cost of these processes. Measurements may include cycle time, asset utilisation, and quality metrics.

Learning and Growth – The driving force of value creation is through the intellectual capital, the ideas, and innovation that bring about new products and services as well as processes, sometimes with rapid discontinuous innovation. It can be measured by the development of human capability, new products to market, and growth of strategic alliances.

Gurd (2013)

Strategy Mapping – Tata Steel

Joseph(2009)

WALMART	Productivity Strategy		Growth Strategy
Financial Perspective	Local discretion over pricing Drive down cost continuously Obsession with retail and cost reduction High asset and inventory turnover Low spend on advertising(lowest in the industry)		Locate in small towns and create a monopoly on discount retail in that area International expansion Multiple formats – discount stores, warehouse clubs, supercentres and neighbourhood stores, online
Customer Perspective	Everyday Low prices “Greeters” “Satisfaction Guaranteed		Adjust to local needs and preferences Wide range of goods Avoid stock-outs
Internal Perspective	Operations Management	Customer Management		Innovation Processes	Regulatory and Social Processes
	Purchasing Centralised buying Limit supplier power – max 2.5% of total Exploit technology Use of EDI and Online buying Warehousing and Distribution Own distribution system – hub and spoke rather than supplier delivers to stores Total control and large drop volumes	Store location Store format Decentralised decision making High level of service		Insourced activities allow innovation in IT, warehousing, distribution and store operations	Patriotism Traditional American Values Environmental responsibility Counter the criticisms from Unions, politicians and environmentalists Employee empowerment
Learning and Growth Perspective	Human Capital – promote from within, career opportunities, profit sharing, share ownership, empowerment, decision and consultation rights, treat as individuals and show them respect, listen to suggestions. Family atmosphere.
	Information Capital – pioneer the use of technology – EDI, EPOS, Satellite communication and RFID. Systems closely tailored to Walmart’s needs, constant analysis of POS data. Used to closely link the entire supply chain.
	Organisational Capital – Principles and values of Sam Walton – thrift, hard work, fairness, simplicity and friendliness. Management culture – the Friday and Saturday meeting’s.

Walmart Strategy Map

Bibliography

De Wit, R & Meyer, R, (2017) Strategy, An International Perspective, Andover, Hampshire: Cengage Learning, 6th ed.

Joseph, G. (2009) ‘Mapping, Measurement and Alignment of Strategy using the Balanced Scorecard: The Tata Steel Case’, Accounting Education, 18(2), pp. 117–130. doi: 10.1080/09639280802436731.

Production (units)	Cost per unit made ($)
10,000	600
50,000	500
100,000	450
500,000	350
1,000,000	250

Task	Marks %	A Suggested Approach
Executive Summary	15	High-level recommendations, in 1 or maximum 2 pages, bringing it all together (this is normally written in the end). This is not an introduction
Customer Value Proposition	10	What exactly does the product offer, what consumer problem does it solve, what is compelling about it
Customer segmentation	15	Detailed and quantified customer segment (s) the product is targeted to. What is their profile / persona
Implementation Marketing & Sales Strategy Outline Financial Forecasts – Years 1-3	40 Marks in total 25 20	Provide a critical approach to the implementation of your recommended strategy, which may include an analysis of the threats and opportunities that may be encountered, an approach to leading market change and innovation. Should address each of the following: -Market positioning of the product, -Communication strategy specific to the targeted segments, -Suggested product pricing, -Channels to market – Sales (partners, B2C, B2B) To include : -Sales – unit projections, -Revenue per year, -Costs – production (in the brief) and marketing budget (forecast)
Evidence of research	5	Shown throughout the report to the board
Professional Presentation	10	Logical and coherent structure Bibliography and Referencing Grammar, spelling
Total	100