Strategic Analysis Raj Echambadi

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Strategic AnalysisRaj Echambadi
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Recap of Last Week

• Means-End approach.
• I/O vs. Organizational Economics Perspective.
• Analyse the use of Porters five forces model as
  a strategic business planning tool.
• Describe what constitutes a resource-based
  approach to strategy formulation
• Resources, Capabilities, Competencies
• Superior performance derives from developing a
  competitively distinct set of resources and
  deploying them effectively.

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Recap!

• Core competencies collective learning of the
  organisation about prod/tech/markets. e.g. Sonys
  miniaturisation skills.
• Competitive advantage derives ultimately from the
  ownership of a scarce valuable resource.
• Value Chain analysis of Strategic drivers.
• Core rigidities in a temporal framework.

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Porter's 5 forces
Threat of new entrants
Industry rivalry
Bargaining power of suppliers
Bargaining power of customers
Threat of substitutes
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Thinking StrategicallyThe Three Big
Strategic Questions

• Where are we now -- what is our situation?
• Where do we want to go? Grow / Status Quo /
  Retrench ?
• Business(es) we want to be in and market
  positions we want to stake out
• Buyer needs and groups we want to serve
• Outcomes we want to achieve
• How will we get there?

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Porter's initial response strategies

• Cost leadership strategy establish oneself as a
  low-cost leader in the market. Can be achieved
  through reducing own costs, reducing supplier
  costs or adding new features at no extra cost.
• Differentiation strategy differentiate a product
  so that the marketplace perceives it to be
  superior. Differentiating factors include
  quality, reliability, better understanding of
  market, image promotion.
• Focus strategy concentrate on a particular
  narrow-scope market segment (niche) and gain
  either a cost or differentiation advantage e.g.
  frequent-flyer programs

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Point to Remember!

• Low cost/ differentiation may indeed be the
  proximate cause of CA but they cannot be the
  ultimate source.
• Low cost positions, superior quality, speed to
  market, or whatever, must come from something or
  other the organization has or does.

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THE BIG IDEA Strategy is all about focus You
cannot both be an IMAGE LEADER Penny Pinching
COST LEADER
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• So far, we have talked about capabilities in the
  cross-sectional sense..How about capabilities in
  the long-run?
• Lets understand the notion of an Industry Life
  Cycle!

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The Industry Life Cycle
Industry Sales
Introduction Growth
Maturity Decline
Time

• Drivers of industry evolution
• demand growth
• creation and diffusion of knowledge

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The Industry life cycle as an S-curve
Performance
Maturity
Disruption
Takeoff
Ferment
Time
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Understanding the life cycle is critical since it
shapes strategic choices
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Competition
Competition

• Squeezing the profit out margins often get thin
• Economies of scale typically important
• Lots of complementary assets brand,
  distribution etc.

Maturity

• Technical progress more limited within these
  boundaries
• Focus on improvements
• Firms worry about volume, quality and price
  can we make 20 million units this week?

Takeoff

• Industry up for grabs often based on innovation
• Is this really an industry at all What is
  nanotechnology anyway?
• Who wants this product? How can it be packed or
  sold?
• What is the right price?

Ferment
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Technological activity evolvesover the life
cycle
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The Product/Process Transition
In the beginning Innovation focuses around
product concepts, is led by small firms, and is
largely exploratory Competition is on features
profits are made through differentiation.
Once a dominant design emerges Innovation
focuses around process, delivery, service Most
firms are forced out the large firms that
remainare increasingly structured,
hierarchical.Profits fall as opportunities for
differentiation fade.
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Entrepreneurial Opportunities over the lifecycle
Opportunities
Actions
Few opportunities, but disruption is possible
Maturity
Lower cost solution to the dominant design
compete on production, distribution Or enabling
technology
Takeoff
New technologies new markets to be explored
e.g. current molecular machines???
Ferment
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The Driving Forces of Industry Evolution
BASIC CONDITIONS INDUSTRY STRUCTURE
COMPETITION
Customers become more knowledgeable
experienced
Customers become more price conscious
Quest for new sources of differentiation
Products become more standardized
Diffusion of technology
Price competition intensifies
Production shifts to low-wage countries
Production becomes less RD skill-intensive
Excess capacity increases
Bargaining power of distributors increases
Demand growth slows as market saturation
approaches
Distribution channels consolidate
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Innovation Renewal over the Industry Life
Cycle Retailing
Warehouse Clubs e.g. Price Club Sams Club
Internet Retailers e.g. Amazon Webvan
Discount Stores e.g. K-Mart Wal-Mart
Category Killers e.g. Toys-R-Us, Home Depot
Mail order, catalogue retailing e.g. Sears
Roebuck
Chain Stores e.g. AP
1880s 1920s 1960s 2000
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Organizational Change

• Organizations adjust to external change in two
  ways selection and adaptation
• Selection
• survival of organizations whose characteristics
  match requirements of the environment..
• Different companies tend to be industry leaders
  at different stages of an industrys life-cycle.
• If a company develops complex organizational
  routines to be successful at one stage, they will
  find it difficult to develop new capabilities to
  adapt to the next stage.
• Competency traps where core competencies become
  core rigidities.

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Organizational Change

• Adaptation
• Companies can, and do, adapt to change.
• Ability to adapt to external change depends on
  the implications of the change for existing
  capabilities of the company.
• Some technological change may enhance a companys
  capabilities and others may be competence
  destroying.
• The ability to adapt to technological change may
  depend on whether the impact is at the component
  (bolted on) or architectural (reconfigure value
  chain) level.

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Competing for the FutureAnticipate or Create?

• How does senior managements view the future
  compared with that of competitors conventional
  and reactive, or distinctive and far-sighted?
• Which business issue absorbs more senior
  management attention reengineering core
  processes or regenerating core strategies?
• How do your competitors view your company mostly
  as a pioneer or mostly as a follower?
• What is your strength operational efficiency or
  innovation/growth?
• What is the focus of your companys advantage
  building efforts catching up or getting out in
  front?

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How Do We Grow? Firms Expansion Strategies
Ansoffs Product/Market Matrix (Benefits and
Drawbacks)
Product
Existing
New

• Market Penetration
• Know products and market
• segments well
• Growth limited to this
• segment

Product Development Gain marketing economies
of scale - Need RD and mfg., can
cannibalize sales
Existing
Market
Market Expansion Gain RD mfg.
economies - Need new sales training and
distribution
Diversification Mitigate swings in core
business - No economies of scale in RD,
mfg., or mktg.
New
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Which Units to Grow? Boston Consulting Group
Growth-Share Matrix
20 High 10 Low 0
?
Question mark
Star
A
Market growth rate
D
B
Cash cow
Dog
C
10x High 1x Low 0.1x
Relative market share (share relative to largest
competitor)
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Paths to market leadership

• Treacy and Wiersma suggest there are "three paths
  to market leadership"
• Operational (or Process) excellence
• Customer intimacy
• Product Leadership
• Ward and Peppard contend there are probably
  others but these three cover a "a significant
  range of the possibilities
• They are way of succinctly expressing the
  necessary alignment between internal capabilities
  and ambitions and the requisites for success in a
  particular environment

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Dimensions of competency
Customer intimacy
Prosperity
Success
Survival
Product leadership
Operational excellence
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Operational excellence

• This enables products and services to be obtained
  reliably, easily and cost-effectively by
  customers
• This implies a focus on business processes to
  output perform other in terms on cost and
  consistent quality of customer satisfaction
• Treacy and Wiersma quote examples such as Dell
  Computers, Wal-Mart and Federal Express as
  examples of excellence in this field
• In all cases, IS is a critical component that
  enables business simplification and efficient
  processing within its core activities

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Customer intimacy

• This concentrates on targeting markets precisely
  and tailoring products and services to the needs
  of particular customer groups (market segments)
• The idea is not just to 'satisfy' but to 'please'
  by understanding their needs and meeting them on
  every occasion
• This often pushes up costs but it can build
  long-term customer loyalty!

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Product leadership

• This involves delivering a continuous stream of
  new products and / or services.