Industrial Strategy 2022
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Industrial Strategy 2022 - Leaderboard
Industrial Strategy 2022 - Details
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| What is a strategy? | ‘The long-term direction of an organization, formed by choices and actions about its resources and scope, in order to create advantageous positions relative to competitors and peers and changing environmental and stakeholder contexts.’ |
| What are examples of things that is not a strategy, but people think is a strategy? | A good strategy is simple. Ambition, leadership, vision, planning, or the economic logic of competition has nothing to do with strategy. A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them. Strategy is all the elements and components of how to win. |
| What is the difference between deliberate strategy and emergent strategy? | A deliberate strategy is a strategy that has been carefully thought out within the organization. An emergent strategy is a strategy that appears out during regular business activities and not planned. An emergent strategy does not mean incapable management (maybe sometimes), but it can also show management’s ability to learn and adapt to a fast-changing world. Openness to such emergent strategy enables management to act before everything is fully understood; to respond to an evolving reality rather than having to focus on a stable fantasy. |
| What types of strategy exist? | 1. Planed (Made by central management with precise intent backed by formal controls to ensure no surprises and is very deliberate) 2. Entrepreneurial (Made by a single leader in a personal, unarticulated vision. Easily adaptable to new ideas or opportunities. Strategy is relative deliberate but can emerge) 3. Ideological (Strategies originate in shared beliefs: intentions exist as collective vision of all actors, in inspirational form and relatively immutable, controlled normatively through indoctrination and/or socialization; organization often proactive vis-á-vis environment; strategies rather deliberate 4. Umbrella (Strategies originate in constraints: leadership, in partial control of organizational actions, defines strategic boundaries or targets within which other actors respond to own forces or to complex, perhaps also unpredictable environment; strategies partly deliberate, partly emergent and deliberately emergent) 5. Process (Strategies originate in process: leadership controls process aspects of strategy hiring. structure, etc.), leaving content aspects to other actors; strategies partly deliberate, partly emergent (and, again, deliberately emergent) 6. Unconnected (Strategies originate in enclaves: actor(s) loosely coupled to rest of organization produce(s) patterns in own actions in absence of, or in direct contradiction to, central or common intentions; strategies organizationally emergent whether or not deliberate for actor) 7. Consensus (Strategies originate in enclaves: actor(s) loosely coupled to rest of organization produce(s) patterns in own actions in absence of, or in direct contradiction to, central or common intentions; strategies organizationally emergent whether or not deliberate for actor) 8. Imposed (Strategies originate in enclaves: actor(s) loosely coupled to rest of organization produce(s) patterns in own actions in absence of, or in direct contradiction to, central or common intentions; strategies organizationally emergent whether or not deliberate for actor. |
| Is mission, vision, goals, etc. strategy? | 1. Values: core principles the organisation stands for, or manifests 2. Mission: what organisation is there to do. Why it exists 3. Vision: future the organisation sees for itself 4. Ambition, motivation, determination: desire to succeed 5. Goals, Objectives: specific interim outcomes to be achieved |
| How can mission, vision, objectives etc. be used as actual strategy statements? | 1. Mission - What we are constituted to do; Why we exist? 2. Vision - What do we want to achieve? What future do we want to create? 3. Objectives - What do we have to achieve in the coming period? 4. Scope - Clients and markets, industries, geographies, internal vs external activities 5. Advantage - How will we achieve our objectives; how achieve competitive advantage? |
| What is the strategy framework? | 1. Stategic position Fundamental questions for strategic position: What are the macro-environmental opportunities and threats? What is the purpose of the organisation? How can the organisation manage industry forces? What resources and capabilities support the strategy? How are stakeholders aligned to the organisational purpose? How does history and culture fit the strategy? 2. Strategic choices Strategic choices involve the options for strategy in terms of both directions in which strategy might go, and methods by which strategy might be pursued. Some fundamental questions regarding this are: How should individual business units compete? Which businesses to include in the portfolio? Where should the organisation compete internationally? 3. Strategy in action Strategy in action is about how strategies are implemented. The emphasis is on the practicalities of managing. Some fundamental questions in relation to this: How centralised or structured should an organization be? What are the required organizational systems? How should the organization manage necessary changes? What sort of leadership is necessary? |
| What are the 3 levels of strategy? | 1. Corporate level strategy 2. Business-level strategy 3. Functional strategies |
| What is a stakeholder? Provide examples of stakeholders. | Definition: Stakeholders are those who have stake in the business; the future of the business. • Stakeholders can be diverse, including owners, customers, suppliers, employees and communities. (Internal and External stakeholders) • Stakeholder needs and demands can diverge widely, especially in the short term • Strategic decisions are influenced by stakeholder expectations • Managers have to be aware who their stakeholders are, what they want, and which have most influence upon their strategies. |
| What are the 5 external stakeholder groups? | External stakeholders can be divided into 5 groups: 1. Economic stakeholders: suppliers, customers, distributors, banks and owners 2. Social/political stakeholders: policy makers, local councils, regulators and government agencies 3. Technological stakeholders: key adopters, standards agencies and ecosystem members (supplying complementary products or services) 4. Community and society stakeholders 5. Internal stakeholders at other global offices |
| What are some examples of mission, vision, and goals of stakeholders? What implications does that have for choice of strategy? | 1. Mission: what organisation is there to do. Why we exist 2. Vision: future the organisation seeks to create 3. Values: core principles it stands for, or manifests 4. Goals, Objectives: specific outcomes to be achieved Therefore serving the needs of different stakeholders will require different strategies (choices). “Who are we winning for?” |
| What could an example of stakeholder conflicting interests be? | Pursuit of short-term profits may suit shareholders’ portfolios and pay big bonuses to management, but come at the expense of long-term financial health and renewal. In public services, excellence in specialised services might divert resources from standard services used by the majority (e.g. heart transplants come at the cost of preventative dentistry). |
| What is a key model to use when dealing with stakeholders? | Stakeholder mapping model: Identifies which stakeholder hold more power, AND care more (pay close attention) to what management does. So managers must see the political landscape, and act in line with it. The power/attention matrix is useful for: • Assessing stakeholders (or stakeholder coalitions) for or against strategies. • Determining who facilitators or blockers of a strategy are likely to be. • Managers can cultivate potential supporters and building coalitions of supportive stakeholders, and/or keep antagonistic stakeholders appeased, or disempowered, or ‘asleep’. • This is all part of good strategy (how to win) Key questions when using stakeholder mapping: • Whose interests and expectations should the strategy prioritise? • Who are the key blockers and facilitators of existing or proposed new strategy? • Will stakeholder positions shift according to the issue/strategy being considered? • Will the level of interest or power of key stakeholders remain high? Will new ones emerge? • Can antagonistic stakeholders be strategically diverted or ‘repositioned’? |
| What is CSR? | Corporate social responsibility (CSR) : CSR is the ‘commitment by organisations to ‘behave ethically’ Also to improve the lives community, society, and the environment. i.e. going beyond minimum legal duties and obligations • Part of the strategy • [Part of branding] • [Part of reputation management] i.e. all part of the strategy |
| What are the 4 basic stances of CSR? | 1. Laissez-faire 2. Enlightened self-interest 3. Forum for stakeholder interaction 4. Shaper of society |
| Why do we analyse industry and sector? | Industry analysis focuses on industry + competitor part of the ‘cake’ (See pic). It is important as the industry and competitors is an important factor in creating the strategy as it shows some of the opportunities and threats. |
| How is an industry, sector and market defined? | 1. An industry is a group of firms producing products and services that are ‘essentially the same / serve the same need. e.g. the airline industry 2. A sector is is a broad industry group. The terms is often used with regard to public service industries 3. A market is a group of customers for specific products or services that are essentially the same (e.g. the market for luxury cars in Germany). |
| What are the most important parts of the industry for strategy purposes? | 1. Who and what is included? Don’t assess too broadly or too narrowly. [example: taxi business Stockholm ref p.44] 2. What part of the value chain are we in? Don’t include too little or too much of the value chain 3. What functional level are we at? • Can be different geographic areas • or different service segments, e.g. business vs. leisure • or difference between products/services, e.g. hardware vs software |
| What is Porters Five Forces, and why is it good to analyse industry & sector? | Porters Five Forces is a model that helps determine an industry's various forces, sources of power, and conditions of competition. This will inform strategy. 5-Force analysis helps managers figure out factors of competition, competitor or supplier power, and attractiveness of an industry through the following 5 things: 1. Suppliers (What is bargaining power of suppliers?) 2. New entrants (Are new entrants a threat?) 3. Buyers (What is the bargaining power of buyers?) 4. Substitutes (What is the threat of substitutes?) 5. How is competition between current actors on market? |
| What are the main two strategies to pick within the industry space? | There are mainly two strategies to pick within the industry space, red ocean versus blue ocean. 1. Red Ocean Strategy Compete in existing market space, beat competition, exploit existing demand, make the value-cost trade-off. 2. Blue Ocean Strategy Create uncontested market space, make the competition irrelevant, create and capture new demand, break the value-cost trade-off. |
| What are the 5 steps in industry analysis | 1. Define the industry/sector/subsector clearly. Apply model at right level. 2. ID the actors behind each of the 5 forces. Who are competitors, suppliers, buyers, substituters, complementers, potential entrants. 3. Determine the underlying factors and total strength of each force. 4. Assess attractiveness of the industry / or which parts are more attractive. / Which competitors are most powerful, ref the 5 forces. 5. Determine strategy (positioning and how-to-win actions) with reference to the 5 forces. What can you do to exploit weak forces, mitigate strong forces, change industry structure. |
| Why is Porters 5 Forces a good model for industry analysis | • Helps determines an industry’s framework and conditions of competition • Helps to set a strategic agenda e.g. strategy to control excessive rivalry, or blunt supplier power, defend barriers • Helps management find a position where the company can exploit its advantages • Helps determine the attractiveness of an industry. Where many forces are ‘high,’ the industry is not attractive. |
| What does industry dynamics examine? | The industry dynamics looks at the future industry structure and future shape of 5-forces, whereas the regular Porters Five-Forces model only look at the present tells very little of the future. 5-Forces are a “snapshot” of the present, and what it does tell of the future may be unreliable. Industries change. Consider how the 5-Forces will look in the future. Also stage in the the product and industry life cycle. The industry dynamics are best viewed when looking at the product / industry lifecycle |
| What is the industry life cycle, why is it useful and what does it consist of? | The industry lifecycle looks at the stages in the lifecycle of an industry. It is useful as strategy is shaped by the stage in the industry life cycle. Hence, it influences strategy and strategic decision making. The industry life cycle consist of 5 phases: 1. Development (Low rivalry, high differentiation, innovation is key) 2. Growth (Low rivalry, high growth and weak buyers, low entry barriers, growth ability is key) 3. Shake-out (Increasing rivalry, slower growth, some firms exit, managerial and financial strength is key) 4. Maturity (Stronger buyers, low growth, standard products, higher barriers of entry, market share and cost is key) 5. Decline (Extreme rivalry, typically many exits, price competition, cost and commitment key) |
| What is a key success factor at each stage of the industry lifecycle ? | See elaboration in pic |
| What is strategic groups? | Strategic groups are competing providers within the same industry, with similar strategic characteristics, following similar strategies, or competing on similar bases. These characteristics are different from those in other strategic groups in the same industry: • REMA1000 and Netto are in the same strategic group • But supermarkets convenience stores, and corner shops are in DIFFERENT strategic groups (in the same industry.) Strategic groups help us sort and strategically respond to competitor attributes. Identify gaps and opportunities. |
| How are strategic groups identified | Strategic groups are identified through two strategic dimensions: 1. Scope of activities Products, geographical coverage, number of market segments served, distribution channels used etc. 2. Resource commitment Extent of branding, extent of marketing effort, extent of vertical integration, product or service quality, R&D spending, size of organisation |
| How are strategic groups mapped? | Strategic groups can be mapped on two-dimensional charts with key dimensions or axes. For example, for the advertising industry, the dimensions: (1) Global reach and (2) Range of specialist services between creative and analytic have been chosen to demonstrate strategic groups in the advertising agency: Other dimensions could be: (1) Range of industry expertise (pharma, retail, auto, fmcg) (2) Reputation for advertising effectiveness. |
| How is the mapping of strategic groups used? | 1. Understanding who the competition is. Traditionally it is players in the same strategic group (but tradition is an unreliable guide!) 2. Analysing strategic opportunity. A strategic group map can ID strategic ‘spaces’ in an industry 3. Analysing barriers between strategic groups and advantage/cost of crossing them |
| What is a market segment and how can they be defined? | • A market segment is a group of customers who have similar needs, which are different from customer needs in other parts of the market. • A narrow segment is called a niche • Company strategy can choose to focus on a market segment or niche, aka ‘niche strategy’ • Niche specialization is a trade-off against volume and scope • Market segmentation helps us sort and strategically respond to buyer attributes. Identify gaps and opportunities |
| What is macro environment analysis and how important is it to strategy and strategy development? | Macro-environment means external forces and factors: Technology, market trends; social change; legislation, economic conditions. And these strongly influence (some say completely determine) the success or failure of ALL strategies! Note: The managers do not control the outer ring. They only control their response! The response is part of a strategy. Not reading the macro-environment can lead to the demise of a company, see for instance Nokia. “If you think that you can run an organization in the next 10 years as you've run it in the past 10 years you're out of your mind.” - Roberto C. Goizueta, ex-CEO of Coca-Cola |
| What does the PESTEL model stand for, and why is it useful? | P: Political E: Economic S: Social T: Technological L: Legal E: Environment/Ecological It covers the whole macro-economic environment |
| What are some common responses to external factors? | Not recognising them / avoiding them. |
| Where can we gain information for the PESTEL model analysis? | Either from formal or informal sources. |
| How do we find and view information, and what is the implications of this when analysing? What does "horizon scanning" have to do with anything? | When we view information, we typically "scan the horizon" with our radar, and we only deal with what we see. PESTEL (and Horizon Scanning) don’t deal with what’s not seen or mis-seen. |
| What is the main issue with PESTEL model? | The main issue with PESTEL: Looking is easy, seeing is hard! Sometimes we can well see something, but it is hard to recognise what we’re looking at, particularly if we haven’t seen it before. Often we look where it’s comfortable to look, but that is not where change is coming from. PESTEL hence only deal with what we ourselves see, and does not deal with what is not seen. As a human, we have difficulty seeing the full picture and we might disregard important facts if we do not know anything about them. |
| What is a judgement bias and what is some examples of these? | A judgement bias is when our judgement is biased towards certain things. 1. Bandwagon effect - we do what the rest do 2. Anchoring bias - We are over-reliant on the first piece of information we hear. Like when negotiation salary, the first number is the anchor, and the final salary will be close around this amount. 3. Confirmation bias - We tend to listen only to information that confirms our preconceptions. 4. Availability heuristic - People overestimate the importance of information that is available to them. 5. Recency - The tendency to weigh the latest information more heavily than older data. 6. Outcome bias - Judging a decision based on outcome. Just because you won a lot in Vegas does not mean it was a good decision to gamble the money! |
| What is the Dunning-Kruger Effect | The Dunning–Kruger effect is a cognitive bias[2] whereby people with low ability, expertise, or experience regarding a certain type of a task or area of knowledge tend to overestimate their ability or knowledge. Some researchers also include in their definition the opposite effect for high performers: their tendency to underestimate their skills. |
| Why is PESTEL only the first step in the macro-environmental analysis? And what are the next steps? | PESTEL only creates a picture of the current macro situation. It does not tell anything of the future. Hence, the next steps is assessing forecasting and foresigt depending on the level of uncertainty PESTEL creates. |
| What is foresights? what are some concepts and terms in this regard? | 1. Change drivers: factors that are causing change 2. ‘Weak signals’: early evidence of change 3. Trends /megatrends: patterns in change over time 4. Inflexion points: where the trend line shifts, big change happens in a short time |
| How good are point or range forecasts likely to be? | 1. There are many sources of change & uncertainty (See all parts of PESTEL) 2. Timing is hard to judge - You know something is coming, but you don’t know when, or how much. 3. When it comes, change comes in lumps. “There are decades where nothing happens, and there are weeks where decades happen.” - Vladimir Lenin 4. The future arrives unevenly in different places |
| What are the 4 levels of strategy under uncertainty? | Level 1: Clear-enough future (Single, dependable view of the future) Level 2: Alternative futures (Limited set of known future outcomes) Level 3: Range of futures (Range of possible future outcomes) Level 4: True uncertainty (Not even a range of possible future outcomes) Observations: - Most future uncertainty situations are levels 2 or 3. But many managers and strategists see them either 1 or 4. - Choose future-management toolkit that fits with the situation’s uncertainty level. It’s better to be vaguely right than exactly wrong! |
| What are the 4 ways forecasting level 2 and level 3 uncertainty? | 1. Scenario planning 2. Point forecast 3. Scenarios |
| What is the purpose of forecasting and foresigt? | The purpose is to create strategy for the future on the basis of forecasting and foresigt. Forecasting and foresigt usually holds a base from the current picture (PESTEL model) We pursue a high-quality point of view of the future (not a prediction) via scanning, sensemaking and scenarios to improve our strategy decisions today. There are different types of future thinking based on uncertainty: from point forecasting to scenario planning. Scenarios investigate plausible alternative future external environments, to force strategy thinking past “business-as-usual” or “change as expected” |
| What is the difference between diverge and converge foresigt strategy? | Convergent thinking focuses on finding one well-defined solution to a problem. Divergent thinking is the opposite of convergent thinking and involves more creativity. |
| What are we looking at when analysing resources and capabilities? And what are we trying to explain? And what assumptions are we using when looking at this? | We are analyzing the organisation! One company outcompetes others – this is not explained by external environmental factors or industry conditions. Assumptions: • organizations have different resources and capabilities • it is not easy for one organization to imitate or obtain R&Cs of another. |
| What is the difference between resources and capabilities? | Resources: what an organization has. Sometimes also called ‘assets’ Capabilities: Ability to deploy resources. Sometimes also called ‘competencies’ |
| What is the difference between threshold and distinctive resources and capabilities? And why do we care about that? | Threshold: What you need to be in the game Also called ‘qualifiers’ or ‘table stakes’ Distinctive: Resources and capabilities that others don’t have, unique, hard to acquire Distinctive R&Cs are the basis of competitive advantage . To compete the firm needs both ‘threshold’ and distinctive R&Cs. It is the distinctive R&C that create sustainable competitive advantage. |
| How can we evaluate if a capability provide a competitive advantage? | By using the VRIO framework. The 4 criteria by which capabilities provide a distinctive basis for achieving sustainable competitive advantage: V - Value Resources or capabilities are valuable when they enable a product or service that is valued by customers (at a cost that still allows an organisation to make profit). R – Rare Resources or capabilities are rare when possessed uniquely by one organisation or only by a few others. e.g. geo-located holdings; patented products; prime retail locations; special relationships with suppliers. I - Inimitable Resources and capabilities are inimitable when competitors find them difficult or costly to imitate, obtain or substitute. Resources (e.g. locations, raw materials) are more imitable than capabilities (the way resources are managed, developed, deployed integrated) . But capabilities are also acquirable, or imitable! O - Organization The ability to understand, support, leverage, facilitate, and exploit V-R-I advantage components. |
| What 3 ways can we classify firm resources? | Possible firm resources can be conveniently classified into three categories: physical capital resources (Williamson, 1975), human capital resources (Becker, 1964), and organizational capital resources (Tomer, 1987). |
| What is dynamic capabilities? | Dynamic Capabilities = an organization’s ability (‘O’ capability) to renew and recreate its resources and capabilities, to meet the needs of a changing environment. Dynamic capabilities is the capability to update capabilities; to create, extend, modify current capabilities. Ordinary ‘O’ capabilities are necessary to operate efficiently now; Dynamic ‘O’ capabilities are necessary to create competitive advantage in the future. Dynamic capabilities (ability to adapt to change and future) is part of O. |
| What is generic dynamic capabilities? | Sensing capabilities – constantly scanning and exploring new opportunities across markets and technologies (e.g. R&D and market research). Seizing capabilities – addressing opportunities through new products, processes and activities. Re-configuring capabilities – new products and processes may require renewal and re-configuration of capabilities and investment in new technologies. |
| How is the VRIO framework used to assess a competitive advantage and why is it a good forecaster for firm performance? | The VRIO framework assess wether not the capabilities are a sustained competitive advantage. If they are, that is a good indicator for how well the firm can compete in the market. |
| What is the value chain model? | The value chain describes the categories of activities which together over time create a product or service. Per Porter, the value chain consists of 5 primary activities, directly concerned with the creation or delivery of a product or service and 4 support activities, which help improve the effectiveness or efficiency of primary activities. Competitive advantage (or lack) can be analysed in any of these activities. |
| How can value chain model and VRIO framework be combined? | The value chain model can identify all parts of the business , and hence identify resources and capabilities. The VRIO framework can be used to evaluate if any of these are a sustained competitive advantage. |
| What is a SWOT model and where does resources and capabilities tie into this? | SWOT assess the following: 1. Strenghts and weaknesses (Resources and capabilities) 2. Opportunities and threats (External environment and industry future, macro-environment analysis) After you have good view of OT, only then it is valid to think about SW in reference to these. “The aim is to identify which SW are relevant to and/or capable of dealing with changes taking place in the industry environment (OT)” p.7 |
| What are the dangers of the SWOT model? | Dangers in a SWOT analysis 1. Just “listing” OT without macro or industry foresight work (Chapter 2) 2. Not assessing SW in reference to OT 3. Over-generalisation: not getting to the heart of the S or W factor 4. Making SW lists with no prioritisation or scoring 5. Not identifying SW in relative terms, compared to competitors’ ability, or necessary (future) levels of resources and capabilities to address OT |
| What is the TOWS matrix and how does it tie into the SWOT analysis? | TOWS and SWOT are acronyms for different arrangements of the words: Strengths, Weaknesses, Opportunities and Threats. But, while SWOT tends to focus on brainstorming all points that fall under these four headings, TOWS takes it to the next step. TOWS tries to generate a strategy based on what the SWOT model identified. |
| What is Michael Porters generic competitive strategies? | Michael Porter’s generic strategies are strategy “archetypes” i.e. hold across many kinds of industry and business situations. To gain competitive advantage, the firm must be able to create greater value for customers than competitors do. Two fundamental means of achieving this: 1. lower costs 2. products or services that are differentiated in ways that are so valued by customers that company can charge higher prices |
| What is the Cost leadership strategy about? | Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity. This can be achieved through: • Lower input costs. (Goods and labour) • Economies of scale (The cost advantage of the more you produce, the lower average cost per good, especially producing at MES) • Economies of experience (Gains in labour productivity as staff learn to do things more cheaply over time (learning effect) • Economies of product/process design (Costs are saved through more efficient designs or equipment as experience shows what works best.) It is a broad target / lower cost strategy, (See pic) |
| What are the implications and risk/dangers of the cost leadership strategy? | Two implications for this business strategy: 1. Entry timing matters: early entrants into a market will have experience that late entrants do not yet have and so will gain a cost advantage. 2. It is important to gain and hold market share. Firms with higher market share have more ‘cumulative experience’ simply because of their greater volumes. There are however some risks and dangers from being competitive only by having the lowest costs: 1. Must be lowest! Having the second-lowest cost structure implies a competitive disadvantage against somebody You are always at risk of being undercut on price 2. Low cost strategy cannot be pursued in total disregard for quality. Cost-leader has to meet market or regulatory standards |
| Why can quality be difficult to manage at low costs? How does it relate to the cost leadership strategy? | Further, it can be difficult to manage quality at low cost: 1. Quality-parity option: provide equivalent quality in terms of product or service features. The cost leader can then charge the same price as rivals and make higher profits (from lower costs) 2. Quality-proximity option: provide slightly lower quality in terms of of product or service features. The cost leader can then offer a slightly lower-than-market price and still make higher profits. |
| What is the differentiation strategy? | Differentiation strategy involves providing uniqueness that is sufficiently valued by customers to allow a price premium Key drivers of differentiation are: • Product and service attributes: providing better or unique features or options or locations etc. • Customer relationships: providing better or unique customer service and responsiveness; or customisation • Reputation: providing better or unique image and prestige • Complements: building on unique linkages with other products/services (Apple and iTunes). It is a broad target / differentiation strategy (See pic) |
| What are the risks and dangers of the differentiation strategy? | There are some risks and dangers of this strategy: 1. Differentiation requires additional investment (per unit of sale) = Higher costs. This must be recouped in an actual higher-price sale 2. Beware of competitor who can replicate your differentiation at lower cost |
| What is the focus strategies? | A focus strategy targets a narrow scope / specific segment using either cost leadership or differentiation as the way of targeting. The focus player achieves competitive advantage by serving specific segments or areas better than those covering that segment as part of a broad portfolio. Focus builds specialist knowledge; can improve brand recognition and customer loyalty Per Porter, you don’t get Focus on its own: goes along with Cost or Differentiation So there are two types of focus strategy: 1. Cost + focus strategy (e.g. Ryanair). 2. Differentiation + focus strategy (e.g. Nutrogena; Ecover eco cleaning) |
| What is the cost + focus strategy? | Cost+focus players identify areas where broader cost-based strategies fail because of the added cost of trying to satisfy a wide range of needs. A cost+focus player attacks a particular segment by way of cost leadership. e.g. Tesco aims for cost leadership in all areas. Iceland Foods focuses on frozen goods; outcompetes supermarkets due to specialized cost-focus strategy |
| What is the differentiation + Focus Strategy? | General differentiation strategy: uniqueness sufficiently valued by customers to allow a price premium (e.g. BMW). Differentiation+focus provides uniqueness in a particular narrow segment. (ARM Holdings in the market for mobile phone chips; Auna microphones, etc). |
| What are the threats and dangers of a focus strategy? | 1. Main threat to a focus strategy is the size (or very existence) of the focus segment: Will the the segment continute to exist, and can its needs be served economically (either on a cost+focus basis, or on a differentiation+focus basis)? 2. Also, same threats as specified for Cost or Differentiation |
| Can you be in the middle of the TWOS matrix? | As argued by Porter, there is a fundamental trade-off between cost-leadership and differentiation (with or without focus). Firms cannot do both. Doing both creates the danger of stuck in the middle, and then you are not good at any (Hence, you lose competitiveness). But… some companies manage both e.g. Southwest Airlines, is low-cost, but is (was) also differentiated in terms of frequency and customerrelations.“Hybridstrategy”seems possible in some instances. Example of how low cost and differentiation can work: 1. Differentiation increases cost 2. But, differentiation increases demand (Broader appeal, price inelasticity, brand loyalty) Sales volume increase 3. Unit costs fall with increasing sales volume (Economies of scale, economies of scope: Learning effects) 4. Differentiation leads to lower unit costs because sales volume rise 5. Diagram: Profit goes from abcd to aegf 6. BOOM! Differentiation and low cost goes hand in hand here. |
| How can a "hybrid" TOWS strategy work? | Example of how low cost and differentiation can work: 1. Differentiation increases cost 2. But, differentiation increases demand (Broader appeal, price inelasticity, brand loyalty) Sales volume increase 3. Unit costs fall with increasing sales volume (Economies of scale, economies of scope: Learning effects) 4. Differentiation leads to lower unit costs because sales volume rise 5. Diagram: Profit goes from abcd to aegf 6. BOOM! Differentiation and low cost goes hand in hand here. |
| What is competitor intelligence? | Competitive intelligence tracks the activity of direct and indirect competitors in a range of fields: general business activity, business development, strategy and tactics in different sectors or new activities (sometimes designed to confuse and mislead), market penetration, patent registration, research activity and so on. |
| What is business wargaming? | Business wargaming is an experiential group exercise where an organization can pressure test an existing strategy. Business war games help you create new plans and ideas by role-playing the competitors’ strategy before making full-scale investments. Wargaming shakes things up, challenges norms, and takes a fresh look at the market through the lens of other key players. |
| Game theory: Action and reaction. How does strategy choices interact with the competitors? And why is game theory helpful to predict competitors move? | Strategy choices interact with those of competitors. This suggests that each needs to consider not only their own moves, but also their competitors’ likely or potential counter-moves. Considering how your moves may cause competitors to react has implications for your choices i.e. your strategy. Game theory is particularly important where competitors are strongly inter-dependent (temporarily or permanently) Interdependence exists where the outcome of choices made by one player is strongly dependent on the choices made by others. Here anticipating counter-moves is vital to a strategy’s success Game theory helps reveal which competitor moves are more likely. |
| What is the prisoners dilemma? | The "prisoner's dilemma" is a concept that describes a situation in which two people have competing incentives that lead them to choose a suboptimal outcome. Prisoners dilemma: Both win if they both keep their mouth shut. Each win if they blame the other without reciprocation. Example (See pic): Success of price cut depends on the responses of rivals: if rivals do not match, the price-cutter gains market share; but if rivals follow the price cuts, nobody gains market share and all players suffer from the lower prices. |
| What is a business model? | A business model describes the particular system how (a) customer value is created, (b) delivered, and (c) captured. It is part of the overall strategy. Competitors may have identical business models while their strategy differs greatly. |
| What are the components of a business model? | 1. Value creation. What is offered and how value is created for the buyer; how their needs are met. 2. Value configuration. How various interdependent resources and activities in the value chain are organised. Explains what activities create value, how they are linked and what (internal or external) participants perform them. 3. Value capture. The cost structure of resources and activities, and the source(s) of revenue. |
| What are the 3 business model archetypes? | • Razor & blade – named after the classic Gillette strategy of selling razors cheaply and profiting from sales of high priced blades (Hewlett Packard - printers; Nestle -Nespresso; etc) • Freemium – combining ‘free’ and ‘premium’. Free attracts customers and create network effects, and some upgrade to premium services (e.g. Spotify; LinkedIn; etc) • Peer-to-peer (disintermediation) – brings together people and/or businesses directly (via the Web/app) bypassing the traditional “middle-man” (GoMore; TransferWise) |
| What does business model (BM) innovation cover, and what is its consequences for the market? | New entrants often create new business models to ‘disrupt’ an industry, i.e. they change the dynamics of value creation, value delivery, and value capture. If it works, they own the superior positions in the new order (e.g. Uber, Spotify, etc.). But note: BM innovation is as old as business itself: Ford ‘disrupted’ automobile production; Dell entered the PC and laptop industry in the 1990s by direct selling instead of via middlemen c.f. HP, IBM, etc Awareness of new tech capabilities is often the key to business model innovation. |
| What is a platform business model? | A 2- or multi-sided platform is a business model that brings together two or more groups of participants via a common platform. Note that it is not just Web/app platforms Platform may overlap with other business model patterns: (Airbnb also a peer-to-peer model. Netflix, a subscription model) Some of the most valuable firms in the worlds is a platform (Microsoft, Apple, Amazon, Facebook, etc.) |
| What are four types of players in a platform business. model? | Platforms all have an ecosystem with the same basic structure, comprising four types of players: 1. Owners ‘own’ the network and establish its scope and governance; 2. Providers are platforms’ interface with users; 3. Producers create the offerings; 4. Consumers use those offerings |
| What does all platform business models have in common? | • Brings together 2 or more “market sides” • Generate value from “network effects” The network effect refers to Metcalf’s law, which says the more users of the platform the higher exponential value the platform provides to the users. • Must solve a “chicken-or-egg problem” You want as many users as possible, but the first users are difficult to get. For instance, Uber offered 2.100 USD for the first 300 trips taken by Uber drivers when they started in Boston. |
| What is the network effect? | The value of a platform increases the more users it have. Hence, a "network" effect. |
| What is Osterwals and Pigneur business model, and what is it commonly used to analyse? | The business model canvas, invented by Alex Osterwalder of Strategyzer, is made up of nine building blocks showing the logic of how a company intends to deliver value and make money. The nine blocks cover the three main areas of a business: desirability, viability and feasibility. The 9 building blocks can be seen in the canvas below: Operational side: Key partners, activities, resources Customer side: Customer relationships, channels, customer segments Cost structure: What is total cost of production? Revenue model: Where does revenue come from? Value proposition: How do we create value? |
| What is corporate strategy? | Corporate strategy relates to how strategy is managed across multi-part organizations. (a) about the overall scope of company strategy, and (b)how the centre adds value (or not) to the constituent businesses of the firm Wider organizational terrain, but still the same strategy questions: which business areas, industries, and locations to be active in? What resources are necessary? How to achieve competitive advantage? etc. Choices to win. |
| What are the different levels of strategy? | Questions of scope, alliances; diversity; M&A; resource allocation. Product innovation; cost control; marketing; responding to competitors. The strategy describes how resources, processes, and people in support the above categories. |
| What is the purpose of corporate level strategy? | As organisations get bigger, their strategies cannot be solely concerned with achieving competitive advantage in one market, or in one business. They need to take a bigger and wider view. |
| How can we analyse the strategic directions for growth? | We can do so using Ansoff's matrix: 4 directions for organisational growth. Typically a firm starts in zone A. Each of 4 strategies is a diversification strategy: 1. Market penetration (A) Existing markets / Existing products 2. Products and services development (B) Existing markets / New products 3. Market development (C) New markets / Existing products 4. Unrelated diversification (D) New markets / New products |
| What does Ansoffs market penetration strategy cover? | Market penetration increasing share of current markets with the current product range. This strategy: • means the organisation’s scope is unchanged • builds on established capabilities • Attempts to get greater market share and increased power vs. buyers and suppliers • provides greater economies of scale and experience curve benefits. Limits and dangers of this strategy: 1. Retaliation from competitors e.g. price wars 2. Legal constraints e.g. limits imposed by regulators 3. ‘Economic constraints e.g. market downturn, or public funding squeeze |
| What does Ansoffs product/service development strategy cover? | Where a firm brings new products or services to existing markets. (Sometime forced by encroachment into core market e.g. TomTom goes into sports watches and action cameras. p.137) • May require new resources and capabilities • May require mastering new processes or technologies • May involve project management risks. Often leads to growing service and administration complexity or legal risks |
| What does Ansoffs market development strategy cover? | Where a firm takes existing products or service to new markets. Involves: • New customer groups • New geographies (extending the market to new areas) Requires crossing barriers to entry. Requires meeting the critical success factors of the new market. |
| What does Ansoffs unrelated diversification strategy cover? | Diversifying to products or services with no relationships to existing businesses. Value may be created: • SBUs may benefit from being part of a larger group • Corporate brand recognition may lift some SBU • A larger organisation can can aggregate purchasing and so reduce costs, or cross-subsidise Conglomerate: extreme form of unrelated diversification. “a combination of multiple business entities operating in different industries under one corporate group, usually involving a parent companyandmanysubsidiaries” |
| What reasons might a firm have to diversify (Hence using the diversification strategy)? | 1. Exploiting currently superior internal processes / successes 2. Seeking synergies, where activities or assets complement new ones. 3. Exploiting economies of scope, gains through applying the organisation’s existing resources or competences to new markets or services. e.g. Exec Ed using university residences in the summer 4. Stretching corporate management competences across a wider portfolio. (Corporate managerial capabilities applied across a portfolio of businesses is known as “the dominant logic”) 5. Cross-subsidisation. Diversification increases power to cross-subsidise one business from the profits of the others. 6. Increasing market power via “mutual forbearance.” Having the same or wider portfolio of products vs. competitor increases ability to retaliate if they attack 7. When the industry is at a mature phase / no further growth 8. (Bonus item) Facilitates transfer-pricing shenanigans |
| What are the dangers of diversifying? | There are some limits and dangers to diversification: 1. Management egos, ambition (“size matters” etc.) 2. Addressing declining results by “starting new things” instead of fixing what is wrong (incl. strategic renewal) Diversification should be used before industry sales start to decline. If a firm has not diversified, their sales will start to decline and as they have no other products/services so will overall business performance: |
| When looking at the industry lifecycle, when should a diversifying strategy be used? | When the industry has reached a maturity point and beginning to decline. |
| What is vertical integration? | Vertical integration: where the firm becomes its own supplier or customer. It is a form of diversification as it increases corporate scope. |
| What are the limits / dangers of vertical integration? | There are some limits and dangers to vertical integration: 1. Investment risk. New activities may be less profitable than the original core business. Also financing strain 2. Lack of synergies, including cultural fit 3. Lack of resources and capabilities. e.g. car manufacturers forward-integrating into car servicing find managing networks of small service outlets very different to managing large manufacturing plants. |
| What are some ways of vertical dis-integration? | Outsourcing and sub-contracting If a vertically integrated part is not adding value to the overall business, it can be offloaded. Offloaded entity may lower costs or improve quality: • External supplier may have superior capabilities. More specialized systems. More updated tech. Skill-focused employees. etc. • Supplier may have scale or experience economies Outsourcing allows the principal firm to: • “stick to its knitting” • Reduce the size of its balance sheet • Flexibly adjust to market demand |
| What is subcontractor opportunism? | When a subcontractor exploits their power to decrease quality / increase price. Subcontractor opportunism is found where: • There are few alternatives to the subcontractor • The product or service is complex and changing, and therefore hard to specify in a legally binding contract • Principal firm investments have been made in specific assets, which the subcontractor knows will have little value if they withhold their product or service. (Supplier Power) |