BM3399 Strategic Management with Bridgette Sullivan-Taylor

Lecture 2 Week of the 14/10/13

Strategic Advantage (SA) builds on concepts in:

Macroeconomic and microeconomic analysis. Market analysis Acc and Fin modules: financial reporting protocols and management accounting analyses OB modules: organisation structure and management processes and the change management issues IB modules: re global strategies.

 Strategy is concerned with:

Managing the long-term direction of the whole business We explore strategy at the level of the individual business (or business unit) and at corporate level SA provides the basic analytical concepts, frameworks and methods used in setting long-term direction. Drawing from modules/ disciplines SA provides the ability to provide the analytic foundations for making strategic decisions. Provides an approach to strategic thinking for managers who responsibility is to orchestrate the resources of the business in order to achieve sustained, superior performance. Provides an integrated approach to business within which to view the overall strategic intent and the differentiated and distinct contributions that different functions and teams make towards this intent.

 Central idea of SA: Nature of competitive advantage at the level of the individual business Role of the corporate HQ and the way it constructs parenting advantage at the corporate level Nature of the international advantage and the unique economic challenges of operating on a global scale We examine: economic and organisational implications and requirements that lie behind SA (see corporate level strategy and global strategy) context of turnaround strategies and entrepreneurial decisions.

Creating Competitive Advantage

Strategic Management
Strategy matters
More than just finance More than just applying techniques Legitimises top management

Main concerns of the course

Raise awareness of what strategy is

This courses strategy emphasis

Our Perspective Tools

Multiple view points/ competing disciplines

to establish long term business direction to achieve SCA integrated general manager/ orchestrator approach

analytical concepts/ frameworks to aid strategic thinking across multiple levels of analysis [plumbers?]
thinking strategically linking multiple levels of analysis, recognising the effects of process.

Skill Development

Introduction to Strategic Management

What is strategy?
Scope Perspective Macro Industry Firm

Sources of profit Levels of analysis

Competitive Strategies

Perspectives on Strategy?
Its about winning - success and failure Competition!
Survival of the fittest Kill the competition The art of war (Sun Tzu, von Clauswitz etc) - Military parallels / competitive language i.e. M&A Euro-Disney - take Europe by storm / Theme park transplanted The grand military plan - optimistic, no contingencies, HQ derived, implemented to the letter
visions, aspirations and missions (Madonna, Branson, Maxwell) v. rational, analytic and adaptive (BMW, GE, Glaxo)

Co-operation to compete i.e. JVs, SAs Inspiration v. analysis: strategy mechanisms for success Intention v. emergence

Euro Disneys poor results corrective measures, experimenting and learning slowly a more Emergent approach Implicit view of strategy will determine your emphasis upon techniques and concepts

Strategy is.
A combination of the words stratos, which meant army (or more correctly an army spread out over the ground), and agein, meaning to lead.
Greek Language (6th century BC)

..the great work of the organization. In situations of life or death, it is the Tao of survival or extinction.
Sun Tzu (5th century BC)

the determination of the long-run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.
Alfred Chandler (1962)

the plan enabling a company to gain, as efficiently as possible, a sustainable edge over its competitors.
Kenichi Ohmae (1983)

.a pattern of behaviour that emerges over time.

Henry Mintzberg (1987)

.a pattern of resource allocation that enables firms to maintain or improve their performance
Jay Barney (1997)

a firms theory about how to gain competitive advantages

10

P. Drucker (1994)

Describing Strategy
1. A clear set of long term goals
where are we going mission and vision?

2. The scope of the business

what are we going to do opportunities?

3. Competitive advantage
how are we going to do it distinctive resources?

4. The strategic logic

how do we know it will work
11

A Simple Strategic Logic

Our strategy is to dominate the UK market for inexpensive widgets by being the low priced manufacturer selling through mass market channels. Our low price in these channels will generate high volume and, because there are economies of scale in the production of widgets,will make us the lowest cost producer enabling us to achieve favourable margins even with a low price. Low price Lower costs than competitors
12

High volume & market dominance

The Mission of the Business

business scope competitive ambition i.e. product-markets

resources capabilities analysis i.e. strengths & weaknesses

Internal Assessment

industry attractiveness / KSFs i.e. opportunities & threats

External Assessment

Formulation of the Business Strategy

Set of Multi-Year Broad Action Programmes

Definition & Evaluation of Specific Action Programmes (6-18 mths)

base case/ scenarios contingencies

Resource Allocation & Definition of Performance Measurements for Control Budgeting

strategic investments / operational budgets
13

INTENDED STRATEGY
Mission & Goals

External Analysis

Strategic Choice

Internal Analysis

Organizing for Implementation

14

EMERGENT STRATEGY
External Analysis Mission & Goals Internal Analysis

Strategic Choice Does it Fit?

Organizational Grassroots

15

Types of strategy
(c.f. Mintzberg)

16

An integrated set of actions designed to create a sustainable advantage over competitors

Strategy

Strategic Planning

systematic,comprehensive approaches to developing strategies

Emergent Strategy

effective responses to unexpected opportunities and problems

Strategic Thinking

creative, entrepreneurial insight into a company,its industry, and its 17 environment

Sources of Profits

Macro-economic Context

Industry Conditions

Firm Resources & Competences

Firm Performance

This is largely how the study of strategic management is structured

Some notion of fit

18

Levels of environment
Macro environment Assessing stability / complexity / turbulence
ESTEMPLE / PEST, scenario analysis

Competitive environment Competitive arena

5 forces analysis

Competitive position
strategic group analysis, competitor analysis

Internal environment
Firm specific factors
Core competencies, capabilities, resources => perspectives

Analysis: start at the general and focus down

19

Macro-environmental trends and industry structure

20

Technological Environment

Potential
Political and Legal Environment

Competitors

Supplier

Rivalry

Buyer

Power

Power

Substitutes
Demographic Environment Social Environment 21 Macroeconomic Environment

Behind the Competitive Forces

Supplier/Buyer Power
Relative concentration Relative importance of product to the provider and user

Barriers to Entry
Scale economics/experience Product differentiation Capital requirements Switching Costs Access to distribution Scale - independent cost advantages Level of expected retaliation

Credible threat of vertical integration

Substitution possibilities Control of information Switching Costs

Intensity of Rivalry

High if

Pressure from Substitutes

Benefits not product features Sideways competition Comparative price/performance Comparative technology life cycle What business are you in? Especial threat if backed by rich competitor
22

Several equally strong players Low or no growth in industry High fixed costs & cyclical demand Few chances for differentiation

Large scale capacity increments

Different culture of players High Strategic stakes Major exit barriers

Industry Dynamics and Competitive Advantage

High

A few large profitable players

each focussed on a particular market Segment

Many small specialists,

probably making decent returns

Extent to
which advantage is available

from
specialising on customer groups or by

Trend

towards

Perfect
competition
with low overall returns

developing
unique specialist Skill Low

Monopoly supplier

High

Extent to which cost advantages accrue to larger competitors due to effects of scale or experience

Low
23

Developing Strategic Analysis Skills

Analyse the situation by:
applying relevant macro and micro frameworks/ theories/ analytical tools

Assess competitive strategic choices:

at the sector and firm level

Understand why strategic decisions:

are successfully executed (or fail)

Consider alternative options

to achieve sustained competitive advantage

Come up with recommendations

for future strategic directions

Identifying Resources, Competences and Competitive Advantage

What resources and competences give easyJet a competitive advantage? Why would it be difficult for competitors to imitate the competences that the company identified? What competences at the secondary and tertiary levels might this company need to have in order to be seen as a successful innovator in this sector? Identify key linkages on core competences diagram.

Core Competences for an Airline

-embedded in linked organisational activities at an operational (tertiary) level

Primary reasons for success

Brand Delivery Good service Range Reliable Innovation

Secondary reasons for success

Solving buyers problems Rapid response Flexibility Distribution systems

Logistics systems

Tertiary reasons for success

Good personal relations with buyers Fast turn around of urgent orders Retailing returning goods Stock levels Low plant utilisation 24hr despatch policy

Use of subcontractors for transport

Staff discretion and rule bending

 easyJet mission statement To provide our customers with safe, good value, point-to-point air services. To effect and to offer a consistent and reliable product and fares appealing to leisure and business markets on a range of European routes. To achieve this we will develop our people and establish lasting relationships with our suppliers. the concept easyJet keeps costs low by eliminating the unnecessary costs and 'frills' Use of the Internet to reduce distribution costs easyJet = 95 % of all sales. Maximise the utilisation of the substantial assets . Ticketless travel Passengers No free lunch 'simple service model' efficient use of airports: gain efficiencies through rapid turnaround times, and progressive landing charges agreements with the airports. By reducing turnarounds to 30 minutes and below, easyJet can achieve extra rotations on the high-frequency routes, thereby maximising utilisation rates of its aircraft. Paperless operations the operation easyJet currently has operating bases throughout the UK and mainland Europe. the culture easyJet favours an informal company culture with a very flat management structure, which eliminates unnecessary and wasteful layers of management. All office-based employees are encouraged to dress casually. Ties are banned - except for pilots! Remote working and 'hotdesking' have been characteristics of easyJet since the beginning

ESTEMPLE Analysis of British Airways

POLITICAL
UK markets are international (export) Heavy political influence Unionised industry Airlines are international businesses Currency exposure High fixed cost base Asian financial crisis 60% of customer from outside the UK High focus on BA Ability to influence public opinion Increased desire to travel Globalisation Regulations prevented global networks Deregulation: new entrants (increased competition)

ECONOMIC

MEDIA SOCIAL LEGAL

IKEA Case: Managing Global Expansion

 IKEA questions:
1. Analyze IKEA's international expansion. Why was it successful? 2. What were the strategic obstacles to internationalising the brand in practice? To what extent did the product line need to be adapted to foreign markets? Illustrate with examples. 3. What were some of the key global sourcing and logistics challenges with delivering a globally standardised product? Have these been overcome? 4. What are the strategic issues IKEA faces in the future?

Johnson G, Scholes K & Whittington R (2011), Exploring Strategy: Text and Cases 9th Edition, Harlow: Prentice Hall.

Reading for this week

Chapter 2

Tutorial discussion
Global forces in the Western European brewing industry (pp. 79-81)

31