7031-AS2-3 - 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 6 – How Do Firms Create Strategies?

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?

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 Firms Create Strategies

10. Summative Assessment Presentations

Today’s Agenda

The Strategy Process

Vision and Mission

Strategy formation activities

Strategy formation roles

Emergent and Deliberate Strategies

Strategic Planning

Strategic Incrementalism

Scenario Planning

SWOT Analysis

Superfluous Strengths

Corporate Strategy and Configuration

The Strategy Process

The Main Strategy Formation Activities

PESTEL

Industry Analysis

Scenarios

Market Analysis

Competitors

Resources

Structure

Culture

Business Model

Value Network

Analysis and Synthesis

Options for Growth and Improvement

Evaluation

Scenario Testing

Vision and Mission

Corporate mission outlines the fundamental principles guiding strategic choices

Strategic vision outlines the desired future at which the company hopes to arrive

The corporate mission and strategic vision together send the firm in a particular direction

What Are the Elements of A Mission Statement?

Purpose – the reason the organisation exists

Beliefs – a common understanding is needed

Values – must become embodied in the organisation’s culture

Business definitions – focuses the direction in which the business develops

Tesla’s mission is to accelerate the world’s transition to sustainable energy.

Dave’s Mission is to build products that level the financial playing field.

Amazon – Who We Are

Amazon is guided by four principles:

customer obsession rather than competitor focus,

passion for invention,

commitment to operational excellence,

and long-term thinking.

Amazon strives to be Earth’s most customer-centric company, Earth’s best employer, and Earth’s safest place to work.

Customer reviews, 1-Click shopping, personalized recommendations, Prime, Fulfillment by Amazon, AWS, Kindle Direct Publishing, Kindle, Career Choice, Fire tablets, Fire TV, Amazon Echo, Alexa, Just Walk Out technology, Amazon Studios, and The Climate Pledge are some of the things pioneered by Amazon.

Forecasting the Future

What we anticipate seldom occurs; what we least expect generally happens.

Benjamin Disraeli (1804–1881)

British prime minister and novelist

Volatility

Uncertainty

Complexity

Ambiguity

Really Bad Technology Predictions

1889: “Fooling around with alternating current (AC) is just a waste of time. Nobody will use it, ever.” — Thomas Edison

1903: “The horse is here to stay but the automobile is only a novelty – a fad.” — President of the Michigan Savings Bank advising Henry Ford’s lawyer, Horace Rackham, not to invest in the Ford Motor Company.

1966: “Remote shopping, while entirely feasible, will flop.” — Time Magazine.

1981: “Cellular phones will absolutely not replace local wire systems.” — Marty Cooper, inventor.

1995: “I predict the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse.” — Robert Metcalfe, founder of 3Com.

2005: “There’s just not that many videos I want to watch.” — Steve Chen, CTO and co-founder of YouTube expressing concerns about his company’s long term viability.

2006: “Everyone’s always asking me when Apple will come out with a cell phone. My answer is, ‘Probably never.’” — David Pogue, The New York Times.

2007: “There’s no chance that the iPhone is going to get any significant market share.” — Steve Ballmer, Microsoft CEO.

Szczerba (2015)

Strategy Formation Activities

Strategic issue identification activities – mission setting and agenda setting

Strategic issue diagnosis activities – external assessment (of both the direct market environment and the wider environment) and internal assessment (of the systems used by the company itself)

Strategy conception activities – option generation and option selection

Strategy realisation activities – action taking and performance control

Strategy Formation Roles

There can be significant differences in who carries out the conception activities

Top vs. middle vs. bottom roles – different levels of management involved

Line vs. staff roles – many organisations have staff members involved in the strategy formation process

Internal vs. external roles – some roles can be outsourced

Emergent and Deliberate Strategies

Hill et al (2015)

Henry Mintzberg identified that planned strategies often did not survive contact with managers, customers and the business environment.

He observed that unplanned events also shape strategy and that the realised strategy that actually unfolded over time was a combination of the deliberate planning and of emergence. Companies adapt and improvise as events occur; perhaps a serendipitous discovery or the emergence of a new business model in a rival firm.

We can see many changes occurring at present as a result of technology innovation and globalisation, particularly in the exploitation of platforms such as Amazon, Uber and e-bay and of ecosystems like Apple and Android. Amazon has disrupted retailing very significantly and Uber is changing the way we acquire and pay for taxi rides. Both firms are evolving rapidly. Amazon is now seeking to enter the groceries market place as well as extending its logistics and delivery activities in areas once dominated by state owned post offices. Uber is experimenting with add-on services to its platform and is expected in the future to become a platform for sharing driverless cars.

The Paradox of Deliberateness and Emergence

Duality of:

wanting to design the future while needing to explore, learn and adapt to an unfolding reality;

the need to figure things out in advance, versus the need to find things out along the way

The Demand for Deliberate Strategising

Advantages:

Direction – plans give organisations a sense of direction

Commitment – by setting objectives and drawing up plans organisations can invest resources, train people, build up production capacity and take a clear position within their environment

Coordination – all strategic initiatives are brought into a single cohesive pattern

Optimisation – plans facilitate optimal resource allocation

Programming – plans allow activities to be programmed and controlled

The Demand for Strategy Emergence

Advantages:

Opportunism – able to grab unforeseen opportunities as they emerge

Flexibility

Learning – learning by experimentation

Entrepreneurship

Support – building support is an on-going process – changes cannot always be imposed from the top down

A strategy emerges when it comes into being along the way, gradually shaped during an iterative process of thinking and doing

The Strategic Planning Perspective

Strategies should be deliberately planned and executed ‘Think before you act’

The purpose of strategising is to give organisations direction

Allows for formalisation and differentiation of strategy tasks

Encourages long-term thinking and commitment

But – plans will always be based on assumptions about future events which are hard to predict so useful to have contingency plans

The Strategic Incrementalism Perspective

New strategies emerge over time

Strategy is not about rigidly setting the course of action in advance but flexibly shaping the course of action by blending together initiatives into a pattern of action

Planning and control are valuable for routine activities but less suitable for non-routine activities – doing new things

Strategy formation is essentially an innovation process, inherently subversive

Planning is inappropriate when dealing with wicked problems

Wicked Problems

Tame, Critical and Wicked Problems

http://www.pwc.co.uk/services/human-resource-services/human-resource-consulting/who-will-solve-your-wicked-problems.html

A wicked problem is a direct challenge to business as usual, has innumerable causes, is tough to describe, and doesn’t have a right answer.

Camillus, J (2008) Strategy as a Wicked Problem, Harvard Business Review

The Strategic Incrementalism Perspective

Planning is inappropriate when dealing with wicked problems

Problems cannot be simply recognised and analysed, the strategising manager must make sense out of complex problems

A full analysis of a wicked problem is impossible

Dangerous to develop a comprehensive plan to tackle a wicked problem

As soon as an organisation starts to implement a plan, the plan will be outdated

Inscrutable Problem Solving

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/six-problem-solving-mindsets-for-very-uncertain-times

Conn, C and McLean, R. (2020). Six problem-solving mindsets for very uncertain times. Available: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/six-problem-solving-mindsets-for-very-uncertain-times. Last accessed 3rd May 2022.

Scenario Planning

Cornelius, P, Van de Putte, A, & Romani, M 2005, 'Three Decades of Scenario Planning in Shell', California Management Review, 48, 1, pp. 92-109, Business Source Complete, EBSCOhost, viewed 6 March 2017.

Scenarios and Strategy

present a background for the design and selection of strategies. Since no single strategy can perform best in each scenario, special selection criteria, such as "bet on the most probable scenario" or "preserve flexibility" are needed“

help make managers aware of environmental uncertainties by confronting them with fundamentally different future states

provide a tool to identify what might possibly happen and how an organisation can act upon or react to future developments. As such, scenarios can serve as early warning systems.

offer the possibility to combine quantitative data with qualitative input, enabling scenario planners to incorporate results from other forecasting techniques and allow for soft and fuzzy variables

can help stretch managers' mental models by explicitly confronting them with their own biased viewpoints.

Scenario Planning at Shell

Scenarios Uncover Inevitable or Near-inevitable Futures

A sufficiently broad scenario-building effort yields another valuable result. As the analysis underlying each scenario proceeds, you often identify some particularly powerful drivers of change.

These drivers result in outcomes that are the inevitable consequence of events that have already happened, or of trends that are already well developed e.g. demographic changes in the UK

Shell, the pioneer in scenario planning, described these as “predetermined outcomes” and captured the essence of this idea with the saying, “It has rained in the mountains, so it will flood in the plains.”

In developing scenarios, companies should search for predetermined outcomes—particularly unexpected ones, which are often the most powerful source of new insight uncovered in the scenario-development process.

Mckinsey Quarterley Nov 2009, The Use and abuse of Scenarios

According to Mckinsey…..

Creating a range of scenarios that is appropriately broad, especially in today’s uncertain climate, can paralyse a company’s leadership.

The tendency to think we know what is going to happen is in some ways a survival strategy: at least it makes us confident in our choices (however misplaced that confidence may be).

In the face of a wide range of possible outcomes, there is a risk of acting like the proverbial deer in the headlights: the organisation becomes confused and lacking in direction, and it changes nothing in its behaviour as an uncertain future bears down upon it.

The answer is to pick the scenario whose outcome seems most likely and to base a plan upon that scenario.

It should be buttressed with clear contingencies if another scenario—or one that hasn’t been imagined—begins to emerge instead.

Ascertain the “no regrets” moves that are sound under all scenarios or as many as possible. Ultimately, the existence of multiple possibilities should not distract a company from having a clear plan.

Mckinsey Quarterley Nov 2009, The Use and abuse of Scenarios

Strategists Have to Deal With Uncertainty

Strategy is largely formulated for the future and is concerned with the world outside the organisation at least as much as with what is going on within its boundaries.

Scenario techniques are one of the few tools strategists have to help them formulate their ideas about both.

Environments and futures are increasingly turbulent, uncertain and complex.

More than any other strategy tool, scenarios engage with these characteristics rather than ignore them.

There is, however, a significant challenge for the leader who chooses to implement a scenario process in harnessing maximum return. Many things mitigate against success, including fundamental human psychology. But the benefits could be significant.

Verity, J 2003, 'Scenario planning as a strategy technique', European Business Journal, 15, 4, pp. 185-195, Business Source Complete, EBSCOhost, viewed 6 March 2017.

Remember When To Avoid Scenarios Altogether

Finally, bear in mind the one instance in which strategists will not want to use scenarios: when uncertainty is so great that they cannot be built reliably at any level of detail.

Just as scenarios help to avoid groupthink, they can also generate a groupthink of their own.

If everyone in an organisation thinks the world can be categorised into four boxes on a quadrant, it may convince itself that only four outcomes or kinds of outcomes can happen. That’s very dangerous.

Strategists should not think that they have all reasonable scenarios when there are quite different possibilities out there.

Mckinsey Quarterley Nov 2009, The Use and abuse of Scenarios

SWOT Analysis

Understanding SWOT

What Is Wrong With SWOT?

“Which is better, a two-way distinction between internal and external influences or the four-way SWOT taxonomy?

The key issue is whether it is sensible and worthwhile to classify internal factors into strengths and weaknesses and external factors into opportunities and threats.

In practice, such distinctions are difficult.

Was Alex Ferguson a strength or a weakness for Manchester United Football Club in the final year of his time at the club? As the world’s most experienced and successful soccer coach, he was a strength. As a 70-year-old man who has no obvious successor, he was a weakness.

Is global warming a threat or an opportunity for the world’s automobile producers? By encouraging higher taxes on motor fuels and restrictions on car use, it is a threat. By encouraging consumers to switch to fuel-efficient and electric cars, it offers an opportunity for new sales.

The lesson here is that classifying external factors into opportunities and threats, and internal factors into strengths and weaknesses, is arbitrary. What is important is to carefully identify the external and internal forces that impact the firm, and then analyse their implications”.

GRANT, R.M., 2013. Contemporary Strategy Analysis. 8. ed., reprint with corr. edn. Chichester: Wiley. P11

Not All Strengths and Weaknesses Are Equal

Understanding Strengths and Weaknesses

Relative Strength

Strategic Importance

High

Low

Superfluous Strength

Key Strength

Zone of Irrelevance

Key Weakness

Analysing Weaknesses

Ability to Correct

Strategic Importance

High

Low

High

Low

Tesla Car Manufacturing Competency

Blockbuster Video Hire Competency

Blockbuster Digital Competency

Zone of Irrelevance

Addressable Weakness

Zone of Irrelevance

Key Weakness

Analysing Opportunities

Value of the Opportunity

Competitive Advantage

High

Low

High

Low

Lack of Plants in Asia

Outsourcing

Build Plants

Reduce Demand – niche focus

Can we improve our competitive position?

Priority 1

Zone of Irrelevance

Priority 2

Analysing Threats

Impact on Company Profitability

Probability of Occurrence

High

Low

High

Low

Government Intervention in Car Design and Manufacture to Prevent Climate Change

Lobby

Acquisition of new competencies

Partnerships

Reduce ICE Environmental Impact

Take action to mitigate or avoid the threat occurring.

Take urgent action to mitigate the damage.

Zone of Irrelevance

Accept the risk.

SWOT – Example Summary Based On Cesim Global Challenge

SWOT

Strengths

Weaknesses

Opportunities

Threats

25% Global Market Share

Only 3 plants in Asia

Launch Tech 2 and 3 in uncontested niche

Price reductions by competition

Low profitability

High Tech 4 Production costs

Tech 2 and Tech 3 Not Developed

10 Features available for Tech 1 and 4

High Market share in Tech 4 Europe

Build additional plants in Asia

Increase profit on Tech 1 and Tech 4 by seeking more profitable niches

Accept price leadership in the market – do not compete on price

Flat demand – industry maturity

Low cost of borrowing

16 plants in the US

3 Plants in Asia – So What?

Currently it costs an additional $24 per phone to manufacture in the US and to export to Asia compared to competitors manufacturing in Asia

This results in a significant pricing disadvantage

Current Asia market size is xx. Our market share is yy%, which to meet from plants in Asia would require 8 plants

Our Asia outsourcing capacity is insufficient to meet the demand

We need to align marketing and production if we are to be successful

Adopt a niche focus and sell higher priced phones with a smaller market share but improved profit.

Corporate Strategy

The Issue of Corporate Configuration

Corporate Composition – Where the firm wants to have which level of involvement – where to allocate resources, build up activities and achieve market sales

Corporate Scope – the more ‘business components’ chosen the broader the scope of the corporation

Corporate Distribution – the composition depends on the relative size of the activities in each business area

Corporate Integration Through Control And Cooperation

Multi-business firms are typically organised into strategic business units (SBUs)

Each SBU serves the demands of one business area

Three key integration mechanisms to bring the SBUs together:

centralisation

coordination

standardisation

The Issue Of Corporate Configuration

Who should take the initiative to realise integration?

Two organisational means:

control

Cooperation

Three general corporate control styles:

financial control

strategic control

strategic planning

SBUs need to cooperate – multi-business synergy

SBUs need to be highly responsible to specific demands of their own business area – business responsiveness

IT and Business Services

Organisation by Service v organization by industry sector

IT Services Firms

Consulting

System Integration and Software Development

Technology Services

Finance

Manufacturing

Public Sector

Service Delivery

IT Services Firms

Consulting

System Integration and Software Development

Technology Services

Application Management

Desktop Devices

Servers

Networks

Financial Services

Manufacturing

Travel and Transport

Government

SAP

Oracle

Mobile

Application Development

The Paradox Of Responsiveness And Synergy

Synergy by leveraging resources – two or more businesses are related if their resources can be productively shared:

Resource reallocation – resources can be transferred to other SBUs where better use can be made of them e.g. money and personnel

Resource replication – intangible resources can be copied from one business unit to another, e.g. knowledge and capabilities copied and reused in other business units

Synergy by aligning positions – Improving bargaining position – offer a broad package of related products

Improving competitive position – coordination of product offerings prevent SBUs from fighting amongst one another

Synergy by integrating value chain activities –

Sharing value-adding activities

Linking value-adding activities

Demand For Multi-business Synergy

Diversification into new business areas only economically justified if it leads to value creation

Increase in shareholder value if three tests are passed:

the attractiveness test

the cost-of-entry test

the better-off test

Associated British Foods

Why UK Discount Retailer Primark Should Spinoff To Unleash Real Value For Investors

https://www.forbes.com/sites/jimosman/2019/10/15/discount-retailer-primark-spin-off/?sh=2a8ce1d23f83

Forms Of Multi-business Synergy

Vertical Integration

Vertical integration of activities – ‘internalisation’ – firms perform activities inside the firm instead of dealing with outside suppliers and buyers

Companies will integrate upstream or downstream activities if the following conditions are deemed important:

operational coordination

avoidance of transaction costs

increased bargaining power

learning curve advantages

implementing system-wide changes

Garment Industry – Business Models with Varying Degrees of Vertical Integration

Demand for Business Responsiveness

Responsiveness is the ability to respond to the competitive demands of a specific business area in a timely and adequate manner

Major problems in a vertically integrated firm:

high governance costs

slower decision-making

strategy incongruence

dysfunctional control

dulled incentives

Two Perspectives of Corporate Organisations

The Portfolio Organisation e.g. the South Korean Chaebol

Samsung – gadgets, appliances, engineering, construction, shipbuilding, insurance and credit cards

LG – smartphones, televisions, electronic components, chemicals and fertilizer. It also owns Korean baseball and basketball teams.

Hyundai – Hyundai and Kia cars, elevators, logistics services, hotels and department stores

The Integrated Organisation

The Portfolio Organisation Perspective

Responsiveness is emphasised over synergy

The only synergies emphasised are financial synergies

Business units do not need to be ‘related’ in any other way than financial

Portfolio approach well-suited to diversification through acquisition

Business units must be responsible for their own competitive strategy

Corporate centres should be modest in ambition and size

In the 1970s and 80s Lords Hanson and White turned Hanson into a multi-national concern with interests across the world ranging from chemical factories in the US to electricity supply in the UK and gold mines in Australia.

Hanson produced cigarettes and batteries, timber and toys, golf clubs and Jacuzzis, cod liver oil capsules and cranes.

The Integrated Organisation Perspective

A corporation should be a tightly knit team of business units grouped around a common core

Corporate level strategists ‘lead from the centre’

Core competence centred corporation – the corporation is like a tree, the trunk is the core products, smaller branches are businesses units, business unit branches can be cut off and new ones can grow on but all spring from the same tree

All business units should tap into and contribute to the corporation’s core competences, thus the business units’ autonomy is limited

Other synergies used e.g. product offerings can be aligned for a group of core customers; a multi-business firm can be built around shared activities; use of firm’s software e.g. for Disney Cinderella sells DVDs, encourages families to visit Disney theme parks, watch the Disney channel etc.

Growth through acquisition is more difficult

References

Bennett, N. and Lemoine, G. J. (2014) ‘What VUCA Really Means for You’, Harvard Business Review, 92(1/2), p. 27.

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

Kurtz, C. & Snowden, D. 2003. The new dynamics of strategy: Sense-making in a complex and complicated world, IBM Systems Journal, vol. 42 no. 3, pp. 462–483

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

Schoemaker, P.J.H., Heaton, S., Teece, D., 2018. Innovation, Dynamic Capabilities, and Leadership. California Management Review 61, 15–42. https://doi.org/10.1177/0008125618790246

Schoemaker, P. and Krupp, S. (2015) ‘THE ANTICIPATORY LEADER: How to See Sooner and Scan Wider’, Rotman Management, pp. 36–41. Available at: http://0-search.ebscohost.com.emu.londonmet.ac.uk/login.aspx?direct=true&db=bth&AN=102477054&site=ehost-live (Accessed: 28 August 2019).

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MN7031 Topic 12 – Strategic Alignment

londonmet.ac.uk

Daniel Jones

Today’s Agenda

Lecture – Strategic Alignment

The business environment

Strategic alignment

Revolutionary and evolutionary change

International Perspective

Recap – Key models and theories

Simulation – R7

Assessment 2 – Q and A

The Context of Strategic Alignment

The Alignment Challenge

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.

Levels of Strategy

Wit, B. de (2017)

Network Level

Corporate Level

Business Level

Functional Level

Marketing – MN7032

Operations – MN7030

Finance and Accounting – MN7029

People Management – MN70028

Another View of VUCA

Bennett and Lemoine (2014)

Acceptance of the use of robots

Conflict

Climate Change

Energy supplies

Strategic Alignment

For A ‘Living’ Organisation, Change Is A Given

Not all change is “strategic” – much change is ‘fine-tuning’ alterations where changes are directed at increasing the performance of the firm within the confines of the existing system

Strategic changes are directed at creating a new type of alignment between the basic set-up of the firm and the characteristics of the environment

The process of enacting strategic changes to remain in harmony with external conditions is called ‘strategic alignment’

The Issue Of Strategic Alignment

Many actions constitute a strategic change e.g.: a reorganisation, a diversification move, a shift in core technology, a business process redesign or a product portfolio reshuffle.

Areas Of Strategic Alignment

Business model – ‘how a firm makes money’ or ‘the specific configuration of resources, value-adding activities and product/service offerings directed at creating value for customers’

Organisational system – ‘how a firm is organised’ or ‘how the individuals populating a firm have been configured, and relate to one another, with the intention of facilitating the business model’

Stakeholders

Ownership

Culture

Purpose

The business model is supported by the organisational system

Example Of Two Alternative Change Paths

The Demand For Revolutionary Change Processes

Revolutionary change is needed where an organisation is very rigid so that smaller changes do not bring the firm into movement

Typical sources of organisational rigidity include:

psychological cultural politica lresistance to change

Investment, competence, systems, and stakeholder lock-in

A radical approach to strategic alignment is often necessary if there is only a short time span available for a large change

Common triggers for revolutionary strategic change are:

competitive pressure

regulatory pressure

first mover advantage

The Demand For Evolutionary Change Processes

Evolution is a process whereby a constant stream of moderate changes gradually accumulates over a longer period of time. A new business model and/or organisational system can evolve from the old.

Reasons for evolutionary change:

Learning – the process is used where organisational learning is involved as learning is a slow process

Power is too dispersed for revolutionary changes to be imposed upon the firm

Navigating

Over the long term the pattern of environmental change is episodic. Periods of relative stability are interrupted by short and dramatic periods of instability – ‘punctuated equilibrium’.

When the environment is in flux, organizations must align. Strategizing managers must possess a variety of options in dealing with environmental change.

During periods of relative stability, the emphasis should be on evolutionary adaption.

During periods of discontinuous change, firms need to be able to be revolutionary.

How Do You Create Change In An Organisation?

Kotter (1995) has developed ‘8 steps’ to transform organisations:

Change Management is part of a project and is planned prior to implementation.

Some businesses can planned for months or even years in advance if they are aware of the changes. This is particularly evident in the public sector relating to specific legislation changes.

Learning

Leading and managing the people issues

Recognition and

starting the process

Diagnosis

Planning

Implementation and reviewing progress

Sustaining the change

Hayes (2018) Model of Change

Managing change involves seven core activities:

Recognising the need for change and starting the change process

Diagnosing what needs to be changed and formulating a vision of a preferred future state

Planning how to intervene in order to achieve the desired change

Implementing plans and reviewing progress

Sustaining the change

Leading and managing the people issues

Learning

Current

state

Future

state

The Change Process

Strategic Change – An International Perspective

Prevalence Of Mechanistic Organisations

In some countries, e.g. English-speaking countries and France, the machine bureaucracy is dominant – clear hierarchical authority relationships, strict differentiation of tasks, formal communication, reporting and decision-making processes. Internal relationships are depersonalised and calculative.

In more organic forms of organisation, e.g. in Japan and Germany, management and production activities are not strictly separated leading to less top-down decision-making. Internal relationships are based on trust, cooperation and a sense of community.

Machine bureaucracies are more resistant to change and therefore revolutionary change is more common

Clan-like organisations are better able to reorganise around new issues so there is a preference for continuous alignment

Position Of Employees

In a mechanistic organisation people work for the organisation, seen as valuable but expendable.

Employers want to minimise their dependence on employees so organisational learning should be captured in formal systems and procedures so employees can be replaced.

Employees will not tie themselves too strongly to the organisation.

More conducive to revolutionary change.

In a clan, people are the organisation.

Employees’ positions within the organisation are more secure, information is more readily shared.

Employers can invest in people instead of systems as employees are loyal to the firm.

More conducive to continuous change.

Role Of Top Management

In some countries top management is the ‘central processing unit’ of the organisation and visible top-down leadership is the norm and strategic change top managers’ responsibility. This leads to a discontinuous alignment perspective.

In other countries management is less direct and less visible. Change comes from within the body of the organisation and will be more

evolutionary.

Time Orientation

Cultures that are short-term oriented exhibit a stronger preference for fast radical change, e.g. in most English-speaking countries there are pressures for rapid results due to:

sensitivity to stock prices

bonus systems

stock option plans

frequent job-hopping

In long-term oriented cultures, e.g. Japan, China and South Korea, there is less pressure to achieve short-term results. More emphasis is placed on facilitating long-term change processes due to:

long-term employment relationship

lack of short-term bonus systems

accent on growth not profit

Key Skills, Models and Theories To Master

Strategy Diagnosis – An Iterative and Incremental Sense Making Process

Analyse the External Environment

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..

Strategic

Sense Making

Financial Performance

Industries, Product Offerings and Market

Business Model and Value Network

Capabilities, Resources and Competencies

Competitive Advantage

Scan the Environment

Bullet Proof Problem Solving (MN7027)

The bulletproof problem-solving process is both a complete process and an iterative cycle.

This cycle can be completed over any timeframe with the information at hand.

Once you reach a preliminary end point, you can repeat the process to draw out more insight for deeper understanding.

The one-day solution.

Iterative and emergent.

Systems Thinking

https://medium.com/disruptive-design/tools-for-systems-thinkers-the-6-fundamental-concepts-of-systems-thinking-379cdac3dc6a

The Cynefin Framework

“The Cynefin framework originated in the practice of knowledge management as a means of distinguishing between formal and informal communities, and as a means of talking about the interaction of both with structured processes and uncertain conditions.”

unordered

from (Kurtz & Snowden 2003)

ordered

PESTEL (LEE)

Political

Economic

Social

Technological

Legal

Environmental

Ethical

Environmental Scanning

……is the acquisition and use of information about events, trends, and relationships in an organisation's external environment, the knowledge of which would assist management in planning the organisation's future course of action.

It is a sense-making activity.

Scenario Planning

The Value System or Value Network

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

How Do We Understand Industry Profitability?

According to Porter (2008), competition for profit extends beyond direct rivals (e.g. Pepsi v Coke) to include 4 other industry components

This extended rivalry defines the structure of the industry and the level of profitability

Industry Competitors

Rivalry among

existing firms

Suppliers

Bargaining power of suppliers

Buyers

Bargaining power of buyers

Substitutes

Threats of substitutes

Potential Entrants

Threat of new entrants

Dimensions of Industry Development

Convergence – Divergence (how alike are firms)

Concentration – Fragmentation (market shares)

Vertical integration – Fragmentation

Horizontal integration – Fragmentation

International integration – Fragmentation

Expansion – Contraction

Vision and Mission

Corporate mission outlines the fundamental principles guiding strategic choices

Strategic vision outlines the desired future at which the company hopes to arrive

The corporate mission and strategic vision together send the firm in a particular direction

Emergent and Deliberate Strategies

Hill et al (2015)

Henry Mintzberg identified that planned strategies often did not survive contact with managers, customers and the business environment.

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

Choosing What Not to Do

Strategic Groups in the Commercial Aerospace Industry

CR929

https://www.defenseworld.net/news/28513/Sino_Russian_JV_Targets_Delivery_of_1000_CR929_Jets_by_2045#.YJY-l7X0lPY

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.

Experience and Learning

International Growth Options

Business Model Canvas

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

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

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)

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

McKinsey 7 S Framework

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

Kotter’s Process for Change Management

Kotter (1995) has developed ‘8 steps’ to transform organisations:

Change Management is part of a project and is planned prior to implementation.

Some businesses can planned for months or even years in advance if they are aware of the changes. This is particularly evident in the public sector relating to specific legislation changes.

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

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.

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MN7031 Topic 1 – How and Why Do Businesses Grow?

londonmet.ac.uk

Daniel Jones

Today’s Agenda

Introduction to the Module

How and Why Do Businesses Grow – Lecture

Introduction to the Module

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

Learning and Teaching

There are 6 key elements to your learning:

the workshops – lecture and discussions

case studies - you will be asked to analyse the case information and answer key questions. Some of these will be part of your final portfolio.

your reading – the reading list identifies key articles and textbooks

the assessments – group presentation in Week 9 and your final assignment.

learning from the MBA group.

The Nature of Strategy

There is no widespread agreement about what strategy is

There is no common definition of the term ‘strategy’

Understanding of the topic can only be gained by examining the diversity of insights and acknowledging that there is no simple answer to the question of what strategy is

“A Strategy is a set of related actions that managers take to increase their companies performance”

Hill, Jones and Schilling (2015)

Competitive strategy is about being different from one’s rivals and has a number of possible meanings:

Plan

Ploy

Pattern

Position

Perspective

Mintzberg (2014)

“One person’s strategy are another’s tactics.”

Rumelt (1980)

Porter argues that competitive strategy is "about being different." He adds, "It means deliberately choosing a different set of activities to deliver a unique mix of value.“ Porter (1996)

Common Elements in Strategy

Simple, consistent long-term

goals

Profound understanding of the competitive environment

Objective appraisal of resources

Effective Implementation

Successful Strategy

Levels of Strategy

Wit, B. de (2017)

Network Level

Corporate Level

Business Level

Functional Level

Marketing

Operations

Finance and Accounting

Human Resource Management

Porter’s Basic Strategies

Source of Competitive Advantage

Low cost

Differentiation

Competitive Scope

Single Segment

Industry

Cost

Leadership

Differentiation

Focus

Cost

Focus

Differentiation

Focus

Creating And Growing A Business

Today’s Key Topics

Lecture

Why Do Businesses Need to Grow?

What Is A Startup?

The Lean Start Up and the Business Model Canvas

Analogs and Antilogs

Value propositions

Stages of Business Growth

The need for Systemisation

Why do start ups succeed?

Approaches to business growth

Cesim Global Challenge

Introduction

Practice Round 1

Why Grow?

“Some business leaders who attain a certain level of success are content to stay at this plateau. They feel assured within the space their business occupies in the marketplace and have little motivation to change anything.

This is a risky stance for any business leader to take. Growth isn’t just important for a company—it’s absolutely essential. Without continued growth, operations will stagnate. This can result in lowered standards of quality for products or services, decreased customer service, poor employee morale, and a host of other issues.

Growth “is crucial to the long-term survival of a business,” notes nibusinessinfo.co.uk, pointing to these clear-cut benefits:

Easier to add resources

Locate and identify new sales opportunities

Expand range of products or services

Acquire new customers

Also, growth can “boost your business’ credibility, allowing you to broaden your supply base and increase stability and profits.”

All compelling benefits gained by the pursuit of business growth!”

https://www.thealternativeboard.com/blog/why-is-growth-important-for-a-company

Creating A Business

Suppliers

Channels

Resources

know how

funding

people

Business Operation

Processes

Information systems

Facilities and equipment

Value Chain

Substitutes

Competitors

The Business

Environment

Potential

Competitors

Mission and

Vision

What Is A Start-Up?

Clusters are geographic concentrations of firms focused largely on one industry of the overall ecosystem to produce innovations. Boni and Gunn (2021)

An ecosystem is a sustainable economic region comprised of a community or critical mass of interacting organizations and individuals that produce goods and services of value to customers.

Angel.co – 50 Best Startup Companies to Watch Out For in 2020

Space Bandits – Startups in the Space Industry

Lokting (2020)

The Lean StartUp

Business Model Canvas

The Lean Start Up

Analogs & Antilogs

Analogs – Whatever you’re doing is likely to have been done before: SO, learn from them.

Antilogs – By looking at previous failures – can be instructive in constructing your own approach.

The iPod Analog and Antilog

Value Proposition

A customer value proposition – a promise of value to be delivered. It's the primary reason a prospect should buy from you. It explains how your product solves customers' problems or improves their situation, or delivers specific benefits

What Makes a Good Value Proposition?

Clarity – it is easy to understand.

It communicates the concrete results a customer will get from purchasing and using your products and/or services.

It can be read and understood quickly.

“We help large companies reduce the cost of their employee benefits programs without impacting benefit levels.

With the spiralling costs of health care today, this is a critical issue for most businesses.

One of our recent clients, a large manufacturing company similar to yours, was struggling with how to reduce spending in this area.

We saved them over $800,000 in just six months. Plus, they didn’t cut any services to their employees, nor did their employees have to pay more.”

http://www.jillkonrath.com/sales-blog/bid/140981/Value-Proposition-Examples-Words-That-Get-Meetings

All Businesses Need An Offering of Value…..

What is it of value that we are offering our customers?

Who is our ideal customer?

How big is the market?

Is the market growing?

Is it price sensitive?

What influences the market size?

How do we tell potential customers about our offering?

Market for Ice Cream.

Niche Market

Small Business Growth

The business is an effective system that makes money when the owner is not there.

Existence stage: the owner runs the business alone

Survival stage: the entrepreneur is no longer responsible for just her own efforts

Success stage: the owner accepts a degree of disengagement as a level of supervision is added

Takeoff stage: the business includes multiple departments

Resource maturity stage: the company has arrived

Stages of Business Growth

SOURCE: Reprinted by permission of Harvard Business Review. Exhibit. From “Five Stages of Small Business Growth,” by Neil C. Churchhill and Virginia L. Lewis, May–June 1983. Copyright © 1983 by the Harvard Business School Publishing Corporation; all rights reserved.

Startup Incubation

Casado et al (2020)

A Business Is A System Made up of Processes

Objectives of Systemisation In Small Businesses:

Reduces risk by enabling employees to perform a range of processes by following the procedures

Enables work to be allocated to the lowest possible cost resource, improving profitability

Allows measurement and improvement of the business processes

Frees up the owner (s) to work more on growing the businesses

Allows the owner to be absent from the business once processes are established and the team are operating them successfully

Paves the way to being a business of value that can be sold, since the business will operate without the owner.

Provides a platform for further growth

The first step towards Knowledge Management, making explicit the knowledge of the owner and key staff

Paves the way to using more complex information systems that will improve management information, aid forecasting and allow greater control; systems that the owner can access when he is away from the business

Why Do Start Ups Succeed?

Some Lists

Be Passionate

Execute Flawlessly

Delight your customer

100% commitment

Bisht (2012)

Key Success Factors

Timing: How early or late was the execution of the idea relevant to the time it was pursued?

Team/Execution: How effective or efficient was the team? How adaptable were they?

Idea: How novel or differentiable is it? Is there any unique truth in the idea? Are there “competitive moats” you can build around it?

Business Model: Was there a clear path to generating customer revenues?

Funding: How much money did they raise based on initial funding, follow-up, & growth?

Bill Gross (2015) – IdeaLab

Hot Not to Get Funding

Focusing on the solution and not the problem (‘This is a game changing technology’).

Relying on secondary data to project market penetration (‘If only we could sell this to 1 per cent of the China market …’).

A faulty business model (‘Just look at the revenue (not cash) we are generating’)

A team that can’t execute on the critical success factors (‘Our leadership team consists of people with a track record of success in several other industries’).

A plan where everything is rosy, there is no competition, and all we need is money. (When was the last time someone gave a pitch and said ‘This is a terrible idea and is bound to fail?’).

Randy Komisar – Getting to Plan B (2010)

And Yet More Lists

“If a new venture does succeed, more often than not it is:

• In a market other than the one it was originally intended to serve

• With products and services not quite those with which it had set out

• Bought in large part by customers it did not even think of when it started

• And used for a host of purposes besides the ones for which the products were frst designed.”

Peter Drucker

• Are the market and industry attractive?

• Does the opportunity offer compelling customer benefits as well as a sustainable advantage over other solutions to the customer’s needs?

• Can the team deliver the results they seek and promise to others?

Mullins (2014)

The economics of the business model must work:

revenue

gross margin (revenue – direct costs)

operating expenses

working capital – difference between a company's current assets, such as cash, accounts receivable (customers' unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable.

investment characteristics of the model.

Mullins (2010)

Business Growth

How Does a Business Grow Profitably?

Vertical Integration

Backwards

Integration

New Market Entry

Forward

Integration

Horizontal Diversification

Internationalisation

Portfolio of Products

Innovation

Resource Capture

Learning

Corporate Growth Directions

	12/31/2016	12/31/2017	12/31/2018	12/31/2019	TTM
Total Revenue	119,687,000	120,468,000	121,616,000	95,215,000	83,928,000
Net Income Common Stockholders	8,163,00	-6,246,000	-22,802,000	-5,439,000	3,325,000

Samsung

The BCG Matrix And GE Business Screen

Bubble size indicates revenue.

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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

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

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.

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MN7031 Topic 3.3 – Why Do Companies Undertake Mergers, Acquisitions or Alliances?

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

Lecture

Corporate integration – control and cooperation

Demand for multi-business synergy

International growth, management and configuration – Globalisation and Localisation

Mergers and acquisitions – The paradox of resources and synergies

Vertical integration – Portfolio and integrated organisations

Network strategy and strategic alliances

Relational objectives

Relative Power Positions

Types of collaborative arrangements

Competition and Cooperation

International perspectives

How Does a Business Grow Profitably?

Vertical Integration

Backwards

Integration

New Market Entry

Forward

Integration

Horizontal Diversification

Internationalisation

Portfolio of Products

Innovation

Resource Capture

Learning

Alliances

Corporate Integration Through Control And Cooperation

The Issue Of Corporate Configuration

Who should take the initiative to realise integration?

Two organisational means:

control

Cooperation

Three general corporate control styles:

financial control

strategic control

strategic planning

SBUs need to cooperate – multi-business synergy

SBUs need to be highly responsible to specific demands of their own business area – business responsiveness

Demand For Multi-business Synergy

Diversification into new business areas only economically justified if it leads to value creation

Increase in shareholder value if three tests are passed:

the attractiveness test

the cost-of-entry test

the better-off test

Associated British Foods

FAME Database

International Growth Options

International Management

Internationalisation only makes sense if enough cross-border synergies can be reaped to offset the extra cost of foreignness and distance

Three most important integration mechanisms:

Standardisation – do the same thing in each country

Coordination – align varied activities in different countries by cross-border coordination

Centralisation – activities within the firm can be integrated at one central location

The Issue of International Configuration

Four generic organisational models:

Decentralised federation – firm is organised along geographic lines, with each country subsidiary largely self-sufficient and autonomous – multinational

Coordinated federation – firm is organised along geographic lines, but the country subsidiaries have a closer relationship with the international headquarters in the home country

Centralised hub – national units are relatively unimportant as all main activities are carried out in the home country

Integrated network – country subsidiaries have a close relationship with international headquarters but also a close relationship with each other

Generic Organisational Models For International Firms

The Paradox of Globalisation and Localisation

Tension between international uniformity and meeting local demands

International standardisation is a means for achieving cross-border synergies

Synergies can be achieved by leveraging resources, integrating activities and aligning product offerings across two or more countries

US Best Seller – Toyota Camry

UK Best Seller – Ford Fiesta

Japan Best Seller – Toyota Aqua

The Demand for Global Synergy

Synergy by aligning positions – align market positions in the countries in which the firm operates

Dealing with cross-border customers

Dealing with cross-border competition

Synergy by integrating activities – integrating the value-creating processes across borders to realise economies of scale and take advantage of specific competitive advantages of each nation

Reaping scale advantages

Reaping location advantages

Synergy by leveraging resources – sharing resources across national markets

Achieving resource reallocation

Achieving resource replication

Mergers, Acquisitions and Alliances

A Career Experience of Mergers, Acquisitions and Alliances

Hoskyns – 1990’s

Acquired by Plessey

Acquired by Debis System Haus

Acquired by Capgemini

Alliance with a parking services firm to develop BPO business in decriminalised parking enforcement for Local authorities

EDS

Acquired by GM – we all drove GM cars!

Acquisition due diligence for a services firm in Local Government IT services

Major bids in alliance with a range of companies, including ATKearney, PwC, IBM and Microsoft

TTSC Alliance

Fujitsu

Alliance with PwC, Tata Consulting Services and IDX – major NHS bid

Alliance with Zensar Technologies for a BOT contract for an IT service centre in Pune

EDS

Alliance bid for the National Identity Card

Oyster Card – EDS, ICL (Fujitsu), Cubic, WSAtkins

acquired by HP

TPI – acquired by ISG and merged with Compass

BPP University – acquired by US firm Apollo Global Inc

Oyster Card – Transys Ltd

Mergers and Acquisitions

Mergers – a merger technically means that two companies and their shareholders decide and approve the combinations of both the companies. After the merger is signed between the companies, they will not operate individually any longer.

Acquisitions – In an acquisition, the acquiring company takes control of the acquired company. The acquiring company usually keeps its name, does not seemingly alter its legal system, and usually maintains its stock symbols after an acquisition of a different company. The key to success is to create value for shareholders – 2+2 = 5

Reasons for Mergers and Acquisitions

Buy a new product that can be leveraged by the firm’s sales and distribution capabilities e.g. Beam Suntory bought Sipsmith, and Asahi Group bought Fullers Brewing and Distribution Operation

Buying distribution in new markets – Just Eat and Grubhub (US) = $7.3bn

Acquiring capabilities – Tesla, Cisco, Google. Microsoft

Diversification – Uber and Postmates, Alphabet

The Paradox Of Responsiveness And Synergy

Synergy by leveraging resources – two or more businesses are related if their resources can be productively shared:

Resource reallocation – resources can be transferred to other SBUs where better use can be made of them e.g. money and personnel

Resource replication – intangible resources can be copied from one business unit to another, e.g. knowledge and capabilities copied and reused in other business units

Synergy by aligning positions – Improving bargaining position – offer a broad package of related products

Improving competitive position – coordination of product offerings prevent SBUs from fighting amongst one another

Synergy by integrating value chain activities –

Sharing value-adding activities

Linking value-adding activities

Why UK Discount Retailer Primark Should Spinoff To Unleash Real Value For Investors

https://www.forbes.com/sites/jimosman/2019/10/15/discount-retailer-primark-spin-off/?sh=2a8ce1d23f83

Forms Of Multi-business Synergy

Vertical Integration

Vertical integration of activities – ‘internalisation’ – firms perform activities inside the firm instead of dealing with outside suppliers and buyers

Companies will integrate upstream or downstream activities if the following conditions are deemed important:

operational coordination

avoidance of transaction costs

increased bargaining power

learning curve advantages

implementing system-wide changes

Garment Industry – Business Models with Varying Degrees of Vertical Integration

Demand for Business Responsiveness

Responsiveness is the ability to respond to the competitive demands of a specific business area in a timely and adequate manner

Major problems in a vertically integrated firm:

high governance costs

slower decision-making

strategy incongruence

dysfunctional control

dulled incentives

Two Perspectives of Corporate Organisations

The Portfolio Organisation e.g. the South Korean Chaebol

Samsung – gadgets, appliances, engineering, construction, shipbuilding, insurance and credit cards

LG – smartphones, televisions, electronic components, chemicals and fertilizer. It also owns Korean baseball and basketball teams.

Hyundai – Hyundai and Kia cars, elevators, logistics services, hotels and department stores

The Integrated Organisation

The Portfolio Organisation Perspective

Responsiveness is emphasised over synergy

The only synergies emphasised are financial synergies

Business units do not need to be ‘related’ in any other way than financial

Portfolio approach well-suited to diversification through acquisition

Business units must be responsible for their own competitive strategy

Corporate centres should be modest in ambition and size

Hanson produced cigarettes and batteries, timber and toys, golf clubs and Jacuzzis, cod liver oil capsules and cranes.

The Integrated Organisation Perspective

A corporation should be a tightly knit team of business units grouped around a common core

Corporate level strategists ‘lead from the centre’

All business units should tap into and contribute to the corporation’s core competences, thus the business units’ autonomy is limited

Growth through acquisition is more difficult

Portfolio Organisation Versus Integrated Organisation Perspective

Network Strategy and Strategic Alliances

The Issue Of Inter-organisational Relationships

All firms interact with other organisations in their environment and therefore have inter-organisational relationships

Four aspects are particularly important:

Who are the potential counterparts with whom a firm can have a relationship (relational actors)?

Why do the parties want to enter into a relationship (relational objectives)?

What type of influences determine the nature of the relationship?

How can relationships be structured to let

them function in the manner intended?

Aspects Of Inter-organisational Relations

Relational actors

Upstream – vertical (supplier) relations

Downstream vertical (buyer) relations

Direct horizontal (industry insider) relations

Indirect horizontal (industry outsider) relations

There are also contacts with condition-setting parties in the broader environment:

socio-cultural actors

economic actors

political/legal actors

technological actors

The Firm And Its Web Of Relational Actors

Relational Objectives

Relations oriented towards leveraging resources:

Learning

Lending

Relations oriented towards integrating activities:

linking (e.g. vertical link between buyer and seller)

lumping (bringing together similar activities to gain economies of scale)

Relations oriented towards aligning positions:

leaning (two or more firms get together to improve their bargaining position)

lobbying

Relational Factors

How inter-organisational relationships develop is influenced by the objectives of the parties but other factors also have an impact:

legitimacy

urgency

frequency

power

There are four specific types of inter-firm relationships from the perspective of the power position:

mutual independence

unbalanced independence

mutual dependence

unbalanced dependence

Relative Power Positions In Inter-organisational Relationships

Examples Of Collaborative Arrangements

Managing The Paradox Of Competition And Cooperation

Discrete Organisation Versus Embedded Organisation Perspective

Network Level Strategy In International Perspective

Firms from different countries display widely divergent propensities to compete and cooperate. There can also be significant variance within a country.

Cross-border collaborative arrangements, e.g. cooperative agreements to overcome entry barriers that exist due to import restrictions, and cross-border arrangements within trade blocks, e.g. the EU cooperated to face Japanese competitors in the core technologies and tried to learn lessons from Japanese practices.

Type of institutional environment, different institutional structures, governments, banks, universities and unions have developed in each country, and each country has developed its own economic system.

Market for corporate control, a relatively open market for corporate control facilitates vertical and horizontal integration.

Social networks and cultural values, can place more emphasis on competition or cooperation, e.g. US more individualist than Japan.

Negative effects of ‘groupism’, social networks do not always lead to higher efficiency.

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

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MN7031 Topic 5 – How Do We Make Sense of the VUCA Environment?

londonmet.ac.uk

Daniel Jones

Topic 5

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

VUCA Defined

Environmental scanning

Black Swan Events

Sense Making

PESTEL Analysis

Identifying major trends and issues

Climate Change

ESG Rankings

Cesim Global Challenge

Round 3

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.

The Main Strategy Formation Activities

Environmental Scanning

What Are We Interested In?

What is changing and how does that impact us; opportunities and threats

Be specific

Ask “So What” at least 3 times

What do we know has happened that will lead to change e.g. the aging population and workforce retirement

Indicators of change e.g. developments in other markets

What’s The Challenge?

Global, Regional, National and Local differences – many different environments

Information overload

Over-estimating the speed of change and underestimating the impact – how long before cars are all electric and all self driving? How long before AI is equal to Human Intelligence?

VUCA – Volatility, Uncertainty, Complexity, Ambiguity

VUCA

Word	Merriam Webster Definition
Volatile	characterised by or subject to rapid or unexpected change
Uncertain	not known beyond doubt, not clearly identified or defined, not constant
Complicated	consisting of parts intricately combined
Complex	a whole made up of complicated or interrelated parts
Ambiguous	capable of being understood in two or more possible senses or ways

Another View of VUCA

Bennett and Lemoine (2014)

Acceptance of the use of robots

Ukraine – energy price rises, sanctions, food shortages, refugees

Climate Change

Cars – what is the future?

Tips For Scanning Wider

Schoemaker and Krupp (2015)

Black Swan Events

The term “Black Swan” to describe unanticipated events has seeped into public consciousness since the publication of “The Black Swan: The Impact of the Highly Improbable” by Nassim Nicholas Taleb 2007.

The idea was originally put forward by philosopher David Hume to represent the unexpected, an unlikely but not impossible catastrophe that no one ever seems to plan for, the things one does not know or does not know that one does not know.

Black Swan Events – Unknown Unknowns

The 'Black Swan problem' states that, "no matter how many swans you find, the fact that they are all white, so far, can't prove that other colours don't exist".

Risk Management and Black Swans

Traditional risk management relies on identifying risks based on the experience of the teams involved in the enterprise.

If the risk is outside the experience of the group it is unlikely to be considered, and even if it is, it is likely to be prioritised as low by being allocated an extremely low probability rating.

Risk management concentrates of managing the risks to the enterprise that would have a significant impact and have a reasonable probability of occurring.

This is simply a way of prioritising potentially 'bad' events so that time and resource can be allocated.

Brainstorming risks is highly unlikely to capture Black Swans. The exercise will either be too narrow, by staying within the comfort zones of the participants, or too broad by considering risks that are not relevant to the business.

Why Are We Blind To Black Swans?

Taleb identifies five peculiarities of human behaviour responsible for blindness to Black Swans by people only familiar with white swans:

1. We tend to categorise, focusing on preselected data that reaffirm beliefs as opposed to any contradictions (confirmation bias)

2. We construct stories to explain events and see patterns in data when none exist, due to illusion of understanding (narrative fallacy)

3. We are not programmed to imagine Black Swans;

4. We tend to ignore the silent evidence and focus disproportionately either on the failures or successes;

5. We overestimate one’s knowledge and focus too narrowly on one’s field of expertise (tunnel vision), ignoring other sources of uncertainty, and mistaking concocted models for reality (ludic fallacy).

Nafday, AM 2009, 'Strategies for Managing the Consequences of Black Swan Events', Leadership & Management In Engineering, 9, 4, pp. 191-197, Business Source Complete, EBSCOhost, viewed 27 February 2013.

Features of A Black Swan Event

To be a true Black Swan event, an event must have three distinct features:

The event is a surprise to the observer

The event has an extreme impact

After it happens, the event can be predicted with hindsight.

Black Swan events are unknown unknowns, and thus impossible to accurately predict or risk assess, but they can be prepared for.

The ability to rationalise a Black Swan event in hindsight separates it from being pure chance.

After the event, the cause can be seen or calculated and the precursor evidence will be seen to have been there all along.

Fukushima

It was well known that earthquakes of magnitude 9 or more were possible and it was also known that fault lines lay off the coastline of Japan.

Given a tsunami of a certain size, it was obvious which areas would be inundated and that these would include the standby generators at Fukushima.

If a full risk assessment had been carried out looking at geological, seismic, reactor safety and emergency services factors, it may have concluded that the chain of events which occurred on 11 March were entirely possible, in effect a Black Swan event.

COVID 19

Numerous warnings of a pandemic over the past decade but the world was not prepared and reacted slowly to the problem.

Sense Making

Sense-making

Although there are others contributing to the study of sense-making, Dervin, Weick and Snowden are the three big names associated with different approaches

What is ‘on the tin’: sense-making is what people continuously do to work out what is going on in their situations (and in the external environment), where they fit, what the need for action

It implicitly encompasses change: change is not an error!

It recognises that people have different identities and these change

Sense-making is about filling in gaps in what we write down, talk about, build

Time and space have a big part to play in sense-making

The Cynefin Framework

unordered

from (Kurtz & Snowden 2003)

ordered

PESTEL – Environmental Scanning and Sense-making

PEST(LEE)

Political

Economic

Social

Technological

Legal

Environmental

Ethical

Environmental Scanning

It is a sense-making activity.

When Is PESTEL Useful?

A framework for environmental scanning and sense making – what is changing?

Strategy creation – identification of opportunities and threats

Scenario planning

Market Entry to a New Country

Outsourcing or creation of new production facilities

New Product Development

Macroeconomic Forces

Growth rate of the economy

Interest rates

Currency exchange rates

Inflation or deflation rates

Global and Technological Forces

Global Forces e.g. falling barriers to international trade have enabled companies to expand into new geographic markets but……..Brexit, China – US disputes, Supply Chain Disruption, Ukraine

Technological Forces – technological change can:

Make products obsolete

Enable relocation of work

Create a host of new product possibilities

Impact the height of the barrier to entry and reshape industry structure

Demographic, Social, and Political Forces

Demographic forces – Outcomes of changes in the characteristics of a population – aging, immigration, birth-rates, death-rates, divorce

Social forces – Way in which changing social morals and values affect an industry e.g. popularism

Political and legal forces – Outcomes of changes in laws and regulations, tariffs, trade agreements, and climate change

PESTEL and Strategy

In scanning and making sense of the environment when formulating strategy, we are interested in the future, so what are the key trends that impact our industry and how far out should we look?

It is not sufficient just to analyse what is happening today and the recent past, although that is important

In the next topic we will look at using scenarios to examine the future implications for strategy

Managers and Executives should be constantly scanning the environment to detect indications of change

Major Trends – Change Is Opportunity

Major Trends According to McKinsey (2015)

1. Urbanisation and Growth in Emerging Markets in Asia, Latin America and the Middle East

Nearly half of global GDP growth between 2010 and 2025 will come from 440 cities in emerging markets—95 percent of them small- and medium-size cities that many Western executives may not even have heard of and couldn’t point to on a map.

2000, 95 percent of the Fortune Global 500—the world’s largest international companies including Airbus, IBM, Nestlé, Shell, and The Coca-Cola Company, to name a few—were headquartered in developed economies.

By 2025, when China will be home to more large companies than either the United States or Europe, we expect nearly half of the world’s large companies—defined as those with revenue of $1 billion or more—to be headquartered in emerging markets.

Major Trends According to McKinsey (2015)

2. Accelerating Technology Change

Twenty years ago, less than 3 percent of the world’s population had a mobile phone; now two-thirds of the world’s population has one, and one-third of all humans are able to communicate on the Internet.2

Technology allows businesses such as WhatsApp to start and gain scale with stunning speed while using little capital.

Entrepreneurs and start-ups now frequently enjoy advantages over large, established businesses.

The furious pace of technological adoption and innovation is shortening the life cycle of companies and forcing executives to make decisions and commit resources much more quickly.

Major Trends According to McKinsey (2015)

3. Population Growth and Aging

By 2013, about 60 percent of the world’s population lived in countries with fertility rates below the replacement rate.

The European Commission expects that by 2060, Germany’s population will shrink by one-fifth, and the number of people of working age will fall from 54 million in 2010 to 36 million in 2060, a level that is forecast to be less than France’s.

China’s labor force peaked in 2012, due to income-driven demographic trends.

In Thailand, the fertility rate has fallen from 5 in the 1970s to 1.4 today.

Major Trends According to McKinsey (2015)

4. Greater Global Connections

The global trading system has expanded into a complex, intricate, sprawling web.

Asia is becoming the world’s largest trading region. “South–south” flows between emerging markets have doubled their share of global trade over the past decade.

The volume of trade between China and Africa rose from $9 billion in 2000 to $211 billion in 2012. Global capital flows expanded 25 times between 1980 and 2007.

More than one billion people crossed borders in 2009, over five times the number in 1980.

These three types of connections all paused during the global recession of 2008 and have recovered only slowly since.

McKinsey 2021

2021 will be the year of transition. Barring any unexpected catastrophes, individuals, businesses, and society can start to look forward to shaping their futures rather than just grinding through the present.

The return of confidence unleashes a consumer rebound

Leisure travel bounces back but business travel lags

The crisis sparks a wave of innovation and launches a generation of entrepreneurs

Digitally enabled productivity gains accelerate the Fourth Industrial Revolution

Pandemic-induced changes in shopping behavior forever alter consumer businesses

Supply chains rebalance and shift

The future of work arrives ahead of schedule

The biopharma revolution takes hold

Green, with a touch of brown, is the color of recovery

Healthcare systems take stock—and make changes

The hangovers begin as governments tackle rising debt

Stakeholder capitalism comes of age

What Should We Be Focused On?

Environmental change will impact firms differently:

Impact of climate change – weather patterns, sea levels, agricultural production, migration

Global Population Growth – will require more energy, food and water and more energy use will add to climate change.

Global Tensions – USA-China, Russia and NATO, Middle East (Iran, Syria, Israel)

Climate Change

The Impact of Climate Change By 2050

So What?

In India, by 2030 under a Representative Concentration Pathways (RCP) 8.5 scenario, between 160 million and 200 million people could live in regions with a 5 percent average annual probability of experiencing a heat wave that exceeds the survivability threshold for a healthy human being, absent an adaptation response.

RCP 8.5 is one of a suite of scenarios that describe several potential future pathways.

Each scenario defines a pathway in terms of the concentration of carbon in the atmosphere at any date – note that these pathways are defined in terms of the concentration (i.e. the level) of carbon in the atmosphere, not the volume of carbon emissions.

RCP 8.5 refers to the concentration of carbon that delivers global warming at an average of 8.5 watts per square meter across the planet. The RCP 8.5 pathway delivers a temperature increase of about 4.3˚C by 2100, relative to pre-industrial temperatures.

There is a scientific debate about whether RCP 8.5 is a plausible and accurate representation of the concentrations of atmospheric carbon that would be reached on the business-as-usual path

(climatenexus.org)

Climate Change

Global Warming Scenarios

Climate Change – So What?

Cement

With about 10 billion tons of concrete produced every year, it is the most consumed substance in the world, second only to water.

It is also the world’s most widely used material for construction – from bridges to large buildings, concrete forms the very foundation of our infrastructure. Over 70% of the world’s population lives in a concrete structure.

Concrete is formed when portland cement creates a paste with water that binds with sand and rock to harden. Common materials used to manufacture cement include limestone, shells, and chalk or marl combined with shale, clay, slate, blast furnace slag, silica sand, and iron ore. These ingredients, when heated at high temperatures form a rock-like substance that is ground into the fine powder that we commonly think of as cement.

The cement industry alone is worth over $37 billion, and it is one of the largest producers of CO2, creating up to 5% of the world’s emissions of the greenhouse gas, of which 50% is from the chemical process, and 40% from burning fuel, according to the World Business Council for Sustainable Development.

Global Warming Scenarios

“Utility Vattenfall and cement-maker Cementa may build a pilot plant in Sweden that for the first time in the world would produce cement from wind power instead of polluting fossil fuels, after positive results from a pilot study into the electrification of cement production.

The cement industry is one of the largest producers of CO2, creating up to 5% of the world’s emissions of the greenhouse gas, of which 50% is from the chemical process, and 40% from burning fuel, according to the World Business Council for Sustainable Development”.

https://www.rechargenews.com/transition/vattenfall-plans-world-s-first-zero-carbon-cement-plant/2-1-531250

BP Sets Ambition For Net Zero By 2050

Environmental, Social and Governance Practices

References

Bennett, N. and Lemoine, G. J. (2014) ‘What VUCA Really Means for You’, Harvard Business Review, 92(1/2), p. 27.

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

Kurtz, C. & Snowden, D. 2003. The new dynamics of strategy: Sense-making in a complex and complicated world, IBM Systems Journal, vol. 42 no. 3, pp. 462–483

https://doi.org/10.1177/0008125618790246

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MN7031 Topic 4 – Why Are Some Industries More Profitable Than Others?

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

Review of Sprint 1

Lecture

Industry definition, boundaries and analysis

Industry Profitability – 5 Force and 5 Force plus 1 analysis

Industry rivalry – monopolies, oligopolies, and competitive markets

Strategic groups

Competitor Analysis

Industry Lifecycles, Development and Disruption

Cesim Global Challenge – Round 2

Portfolio – Case Study 1 Discussion

Nintendo Case Study

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.

Topic 1 – Starting and Growing a Business

Business Model Canvas

Corporate Growth Directions

Stages of Business Growth

Topic 2 – Diagnosing A Firm’s Strategy

The Value System

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

Types of Firm Resources

Components of the Organisational System

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 –

Initial Analysis

Financial Performance

Competencies

Industries, Product Offerings and Market Segments

Resources – Tangible and Intangible

Business Model and Value Network

Capabilities

Competitive Advantage

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).

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

Topic 3 – Creating Competitive Advantage

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

Sources of Competitive Advantage

Hill et al, 2015

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.

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

Two Perspectives On Shaping The Business Model

Topic 4 – Why Are Some Industries More Profitable Than Others?

Industry Structure

Defining an Industry

Industry:

Group of companies offering products or services that are close substitutes for each other

A group of firms making a similar type of product or employing a similar set of value-adding processes or resources

Sector: Group of closely related industries

Market segments – Distinct groups of customers within a market that can be differentiated on the basis of their:

Individual attributes

Specific demands

Let’s consider two firms – one provides tap water piped to homes and businesses and the other provides bottled water.

Are they in the same industry? They have a common product – water and a considerable number of market segments in common.

First of all – are they close substitutes for each other? And secondly – do the firms use similar value adding processes or resources?

Tap water can be a close substitute for bottled water – indeed in many instances blind tasting suggests that the premium paid for bottled water is not merited. In most cases however these products are not close substitutes and the production processes and resources are quite different.

The Issue Of Industry Development

Industry rules are the demands dictated to the firm by the industry context, limiting the scope of potential strategic behaviors, e.g. ‘must have strong brand’

Industry rules arise from the structure of the industry

As industries develop, the rules of competition change. Strategising managers need to identify which characteristics in the industry structure and which aspects of competitive interaction are changing.

Strategists need to recognise the drivers and the inhibitors of industry development

What Makes One Industry More Profitable Than Another?

How Do We Understand Industry Profitability?

According to Porter (2008), competition for profit extends beyond direct rivals (e.g. Pepsi v Coke) to include 4 other industry components

This extended rivalry defines the structure of the industry and the level of profitability

Industry Competitors

Rivalry among

existing firms

Suppliers

Bargaining power of suppliers

Buyers

Bargaining power of buyers

Substitutes

Threats of substitutes

Potential Entrants

Threat of new entrants

Return on Invested Capital (Porter, 2008)

ROIC – earnings before interest and tax divided by average invested capital less excess cash

5 + 1 Competitive Forces

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

Government?

Price control

Licensing

Tax rates and breaks

Subsidies

Regulation

Law Making

Social Resistance

Air pollution

Climate Change

Single Use Plastics

Deforrestation

Extinction Rebellion

PESTEL

Having decided on our industry boundary we can then analyse the industry. Michael Porter in 1985 created his 5 forces model for industry analysis and it remains a very popular choice for understanding an industry . His 5 forces are:

Rivalry among established firms in the industry

Risk of new entrants joining the industry – the potential competitors

The bargaining power of suppliers

The Threat of substitutes – tap water as a substitute for bottled water, for example, or an iPad or event iPhone in place of a PC

The bargaining power of buyers.

The text book adds a 6th force, the power of complement providers. Microsoft Windows and Office remain key complements for a PC, which has given the company a great deal of power and profit now at risk as people substitute a tablet or phone for a PC and also through the potential for an Android PC OS.

Substitute Products and Complementors

Substitute Products

Products of different businesses that satisfy similar customer needs – e.g. electric bikes as a substitute for motor driven scooters

Limit the price that companies in an industry can charge for their product

Buyer propensity to substitute

Relative prices and performance of substitutes

Complementors – Companies that sell products that add value to the other products

Windows and the PC

Game software and Gaming Machines

Charging points and battery powered cars

There are clearly differing degrees of substitution for products. We have already looked at tap water and bottled water and determined that they are close substitutes only in limited circumstances. The iPad and iPhone are both substitutes for a PC in many circumstances but clearly cannot perform all its tasks. Microsoft initially did not see the opportunity and the threat of the smartphone and then tablet to its PC business and yet its lack of success is creating vulnerability, particularly from Alphabet and the Android operating system.

Complements can turn into a threat if the suppliers become too powerful, with the complement provider able to win a greater share of the profit than the main product provider.

Threat of Entry – What Factors Should a Firm Consider When Assessing the Potential for Successful Industry Entry?

Factors	Analysis
Capital requirements
Brand Loyalty
Customer Switching Costs
Economies of scale
Absolute cost advantage
Product differentiation
Access to distribution channels
Governmental and legal barriers
Retaliation by established firms

Bargaining Power Of Buyers

Factors	Analysis
Cost of product relative to total expenses.
Product differentiation
Competition between buyers
Size & concentration of buyers relative to producers
Buyer’s volume
Buyers’ switching costs
Buyer’s information
Buyer’s ability to multi-source
Buyer’s ability to backwards integration

Bargaining Power Of Suppliers

Factors	Analysis
Cost of product relative to total cost.
Product differentiation
Competition between suppliers
Size & concentration of suppliers relative to Producers
Buyer’s volume
Buyers’ switching costs
Supplier’s ability to forwards integrate

Industry Rivalry

Factors	Analysis
Industry demand
Number of competitors – fragmented or consolidated industry
Diversity of competitors
Product differentiation
Excess capacity and Exit barriers Investment in assets with no alternative use High fixed costs of exit Emotional attachment Dependence on the industry
Cost conditions (Fixed/Var. Costs)

Monopolies and Oligopolies

Monopolies

There is only one seller, so a single firm will control the entire market.

It can set any price it wishes since it has all the market power. Consumers do not have any alternative and must pay the price set by the seller.

Monopolies are extremely undesirable. Here the consumer loose all their power and market forces become irrelevant.

However, a pure monopoly is very rare in reality – typically US/UK/European Governments will regulate or break up monopolies. Examples:

UK Water companies – regulated by the government

Networks – rail, road, communications, power, gas – arms length ownership or regulation

British Plaster Board – investigated by the monopolies commission

London Black Cabs – displaced by Uber

BT – telephone network to homes

Competitive Markets and Industries

A large number of producers compete with each other to satisfy the wants and needs of a large number of consumers.

No single producer, or group of producers, and no single consumer, or group of consumers:

can dictate how the market operates.

can they individually determine the price of goods and services, and how much will be exchanged.

Impact of Competition

Higher quality at same prices

Differentiation

Increases Efficiency

Customer service and satisfaction

Awareness and market penetration

Consumption increases

Oligopolies

Only a few firms in the market. The UK definition of an oligopoly is a five-firm concentration ratio of more than 50% (this means the five biggest firms have more than 50% of the total market share)

The buyers are far greater in number than the sellers.

The firms in an Oligopoly either compete with each another or collaborate together and may use their market influence to set the prices and in turn maximise their profits..

In an oligopoly, there are various barriers to entry in the market, and new firms find it difficult to establish themselves.

Strategic Groups

Strategic Groups Within Industries

Product positioning is determined by the:

Product quality, distribution channels and market segments served

Technological leadership and customer service

Pricing and advertising policy

Promotions offered

Strategic Groups within Industries

Companies in an industry often differ significantly from one another with regard to the way they strategically position their products in the market.

Factors such as the distribution channels they use, the market segments they serve, the quality of their products, technological leadership, customer service, pricing policy, advertising policy, and promotions affect product position.

As a result of these differences, within most industries, it is possible to observe groups of companies in which each company follows a strategy that is similar to that pursued by other companies in the group, but different from the strategy pursued by companies in other groups. These different groups of companies are known as strategic groups. A simple example would be low cost airlines that typically fly point to point from minor airports and full service airlines operating long and short haul services from hub airports.

The concept of strategic groups has a number of implications for the identification of opportunities and threats within an industry. First, because all companies in a strategic group are pursuing a similar strategy, customers tend to view the products of such enterprises as direct substitutes for each other.

A second competitive implication is that different strategic groups can have different relationships to each of the competitive forces; thus, each strategic group may face a different set of opportunities and threats.

Some strategic groups are more desirable than others because competitive forces open up greater opportunities and present fewer threats for those groups.

Mobility barriers are within-industry factors that inhibit the movement of companies between strategic groups. They include the barriers to entry into a group and the barriers to exit from a company’s existing group. It is hard for a Low Cost Airline to start to offer services that would comete with Long Haul carriers using hub airports; it is also hard fro full service airlines to compete with the low cost carriers successfully. A number have tried and failed.

Strategic Groups in the Commercial Aerospace Industry

CR929

https://www.defenseworld.net/news/28513/Sino_Russian_JV_Targets_Delivery_of_1000_CR929_Jets_by_2045#.YJY-l7X0lPY

Strategic Groups in the Commercial Aerospace Industry

Boeing Dreamliner

248 – 336 seats

~15,000km

Airbus 380 up to 853 seats

Bombardier CRJ Series – 60-100 seats, 3,000km

Bombardier C Series – 150 seats, 6,000km

2017 – Bombardier gave Airbus a 50.01% share in the program, formerly known as the C-series, to stem the financial bleeding. The cost of developing the plane had almost doubled to $6 billion and sales had been disappointing amid a fierce competitive response by Airbus and Boeing.

2020 – Airbus and the government of Québec have become the sole owners of the A220 program with the exit of Bombardier, which developed the plane but was driven to the brink of bankruptcy by the spiraling costs of the ambitious program. The deal marks Bombardier’s exit from commercial aviation, with more divestitures expected as the Canadian manufacturer tries to reduce its crushing debt load of $9.7 billion.

Competitor Analysis

Understanding the Competition

There may be many firms competing in the industry, in which case treat then as a group or category e.g. discount retailers like Aldi and Lidl

Key competitors – which firms are in the same strategic group and most likely to be a close substitute? Focus on 3-5 main competitors and gather as much detail as possible

For each competitor acquire and analyse:

Financial data – may be difficult for a firm like Ikea but UK accounts are available

Products and Services Details

Geographic scope

Strategic actions e.g. mergers and acquisitions, expansion, contraction etc.

Resources, Competencies and Competitive Advantage

Ethics and Sustainability

Competitor Comparisons Over at Least 3 and Ideally 5 – 10 years

Revenues and Profits – trends, major and sudden changes

Share Price – trends, major and sudden changes

Degree of diversification

Degree of Internationalisation/Globalisation

Degree of vertical integration

Resources

Product or service characteristics (Strategic Groups?)

Market Share

Mergers and acquisitions

Ratios – trends, major and sudden changes

Debt – trends, major and sudden changes

Critical Success Factor Analysis

Critical Success Factor	Harley Davidson	Competitor A	Competitor B	Competitor C	Competitor D	Competitor E
Engine Technology	6	10
Styling and Features	9	8
Brand Reputation	10	7
Loyal Customers	10	7
Strong Distribution Network	8	9
Efficient manufacturing	7	9
Frequent New Products	5	8

A critical success factor (CSF) analysis is something that a company must do well in order to succeed in the industry e.g. airline safety, product reliability, customer experience

Note – scores are indicative and not based on a detailed analysis

Industry Development and Disruption

Business and Technology Revolutions 1750 – 2010

Siemens – 1847

Nokia – 1865

Tata – 1868

Heinz – 1869

Bombay Stock Exchange – 1875

Standard Oil – 1870

Walmart – 1962

Airbus – 1970

Toyota – 1937

Samsung – 1938

East India Company – 1600

Royal Africa Company – 1602

Vereenigde Oostindische Compagnie – 1602

French East India Company – 1664

Boston Dynamics – 1992

Amazon – 1994

Facebook – 2004

London Stock Exchange – 1801

New York Stock Exchange – 1817

BP – 1909

Boeing – 1916

IBM – 1924

Luddites – 1812

https://www.history.com/news/who-were-the-luddites#:~:text=%E2%80%9CLuddite%E2%80%9D%20is%20now%20a%20blanket,skilled%20craftsmen%20of%20the%20day

“Luddite” is now a blanket term used to describe people who dislike new technology, but its origins date back to an early 19th-century labor movement that railed against the ways that mechanized manufactures and their unskilled laborers undermined the skilled craftsmen of the day.

The original Luddites were British weavers and textile workers who objected to the increased use of mechanized looms and knitting frames. Most were trained artisans who had spent years learning their craft, and they feared that unskilled machine operators were robbing them of their livelihood. When the economic pressures of the Napoleonic Wars made the cheap competition of early textile factories particularly threatening to the artisans, a few desperate weavers began breaking into factories and smashing textile machines. They called themselves “Luddites” after Ned Ludd, a young apprentice who was rumored to have wrecked a textile apparatus in 1779.

There’s no evidence Ludd actually existed—like Robin Hood, he was said to reside in Sherwood Forest—but he eventually became the mythical leader of the movement. The protestors claimed to be following orders from “General Ludd,” and they even issued manifestoes and threatening letters under his name.

Creative Destruction and Disruptive Technologies

Joseph Schumpeter coined the term creative destruction in his 1942 book

He defined the notion of creative destruction as a ‘process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one’

The key role in creative destruction is reserved for technological innovations that can outflank existing products, designs, and processes

Incremental improvements are made redundant through creative destruction (e.g. PC vs. typewriter industry)

https://americanhistory.si.edu/collections/object-groups/slide-rules

Slide rules are analog computing devices marked with linear or logarithmic scales, some on a moving slide and some stationary on the base of the instrument, so that two numbers may be added or multiplied by aligning the slide. Slide rules can perform the basic arithmetic operations of addition, subtraction, multiplication, and division, but they can also be marked for computing with logarithms, square and cube roots, exponents, trigonometric functions, and vectors. From the late 19th century until about 1970, slide rules served as the principal calculating instruments for engineers, scientists, electricians, navigators, high school and college students, and others. Firms in the United States, Europe, and Japan made millions of the objects, and slide rule cases that attached to a belt loop were as common a sight on the hips of technical students in the 1950s and 1960s as cell phone cases were in the 1990s and 2000s.

The Case of the Buggy Whip Makers

There were 13,000 businesses in the wagon and carriage industry in 1890.

A company survived not by conceiving of itself as being in the "personal transportation" business, but by commanding technological expertise relevant to the automobile.

"The people who made the most successful transition were not the carriage makers, but the carriage parts makers," he said, some of whom are still in business.

Thomas A. Kinney “The Carriage Trade: Making Horse-Drawn Vehicles in America.”

Disrupting the Car

Stages in the Industry Life Cycle

Industries do not always follow the pattern of the industry life-cycle model

Time span of the stages vary from industry to industry

Punctuated equilibrium – Long periods of equilibrium are punctuated by periods of rapid change

Hill, Jones, & Schilling (2015)

Embryonic Industries

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

Industry Shakeout

Expect this soon in taxi app platforms!

Mature Industries

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

Declining Industries

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.

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.

Market Development and Customer Groups

Hill, Jones, & Schilling (2015)

Growth in Demand and Capacity

Hill, Jones, & Schilling (2015)

Limitations of Models for Industry Analysis

Life-cycle issues

Industries do not always follow the pattern of the industry life-cycle model

Time span of the stages vary from industry to industry

Innovation

Punctuated equilibrium – Long periods of equilibrium are punctuated by periods of rapid change

Because competitive forces and strategic group models are static, they cannot capture periods of rapid change in the industry environment when value is migrating

Company differences

Overemphasise importance of industry structure as a determinant of company performance

Underemphasise importance of variations among companies within a strategic group

Punctuated Equilibrium and Competitive Structure

Hill, Jones, & Schilling (2015)

Over any reasonable length of time, in many industries competition can be viewed as a process driven by innovation.18 Innovation is frequently the major factor in industry evolution and causes a company’s movement through the industry life cycle.

Michael Porter talks of innovations as “unfreezing” and “reshaping” industry structure. This is a model of change familiar to students of organisational change management in which in one common model of change it is first necessary to unfreeze the organisation in order to have change, and then re-freeze in a new configuration.

Porter argues that after a period of turbulence triggered by innovation, the structure of an industry once more settles down into a fairly stable pattern, and the five forces and strategic group concepts can once more be applied. This view of the evolution of industry structure is often referred to as “punctuated equilibrium.

This is what is happening with the taxi industry: the old model of hailing or calling a cab has been disrupted by the availability of smart phones, apps and taxi platforms. A new shape of the industry can be expected to become established although it too may be quickly disrupted by driverless cars replacing taxis and their drivers. It is interesting to note that car manufacturers are investing in platforms like Uber as part of preparing for the impact that driverless cars will have on their current business model. They are anticipating much lower levels of car ownership and much more sharing.

The Issue of Industry Development

Industry rules are the demands dictated to the firm by the industry context, limiting the scope of potential strategic behaviours, e.g. ‘must have strong brand’

Industry rules arise from the structure of the industry

As industries develop, the rules of competition change.

Strategising managers need to identify which characteristics in the industry structure and which aspects of competitive interaction are changing.

Strategists need to recognise the drivers and the inhibitors of industry development

Dimensions Of Industry Development

Convergence–divergence

Concentration–fragmentation

Vertical integration–fragmentation

Horizontal integration–fragmentation

International integration–fragmentation

Expansion–contraction

Patterns of Dominant Business Model Development

Gradual development

Continuous development

Discontinuous development – where one business model is dominant for a long period of time and is then suddenly displaced by a radically better one

Hypercompetitive development – where business models are frequently pushed aside by radically better ones

Dimensions of Industry Development

Convergence – Divergence (how alike are firms)

Concentration – Fragmentation (market shares)

Vertical integration – Fragmentation

Horizontal integration – Fragmentation

International integration – Fragmentation

Expansion – Contraction

Drivers of Industry Development

Environmental factors that are external or internal to the industry

Factors in the contextual environment include socio-cultural, economic, political/regulatory and technological forces of change

Factors in the industry environment can be divided into groups surrounding suppliers, buyers, incumbent rivals, new entrants, substitutes and complementors

Where one firm is the major driver of industry development it can claim industry leadership

If there is no industry leader, the industry dynamics determine the path of industry development

Inhibitors of Industry Development

Underlying conditions

Industry integration

Power structures

Risk averseness

Industry recipes

Institutional pressures

https://www.nrdc.org/stories/fracking-101#whatis

What Is Fracking?

Modern high-volume hydraulic fracturing is a technique used to enable the extraction of natural gas or oil from shale and other forms of “tight” rock (in other words, impermeable rock formations that lock in oil and gas and make fossil fuel production difficult). Large quantities of water, chemicals, and sand are blasted into these formations at pressures high enough to crack the rock, allowing the once-trapped gas and oil to flow to the surface.

History of Fracking

The idea for fracking—or “ shooting the well,” as the practice was once referred to—dates back to 1862 and has been credited to a Colonel Edward A. L. Roberts. In the midst of fighting during the Civil War’s Battle of Fredericksburg, Roberts noted the impact that artillery had on narrow, water-filled channels. A few years later, he applied his battlefield observations to the design of an “exploding torpedo” that could be lowered into an oil well and detonated, shattering surrounding rock. When water was then pumped into the well, oil flows increased—in some cases by as much as 1,200 percent—and fracking was established as a way to increase a well’s productive potential.

In the 1940s, explosives were replaced with high-pressure blasts of liquids, and so “hydraulic” fracking became the standard in the oil and gas industry. It wasn’t until the beginning of the 21st century, however, that two key changes helped spark fracking’s current boom. One was the use of a certain type of fracturing fluid: slickwater, a mix of water, sand, and chemicals to make the fluid less viscous. The other innovation was the pairing of fracking with horizontal drilling, a technique that increases the productive potential of each well because it can reach more of the rock formation that contains the oil and gas. These advances, combined with an influx of investment amid high global fossil fuel prices, sent fracking into overdrive. Indeed, of the approximately one million U.S. wells that were fractured between 1940 and 2014, about one-third of those were fractured after 2000.

How Does Fracking Work?

It involves blasting fluid deep below the earth’s surface to crack sedimentary rock formations—this includes shale, sandstone, limestone, and carbonite—to unlock natural gas and crude oil reserves.

The Paradox Of Compliance And Choice

The demand for firm compliance

Organisations must adapt themselves to their environments. Therefore all organisations need to understand the context in which they operate.

The demand for strategic choice

If firms only play by the current rules, it is difficult to gain a significant competitive advantage over their rivals. To be unique and develop a competitive advantage, firms need to do something different.

Perspectives On The Industry Context

The industry dynamics perspective

Belief that individual firms have the power to shape their industry is misplaced

Firms are small players in a large game – their behaviors cannot fundamentally shape the direction of changes

Also known as the industry evolution perspective – the survival and growth of entities depends on their fit with the environment

Changing the rules is difficult, slow and hazardous

The industry leadership perspective

Belief that in industry some rules are immutable but other environmental factors can be manipulated

Strategist must recognize the limits of the possible and the limitless possibilities

Leading firms need the intellectual ability to envision the industry’s future and be able to communicate this vision so that other firms and individuals will buy into it

A leading firm needs to work out a new competitive business model

Managing The Paradox Of Compliance And Choice – Juxtaposing

The majority of industry rules cannot be broken, but it is important to know which can

The industry dynamics perspective is applicable in some occasions, the industry leadership perspective is preferred in others

Independent from perspectives strategists need to juxtapose between firm compliance and strategic choice

References

Bennett, N. and Lemoine, G. J. (2014) ‘What VUCA Really Means for You’, Harvard Business Review, 92(1/2), p. 27.

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

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

Kurtz, C. & Snowden, D. 2003. The new dynamics of strategy: Sense-making in a complex and complicated world, IBM Systems Journal, vol. 42 no. 3, pp. 462–483

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

Schoemaker, P.J.H., Heaton, S., Teece, D., 2018. Innovation, Dynamic Capabilities, and Leadership. California Management Review 61, 15–42. https://doi.org/10.1177/0008125618790246

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