Strategic Management - created from Mind Map

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Layers of the business environment:

Levels of strategy

Internal environment of the firm

Business level strategy

The macro-environment

broad environmental factors that impact to a greater or lesser extent on all organisations

Industry or sector

Industry: a group of firms producing products and services that are essentially the same eg. airline industry

market: a group of customers for specific products or services that are essentially the same eg. a geographical market

Competitors and markets

Strategic groups

technique used to analyse and

compare competitors’ strategies by grouping firms operating within a single industry on the basis of similarities in their resources and strategies.

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PESTLE

determine the key drivers of change in the strategic or business environment; these will determine how likely the company is to have a high impact on the success or failure of strategy

categorizes environmental influences into six main types. Provides comprehensive list of influences on the possible success or failure of particular strategies

Advantages:

simple and easy

helps reduce the effect of future business threats.

enables projects to spot new opportunities and exploit them effectively.

Disadvantages:

over-simplify the data: possibility of missing out on important data

needs to be updated regularly to be effective

business environment is changing drastically: development is difficult to predict

Political:

highlights role of government- -

internal politics and external politics. The internal politics like team jealousies, cohesive projects, and personal interests occur in all projects and must be considered and managed by stakeholders. The external politics refer to those which the stakeholders do not control. These events include all political events like employment laws, tax policies, trade restrictions, trade reforms, environmental regulations, political stability, tariffs, etc.

Economic:

-factors such as exchange rates

The internal or micro-economic events relate to the project viability and internal soundness of the project. Financial models and accountanting techniques need to be used during the evaluation phase to ensue the viability. The external or macro-economic events include interstate taxes, embargoes, interest rates, economic growth, recession, inflation rate, exchange rate, minimum wage, wage rates, unemployment, cost of living, working hours, credit availability, financing availability, etc.

Social:

-changing culture and demographics- ageing population in Western countries

The sociological factor takes into consideration all events that affect the market and community socially. Thus, the advantages and disadvantages to the people of the area in which the project is taking place also need to be considered. These events include cultural expectations, norms, population dynamics, healthy consciousness, career altitudes, global warming, etc.

Technological

-innovations such as the internet, nano-technology or the rise of the new composite materials

Since technology often becomes outdated within a few months after it is launched, it is important to consider this (innovation). This factor could also take into consideration all barriers to entry in certain markets and changes to financial decisions.

Legal

legislative constraints or changes eg. health and safety regulations or restrictions on company mergers and acquisitions

legal aspects like employment, quotas, taxation, resources, imports and exports, etc.

Environmental

stands for 'environmental' issues eg. pollution, waste

ecological and environmental aspects that could be either economic or social in nature. These include temperature, monsoons, natural calamities, access by rail, air, and road, ground conditions, ground contamination, nearby water sources, and so forth.

Porters five forces

helps identify attractiveness of an industry in terms of five competitive forces

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Threat of entry

the greater the threat of entry the worse it is for new incumbents

-Barriers to entry: factors that need to be overcome by new entrants if they are to compete in an industry

eg. scale and experience: economies of scale in some industries eg- automobile; once companies have reached the large-scale production it is expensive for new entrants

-until new entrant has built up equivalent experience over time, it will tend to produce at higher cost

Access to supply of distribution channel: manufacturers can have control over supply--> direct ownership, customer/supplier loyalty; this can be overcome by bypassing retail distributers through e-commerce

Expected retaliation: an organisation might be considering entering an industry and therefore existing firm will try to prevent this

Legislation: legal restraints from patent protection through government actions eg. tariffs

Differentiation: providing a prodcut or service with higher perceived value than the competition; eg. quality, branding

Threat of substitute

Substitutes: products or services that offer a similar benefit to n industry's products or services but by different process

-switching to alternatives

eg. trains and planes fares

-price/ performance ratio--> substitutes can be more expensive so long as they have better performance eg. aluminum is lighter yet more expensive than steel

Power of buyers

buyers: organisation's immediate customers, not necessarily the ultimate consumers

-powerful buyers can demand cheap prices or insist on improvements

-concentrated buyers; few large customers account for the majority of sales, buyer power is increased

-low switching cost: buyers can easily switch between one supplier and another, strong negotiating position

-buyer competition threat: if buyer can supply itself it is powerful; when negotiating with the supplier it can raise the threat of doing the suppliers' job itself

Power of supplier

supplier: those who supply the organization with what it needs to produce the product or service

supplier power will be high where there are:

concentrated suppliers: few producers dominate supply. suppliers have more power over buyers

high switching costs: if it is expensive to move from one supplier to another, the buyer will become dependent and weak

supplier competition threat: suppliers have increased power where they are able to cut out buyers who are acting as middlemen--> airlines and online booking vs.travel agencies

Competitive rivalry

competitive rivals are organizations with similar products and services aimed at the same customer group

eg. European airline industry: Air France and British airways are rivals

competitor balance: competitors might be roughly equal size, this is when rivalrous behavior is intense as one tries to be more dominant; less rivalrous industries tend to have one or two dominant organizations

-industry growth rate, high fixed costs, high exit barriers, low differentiation

What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.

Developmental stage

low rivalry: high differentiation; innovation is key

Growth

Low rivalry: high growth and weak buyers; low barriers to entry

Shake-out

increasing rivalry: slower growth and some exits

Maturity

stronger buyers: low growth and standard products, higher entry barriers

market share and cost key

Decline

Extreme rivalry: typically many exits and price competition; cost and commitment key

Strategic groups

these are within an industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases

1.scope of an organisation's acitivities

2.resource commitment

-mapped on two-dimensional charts eg. one axis extent of product range and the other size of marketing spend or R&D and overseas focus

These are useful to:

-understand competition-->managers focus on direct competitors withing their particular strategic group, rather than the whole industry

-analyze strategic opportunities

-analyze mobility barriers (obstacles to movement from one strategic group to another)

corporate- level

concerned with the overall scope of an organization and how value is added to the constituent businesses of the organizational whole

-strategy includes geographical scope, diversity of products or services, acquisition of new businesses

Business level

about how the individual businesses should compete in their particular markets

-strategy consists of issues such as innovation, appropriate scale and response to competitors' moves

Operational level

concerned with how the components of an organization deliver effectively the corporate and business level strategies in terms of resources, processes and people

Defining firm and strategic capabilities

Firm comprises of a network of activities engaged in the transformation of resources into

outcomes.

Strategic capabilities means the capabilities of an organization that contribute to its long-term survival or competitive advantage. These lead to competitive advantage by:

1.adding value to what is done

2.effective configuration of resources and competencies

Resources and competencies

What is a resource?

-tangible: buildings, machinery, manual skills, tools

-intangible: knowledge, culture, image

Competence: ability to use resources effectively- efficiently

Capability: availability of eadequate resources

threshold capabilities and dynamic capabilities

Value

This represents the monetary worth.

This can be assessed using Porter's Value Chain

Value Chain

This describes the categories of activities within an organization which, together, create a product or service.

Focuses upon how an enterprise adds value to what it does. Value chain comprised of nine generic activities.

Primary activities: directly concerned with the creation or delivery of a product or service, for example, for a manufacturing business.

Inbound logistics: activities concerned with receiving, storing and distributing inputs to the product or service including materials handling, transport

Operations: transform these inputs into the final product or service: machining, packaging, assembly

Outbound logistics: collect, store and distribute the product to customers; for example, warehousing, materials handling, distribution

Marketing and sales: provide the means whereby consumers or users are made aware of the product or service and are able to purchase it. This includes sales administration, advertising and selling

Service: includes those activities that enhance or maintain the value of a product or service, such as installation, repair, training and spares

These primary activities are linked to support activities:

Procurement: acquiring the various resources inputs to the primary activities. Can be important in achieving scale advantages

eg. large consumer goods companies with multiple businesses none the less produce advertising centrally

Technology development: all value activities have a 'technology' even if it is just know-how. May be concerned with a product (R&D) or with processes or with resources

Human resource management: this transcends all primary activities and is concerned with recruiting, managing, training, developing and rewarding people within the organisation

How does the value chain work?

1.Identify organizations activities. Can help managers understand which activities the business is especially good at

2.Assign activities to one of the generic activities and establish links

3.Establish where value is added – what attribute is affected

3.Determine how technology “enables”

4.Establish where improvements can be made

Strengths: simple, systematic; activity emphasis; focuses attention upon where its competitive advantage is

Weaknesses: oversimplifies assumptions about primary activities and support; is structural, ignores intangible issues

SWOT

Strengths, Weaknesses, Opportunities and Threats

Used to summarize what has become evident through the value chain and the resources/ competencies

SBU

Strategic Business Units

Ansoff matrix

provides a simple way of generating four basic alternative directions for strategic development.

considers growth options

FIFTH OPTION: consolidation: involves protecting existing products and existing markets and therefore belongs in box A.

Stakeholders

those with an interest in the firm

Market perspective: Suppliers, Competitors, Distributors, Customers

Social-political perspective: Government agencies, NGOs, Community

Technology perspective: Owners of competing

technologies

Performance perspective: Employees

First: identify stakeholders (existing / potential)

2.establish

3.nature of interests (explicit / hidden) EXPECTATIONS 4.manner of impact upon interests (mutual / conflict)

5.level of impact upon interests (large / small)

6.power to influence

7.need to consult

Finally, inform, persuade

Box A: Market penetration

where an organization gains market share with its existing product range

-greater market share= increased power of buyers and suppliers, greater economies of scale and experience curve benefits

Constraints: retaliation from competitors: likely to cause market rivalry as other competitors in the market defend share; increased rivalry= price wars or expensive marketing battles which may cost more than any market share gains are actually worth

-in low growth or declining markets it can be more effective simply to acquire competitors

legal constraints: greater market penetration can raise concerns from official competition regulators concerning excessive market power

-most countries have regulators with the power to restrain powerful companies or prevent mergers and acquisitions that would create such excessive power

eg. European Commision has power to determine actions of european companies

Box B: Product development

this is where organizations deliver modified or new products to existing markets

-greater degree of innovation

Product development is high risk because:

1. product development involves mastering new technologies that may be unfamiliar to the organization. success depends on a willingness to acquire new technological and marketing capabilities

2.Project management risk: even with familiar domains, product development causes risk of delays and increases costs due to project complexity and changing project specifications over time

Box C: Market development

where existing products are offered in new markets

-this is when product development is expensive.

-it can take in three forms:

1.new segments: eg. night schools

2.new users: aluminium used not just for cutlery but also aerospace

3. new geographies: internationalization---> or spread of small retailer into new towns

Box D: Diversification

defined as a strategy that takes an organization away from both its existing markets and its existing products

Reasons to create diversification:

-efficiency gains can be made by applying the organization's existing resources/ capabilities to new markets and products

-increasing market power resulting from having diverse range of businesses

-response to market declinem

Box A: Consolidation

where organizations focus defensively on their current markets with current products

-is not oriented to growth

Two forms:

1.Defending market share: aggressive competitors will lead to having to defend what one has

2.DOwnsizing or divestment: when size of market is declining the size of the business should be reduces through closing capacity. Other option is divesting (selling) some activities to other businesses