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WELLCOME TO Strategy and Strategic Management

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Title: WELLCOME TO Strategy and Strategic Management


1
WELLCOME TOStrategy and Strategic Management

School of Economics and Management Tongji
University
2
Reference Books
- Arthur A. Thompson, Jr. A. Strickland ? (1998),
Strategic Management Concepts and Cases (12th
edition), Mechanical Industry and McGraw-Hill -
David A. Aaker (1998), Strategic Market
Management (fifth edition), John Wiley Sons,
Inc. - Gerry Johnson and Kevan Scholes (1998),
Exploring Corporate Strategy (third edition, in
Chinese), Prentice Hall - Fred R. David (1998),
Strategic Management (Six edition, in Chinese),
Economics Science Press - Cliff Bowman (1997),
STRATEGIC MANAGEMENT, Press of China Peoples
University and Prentice Hall
3
Unit 1 Introduction
Objects are an organizations performance
targets the results and outcomes it wants to
achieve. Strategic objects Relate to outcomes
that strengthen an organizations overall
business position and competitive vitality.
4
Strategy
  • Is a continuous, interactive process aimed at
    keeping an organization as a whole appropriately
    matched to its environment
  • (Peter, 1988)
  • A companys strategy consists of the competitive
    efforts and business approaches that managers
    employ to please customers, compete successfully
    and achieving organizational objects
  • (Thompson Strickeland, 2003)

5
Strategy is concerned with
  • the long term direction of an organization
  • The scope of an organizations activities
  • achieving advantage over competition
  • matching activities to resources and capabilities
  • the value of power holders
  • major resources implications
  • influence over operation decisions
  • (Johnson Scholes, 2002)
  • And in China
  • -

6
Levels of Strategies
Corporate HQ
Corporate strategy
Competitive strategy
SBU A
SBU B
SBU C
Manufacturing Marketing Accounting HR .
Functional strategies
7
Content of strategy at different levels
corporate
Portfolio and resource allocation
SBU
How to compete
Function
Product, market Plans
8
Formulating strategy
Resource and capabilities
strategy
insights
Market understanding
Major environment influences
Competitive analysis
9
Schools of Strategy Formation
  • - Planning School
  • - Designing School
  • - Political School
  • - Culture School
  • - Learning School
  • - Fate School
  • - ..

10
Classical model of strategic planning
Internal analysis Organizational Strengths
weaknesses Core (distinctive) Competencies Manag
erial values Personal ambitions. Mintzberg,
1994)
External appraisal Industry attractiveness Threa
ts opportunities Key successful
factors Social responsibilities
Strategy formulation
Strategy options evaluations
11
Strategy perceived and realized
Intended strategy
Designed strategy
Realized strategy
Emergent strategy
Unrealized strategy
12
Who Performs
Production Marketing Human resource Other key
department
  • CEO
  • Vice presidents
  • Major org. units
  • Diversified companies
  • CEO
  • Business units
  • Department heads
  • Managers of major operating units
  • employees

13
Unit 2 Vision and Mission
  • What is a strategic vision?
  • Why have a vision or mission?
  • Mission statement - how to define

14
What is a Strategic Vision
Managements views and conclusions about -
organizations future course - the customer
focus - the market position it should try to
occupy - business activities What kind of
company we are trying to create?
15
Why Have a Vision or Mission
  • A prerequisite of effective strategic leadership
  • - forming a strategic vision is
  • not an exercise to create a catchy slogan
  • thinking strategically about org future
  • putting the company on a path that management is
    deeply committed to
  • - Chart a company future

16
Mission Statement
  • The mission statement sets out the organizations
    ground rules to its approach to doing business.
  • A good statement usually address the following
  • a statement of beliefs and values
  • the products or services that the firm will sell
  • the markets within which the firm will trade
  • how those markets will be reached
  • the technologies that the firm will use
  • attitudes to growth and financing

17
Pepsi Cos Mission
Is to increase the value of our share holders
investment. We do this through sales growth,
cost control, and wise investment resources. We
believe our commercial success depends upon
offering quality and value to our consumers
providing products that are safe, wholesome,
economically efficient and environmentaly sound
and providing a fair return to investors while
adhering to the highest standards of integrity.
18
Vision of Amersham PK
To build our position as a leading provider of
products and technologies to enable the
molecular medicine revolution, in which disease
will be better understood, diagnosed sooner and
treated more effectively.
19
Tongjis Vision
???????????????, ?????????????????? ????????????
20
Financial Objects vs Strategic Objects
  • Financial objects
  • Growth in revenues
  • Growth in earnings
  • Higher dividends
  • Wider profit margins
  • Higher returns
  • Attractive EVA performance
  • Strong bond and credit rating
  • Bigger cash flows
  • A rising stock price
  • A more diversified revenue base
  • Stable earning during recession
  • Strategic objects
  • A big market share
  • Quicker design-to-market times than rivals
  • Higher product quality than rivals
  • Lower costs relative to key competitors
  • Broader pr more attractive product line than
    rivals
  • A stronger reputation with customers than rivals
  • Superior customer service
  • Wide geographic coverage than rivals
  • Recognition as a leader in technology and/or
    product innovation

21
Establishing Objects
  • Setting objects convert the strategic vision
    and directional
  • course into specific performance target.
  • Objects represent a managerial commitment to
    achieving
  • specific performance targets within a specific
    time frame.
  • Experience companies whose managers set
    objects for
  • each key result typically outperform companies
    whose
  • managers exhibit good intentions, try hard, and
    hope for
  • the best.

22
Unit 2 Activity
??????????????? ??????
23
Unit 3 Industry and competitive analysis
Managers are not prepared to decided on a long
term direction or a strategy until they have a
keen understanding of the companys strategic
situation the exact nature of The industry and
competitive conditions it faces and how These
conditions match up with its resources and
capabilities. Thompson Strickland
(2003)
24
Sources of profit
Microeconomic context
Industry conditions
Firm resource capabilities
Industry Based view
Resource Based view
Industry attractiveness
Company performance
25
A companys Macro-environment
The economy
Registration regulations
suppliers
substitutes
company
Technology
Buyers
rivals
Social and lifestyles
New entrants
Population demographics
26
PESTD Analysis
  • Political
  • - political parties and alignment at local,
    national regional trading-block level
  • legislation, regulation, taxation, employment
    law
  • Relations between government and the
    organization
  • Government ownership of the industry and
    attitude
  • to monopolies and to competition
  • Economic resent and future
  • Total GDP and GDP per head
  • Inflation, Interest rates, Unemployment
  • Disposable income and consumer expenditure
  • Currency fluctuations exchange rate
  • Investment (from state, private and foreign
    firms)
  • Key material unit cost (energy, transport,
    telecommunication, )
  • (Lynch, 2003)

27
PESTD Analysis
  • Social and culture
  • - shift in value and culture, changes in
    lifestyle
  • - Attitudes to work and leisure, green
    environment issues
  • Education and health
  • Distribution of incomes
  • Technology
  • rate of adoption of new technologies
  • Expenditure on RD by rivals
  • New patents and products
  • (Lynch 2003)
  • Demogrphics
  • - age, income, education, geographic lacation

28
Environment Analysis- key issues
  • Political
  • what changes in regulation are possible? What
    will be their impact be?
  • What tax or other incentives are being developed
    that might affect strategy?
  • what are the political risks operating in a
    government jurisdiction?
  • Economic
  • what are the economic prospects and inflation
    outlets for the countries in which
  • the firm operates? How will they affect
    strategy?
  • Social and culture
  • what are the current or emerging trends in
    lifestyles, fashions, and other
  • components of culture? Why? What are their
    implications?
  • Technology
  • To what extent are existing technologies
    maturing?
  • What technological development or trends are
    affecting or will affect the industry?
  • Demographics
  • -what demographic trends will affect the market
    size or sub-market of the industry?
  • - what trends represent opportunities and threats?

29
Customer Analysis
  • Segmentation Strategic Business Units,
    definition
  • How should segments be defined 5-10 variables
    and
  • firm history
  • Questions need to be asked for segmentation
  • Customer motivations what lies behind their
    purchase
  • decision
  • Unmet needs represents the opportunities for
    firms

30
Competitor Analysis
  • Identify your competitors
  • Customer choices from your customers point of
    view
  • Product approaches who is offering similar
    products
  • Strategic Group approach
  • Understanding competitors
  • Size, growth, profitability
  • Current and past strategies
  • Cost structure
  • Image, positioning, culture
  • Competitors strengths and weaknesses

31
What are the industrys dominant economic traits?
  • Market size
  • Scope of competitive rivalry
  • Market growth and where the industry is in the
    growth cycle
  • Number of rivals and their relative sizes
  • The number of buyers and their relative sizes
  • The prevalence of backward and forward
    integration
  • The pace of technology change
  • Cost structure
  • Whether rivals product or services are highly or
    weakly differentiated or identical
  • Whether industry profitability is above/below
    par..

32
Learning curve
Cost Per unit
1 70 cents 35 cents
Cost reduction
1 2 4 8 million units
Accumulated production
33
Industry structure
Perfect competition - many equal suppliers of
similar products Monopolistic competition -
many sellers with each slightly differently
Oligopoly - a few large suppliers
Monopoly - one dominant seller
34
Industry structure and advantages
Perfect competition
Monopoly
Differentiation advantages Considerable very
few
Monopolistic competition
Oligopoly
Considerable very few Cost advantages
35
Stages of industry evolution
Introduction Maturity Decline Growth
36
Industry evolution and competition
Introduction growth maturity decline Demand hi
gh income enlarged repeating clever consu
mers Technology improve stable new
prod decline Products low quality high
quality standard low quality Manufacture h
igh cost mass production more table over
capacity enlarge Trade some export large
export export dec no exp small import import
inc large inp Competition few companies entry pri
ce compt out many many out
37
Industry evolution
Innovating country Other industrialized
countries Developing countries
production
Unit produced
New product maturing product standardized
product
38
Strategic groups
??
price/quality/image
??
????
???
  • - Firm in an industry following the same or a
    similar strategy along key dimensions
  • - Variables
  • price/quality/image
  • geographic coverage
  • market shares

???
??
??
??
??
??
Car industry in 2000
low
market shares
39
Common Types of Key Successful Factors
  • - The essential requirements for competing in an
    industry
  • Technology-Related KSFs
  • Manufacturing-Related KSFs
  • Distribution-Related KSFs
  • Marketing-Related KSFs
  • Skill-Related KSFs
  • Organizational Capacity
  • Other Types

40
Industry analysis key issues
  • Where is the industry now in terms of its
    evolution?
  • what are the most important issue?
  • where it will be ? And how it might take to go
    there?
  • what are the implications to the firm?

41
Competitive analysis
  • competitive force pressures to companys
    profitability
  • - Five force model
  • Discover the main sources of competitive
    pressure and how strong each competitive force
    is?
  • a key analytical tool to analyze whether an
    industry is attractive or not

42
What is competitive like and how strong are each
of the competitive forces?
SUBSTITUTES
Win buyers
Ability to exercise bargaining power and
leverage
Bargaining power and leverage
COMPETING SELLERS
SUPPLIERS OF KEY INPUTS
BUYERS
Threat of entry of new rivals
POTENTIAL NEW ENTRANTS
43
Rivalry intensity is likely to be high when
  • the number of competitors increases and as
    competitors
  • become more equal in size and capabilities
  • the demand for the product is growing slowly
  • industry conditions tempt competitors use price
    cuts etc to boost
  • unit volume
  • customers costs to switch brands are low
  • one or more competitors are dissatisfied with
    market position
  • exit cost is high

44
Buyers are like to have higher bargaining power
when
  • low switch cost
  • number of buyers are small
  • a customer is particularly important to a seller
  • they are well informed at sellers products,
    price, costs
  • buyers pose a credible threat of integrating
    backward
  • buyers have discretion in whether and when they
    purchase
  • the products

45
Supplier power tends to be higher if
  • number of suppliers are small
  • less substitutes available in the market
  • suppliers products are key to buyers
  • significant switch cost for buyers
  • supplier poses a credible threat of forward
    integration
  • (porter, 1980)

46
Entry barriers of potential entrants
  • Government regulations and policies
  • economics of scale
  • learning and experience curve effects
  • technology
  • Brand preference and customer loyalty
  • capital requirement
  • distribution channels

47
Competitive pressures from substitutes
  • attractive price from substitutes
  • better quality, performance, and other
    attributes
  • low switching cost

48
Strategic implications of five-force
As a rule, the stronger the collective impact of
competitive forces, the low the combined
profitability of participant firms.
49
Unit 4 Case Study
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50
Unit 5 Evaluating Company Resources and
competitive Capabilities
  • - How well is the companys present strategy
    working?
  • - What are the companys resource strengths and
    weaknesses and
  • its external opportunities and threats?
  • - Are the companys prices and costs competitive?
  • How strong is the companys competitive position
    relative to its
  • rivals?
  • What strategic issues does the company face?
  • SWOT analysis, shareholder value analysis, value
    chain analysis, strategic cost analysis and
    competitive strength assessment

51
How well is the companys present strategy
working?
  • The firms market share in the industry - rising,
    stable or declining
  • profit margin
  • trends in the firms net profits, return on
    investment
  • companys overall financial strength and credit
    rating is improving or
  • on the decline
  • trends in the companys stock price and
    shareholder value
  • firms sales - growing faster or slower than the
    market as a whole
  • The firms image and reputation, product or
    service quality, customer
  • satisfaction, employees capability and
    performance
  • the company is regarded as a leader or not

52
What are the companys resource Strengths and
Weaknesses and its external Opportunities and
Threats?
--Provide a good overview of whether a firms
business position is fundamentally healthy or
unhealthy -Concept a strength is something a
company is good at doing or a characteristic that
gives it enhanced competitiveness. -Concept a
weakness is that a company lacks or does poorly
(in comparison to others) or a condition that
puts it at a disadvantage.
53
Identify companys strengths and resource
capabilities
  • Strengths skills and expertise, collection of
    assets, competitive capabilities and market
    achievements
  • Forms of strengths
  • skill or expertisephysical assetshuman
    assetsorganizational assetsintangible
    assetscompetitive capabilitiesalliances or
    cooperative ventures

54
Definitions
Resources Stocks of available factors that are
owned or controlled by a firm Capabilities
(competency) A firms ability to utilize resource
to achieve a desired end (Amit etc, 1993)
55
Core competency
  • Core competencies the ability to perform a
    competitively relevant activity very well (text
    book)
  • Core competencies are the collective learning in
    the organization, especially hoe to coordinate
    diverse production skills and integrate multiple
    streams of technologies (Prahalad and Hamel,1990)
  • is central to a companys competitiveness and
    profitability
  • skills, knowledge and capabilities
  • lies in a companys people, not in its assets on
    the balance sheet
  • empowers a company to build competitive
    advantage
  • A firm normally needs to have about 5 single
    competencies to keep a sustainable competitive
    advantages (Aaker, 2001)

56
Core competency and firm competitive advantage
Delivery products and Services highly valued by
customers Dynamic capabilities that are hard
to copy by rivals
Core competency Capabilities Resource
High performance than rivals
57
Samples of core competencies
  • Core competency of Dell
  • direct sells quality product service
  • Core competency of EBA Papst
  • High quality, reliable, innovative products and
  • total thermal solutions
  • Core competency of Sharp Corporation
  • Flat-panel display technology (Liquid crystal
    displays)
  • Core competency of Toyota and Honda
  • - low cost, high quality manufacturing, short
    design-to-market cycles
  • Core competency of your firm
  • -

58
Competitive Value of a Companys Resource
  • Is the resource hard to copy?
  • How long does the resource last?
  • Is the resource really competitively superior?
  • Can the resource be trumped by the different
  • resources/capabilities of rivals?
  • Can the resource/capability be transfer to
    provide
  • products and service that customers put high
    value on
  • Selecting the competencies and capabilities to
  • concentrate on
  • Size is not all about competitiveness

59
Barriers to imitation
The true causes are not fully understood
physically unique
Difficulty to copy
Expensive
complexity complementarities
current learning is based on past learning
(Collins etc, 1995)
60
Identifying a companys market opportunities
(SWOT analysis)
  • Market opportunities are the important factors of
    the formation of company strategies
  • Market opportunities and company opportunities
  • Turn market opportunities into company
    opportunities when
  • offer big increase of profit
  • company has most potential for competitive
    advantage
  • the market opportunity matches well with
    companys present resource capabilities

61
Identify company threats
  • Threats
  • the emergence of cheaper technology
  • rivals introduction of new or better products
  • the entry of lower-cost foreign competitors
  • new regulations

62
Real value of SWOT analysis
  • SWOT analysis draws conclusions about
  • How the companys strategy can be matched to both
    its resource capabilities and its market
    opportunities
  • How urgent it is for the company to correct
    particular resource gap
  • Managerial and strategic implications
  • Basis for action
  • Will the current company strength matter as much
    in the future?
  • Do new types of competitive capabilities need to
    be put in place?

63
Are the companys prices and costs competitive?
  • Strategic cost analysis and value chains

Operations
Distribution Logistics
Sales Marketing
Suppliers
Service
Profit margin
RD, Tech, System Development
Human Resource management
General Administration
64
Benchmarking the costs of key activities
  • Focus on cross-company comparisons
  • how materials are purchased
  • how suppliers are paid
  • how inventories are managed
  • how employees are trained
  • how pay rolls are processed
  • how quality control is performed
  • how customer orders are filled
  • how maintenance is performed

65
The industry value chain
Supplier related company distribution
related customer related Value chain
Activities Cost, and Margins of suppliers
Internally Performed Activities Cost,
and Margins
Activities Cost, and Margins of Forward channels
Buyer/end Use value chain
(Porter, 1985)
66
Industry value chain of PCs
chip
computer
Intel, Motorola, RISCs Dell, IBM, compacq,
HP. Windows, DOS, Unix Word, SPSS Retail,
supermarket, dealers, Direct sales
Operating system
Application soft-ware
Sales and distribution
67
From value chain to competitive capability to
competitive advantage
  • out-sourcing
  • industry cluster
  • fully use firm specific resources and country
    resources
  • gain control over main activities of the
    industry
  • .

68
What strategic issues does the company face?
  • Strategic Performance Indicators
  • Performance Indicator 19- 19- 20- 20 20-
  • Market share
  • Sales growth
  • Net profit margin
  • Others
  • Internal resource strengths and competitive
    capabilities
  • Internal weaknesses and resource deficiencies
  • External opportunities
  • External threats to the companys well being

69
What strategic issues does the company face?
(cont)
3. Competitive Strength Assessment Ranting
scale 1 very weak 10Very strong Key success
factors/ Weight Firm Firm Firm Firm Competitive
Strength measure A B C D Quality/product
performance
Reputation/Image
Manufacturing capability
Technology skills/know how
Distribution
capabilities
New prod. innovation cap.
Financial resources
Relative cost position
Customer service
capability
70
What strategic issues does the company face?
(cont.)
  • Conclusions concerning Competitive position
  • (improving/slipping? Competitive
    advantages/disadvantages)
  • 5. Major strategic issues the company must
    address

71
Unit 6 Case study
??????,?????? ???????????? ?????????,???????????
?
72
Unit 7 Generic strategy and competitive advantage
73
Strategic Thrusts Routes to an SCA
Operational excellence Customer intimacy Product
leadership.
Focus
Differentiation
Strategic Thrusts
Preemption
Low cost
Synergy
Innovative Entrepreneurial style
74
The Role of Synergy
  • Definition the whole is more than the sum of its
    parts
  • (11) gt (1) (1)
  • Aims of synergy
  • Increase customer value and increase sales
  • Lower operating costs
  • Reduce investment
  • GE achieve synergy across many businesses
  • IBM create synergy by pushing core technologies
  • across more product lines

75
Means of Synergy
  • Production capacity
  • A brand name and its image
  • Facilities used for manufacturing, offices or
    warehousing
  • R D efforts
  • Staff and operating system
  • Marketing and marketing research
  • Customer and sometimes customer applications
  • .
  • Synergy perceiving and realization problems
    culture
  • mismatch, inadequate incentives, unpredictable
    market
  • trends

76
Preemptive move (first mover) strategies to use
with those generic strategies
  • Supply systems
  • Product
  • Production system
  • Gain customer
  • loyalty/commitment
  • Distribution/service

77
First mover - pros and cons
  • For Against
  • Build image Significant costs
  • Volume advantages Customer needs undeveloped
  • Gain market share
  • Lock in suppliers Technology leap-frogging
  • Create technology
  • standards Unfavourable image

78
Generic Strategies
  • How a company can achieve or defend a competitive
    advantage?
  • Low-cost lead-ship strategy
  • A broad differentiation strategy
  • A focused or market niche strategy based on
    lower cost
  • A focused or market niche strategy based on
    differentiation

79
Low-Cost Lead-ship Strategy
  • A powerful competitive approach where many
    buyers
  • are price sensitive
  • Low cost relative to rivals
  • Rivals are difficult to copy or match
  • To allow operating the business in a highly
    cost-effective
  • manner and open up a sustainable cost
    advantage over
  • rivals

80
Low-Cost Lead-ship Strategy
?????????????,????? ???????,??????,???? ??,?????
???????
81
Ways to achieve a cost advantage
  • do a better job than rivals of performing
    internal value chain activities
  • revamp the firms value chain to bypass some
    cost producing activities
  • altogether
  • Controlling the cost drivers
  • economies of scale
  • Learning and experience curve effects
  • Control cost of key inputs
  • Link with other activities in the company or
    industry value chain
  • The benefits of vertical integration vs
    outsourcing
  • The percentage of capital utilization
  • Strategic choices and operating decisions
  • First-mover advantages vs disadvantages
  • (porter, 1985)

82
When cost-lead-ship works best?
  • Price competition is vigorous
  • Few ways to achieve product differentiation that
    have
  • value to buyers
  • Moat buyers use the product in the same way
  • Low switching cost to buyers
  • Buyers are large and have power to bargain
  • Standardized products are available

83
Differentiation Strategies
  • To be unique in ways that are valuable to
    customers
  • and that can be sustained
  • A good competitive approach when buyers are too
  • diverse to satisfied by a standardized product
  • To study buyers needs what they put high value
    on
  • Hard or expensive for rivals to copy or
    duplicate
  • ?????????????????????
  • ????,????,???????,.....??
  • ?????????????????

84
Types of differentiation themes
  • A unique taste
  • Spare parts available (Caterpillar 48 hours
    delivery)
  • More for money (Mcdonalds)
  • Engineering design and performance (Mercedes)

85
Value chain and differentiating attributes
  • purchasing and procurement activities
    performance and quality
  • R D improve product design
  • R D and technology customer order manufacture
    at low cost
  • Manufacturing activities reduce product defects
  • Out-band logistic and distribution activities
    fast delivery
  • Customer service

86
When differentiation strategy works best
  • there are many ways to differentiate the product
    or service that have value
  • to many buyers
  • buyers needs and users are diverse
  • Few rival firms are following same
    differentiation approach
  • technology change rapid product innovation

87
Pitfalls of a differentiation strategy
  • differentiation attributes are not valuable to
    buyers
  • over-differentiating leads to high cost (exceed
    buyers needs)
  • Trying to charge too high a price premium
  • Not understanding or identifying what buyers
    consider as value

88
Market Niche Strategies
  • A focused or market niche strategy based on lower
    cost
  • A focused or market niche strategy based on
    differentiation
  • Concentrated attention on a narrow piece of the
    total market
  • When focusing is attractive?
  • The target market niche is big enough to be
    profitable
  • The niche has good growth potential
  • The niche is not crucial to the success of major
    competitors
  • The focuser can defend the challengers
  • The focuser has the ability to serve the targeted
    niche effectively

89
Unit 8 Case study (not)
???????,?? - ?????????????? - ????????????????????
???? - ??????????????????????? - ???,????????????
90
Unit 9-1 Strategic Options intensive strategies
Selection
Direction?
Base?
Approach?
  • Generic strategies
  • Cost lead-ship
  • Differentiation
  • Focused
  • Directions
  • Integration
  • Intensive strategies
  • Diversification
  • Defending strategies
  • Approaches
  • Joint venture
  • Merge and
  • acquisition

91
Strategic alliance - Motivations
  • learn from one another in performing joint
    research, sharing technological
  • know-how, and collaborating on complementary
    technologies and products
  • -manufactures typically pursue alliances with
    parts and components suppliers
  • gain efficiencies of better supply chain
  • -JV- seeking advantages from partners
  • -.

92
Strategic alliance - samples
-GM has formed over 100 cooperative partnerships
in a wide range of areas -IBM has joined in
over 400 strategic alliances Oracle has over
15000 alliances -Toyota has forged a network of
long-term strategic partnerships with its
suppliers of automotive parts and components -.
93
The un-stability of S-A
  • diverging objectives and priorities
  • An inability to work well together
  • The mergence of more attractive tech paths,
    market places
  • Strategic dangers of relying heavily on alliances
    and cooperative
  • Partnerships
  • essential expertise and capabilities

94
Vertical Integration - definition
  • Forward integration
  • Gain control over sales (distributors and
    retailers)
  • Backward integration
  • Gain control over suppliers
  • Or extends a firms range of activities backward
    into
  • sources of suppliers /or forward toward end
    users.

95
Vertical integration
- Go for it in a big way and become heavily
integrated to maximise benefits - or outsource
most non-core, non mission-critical activities so
you have minimum expenditure, maximum flexibility
(and/or consider strategic alliances) - do not
be half hearted between these extremes
96
Pros and cons of vertical integration
  • For Against
  • Cost savings Requires different skills
  • Improved quality Increases dependency on
  • Protect resources industry
  • Increase profits Increases capital reqts
  • Improve access to Raises exit barriers
  • customers' Creates balance problems Reduces
    flexibility

97
Outsourcing
De-integration and outsourcing involves
withdrawing from certain stages/ Activities in
the value chain system and relying on outside
vendors to Supply the needed products, support
services, or functional activities. Facts
Companies have begun outsourcing activities
formerly performed In-house and concentrated
their attentions more on a narrower portion Of
the value chain.
98
When go outsourcing
-an activity be performed better or more cheaply
by outside specialists -the activity is not
crucial to the firms ability to achieve
SCA -Reduces companys risk exposure to changing
technology -improve org. flexibility, cut cycle
time, decision making and coordination
cost -allows a company to concentrate on its core
business and do what it does best
99
Labor cost in China
Labor cost in textile industry
(2002) Nation cost/h (US) compared with US
() Japan 20.7 185 US 13 100 Taiwan 5.9
45 Hong Kong 5.7 44 South Cria 3.6 28 Pola
nd 3.5 27 Turkey 2.5 19 Monaco 1.9 15
Thailand 1.1 8 China 0.6 5 Pakistan 0.4
3 Indonesia 0.2 1
100
Outsourcing in Chinese market
  • Ford has plans to buy 1 billion in
    auto-components in China
  • Wal-Mart establishing a souring division in
    Shenzhen
  • Philips electronics 23 factories in China
    surpassed 5 billion in goods
  • produced.
  • Reebok has most of the OEM plants in southern
    China (GD, FJ).
  • It does design, RD, marketing, product quality
    control and sales

101
Pitfalls of outsourcing
Outbound activities that are key to companys
competitive advantages, and hollow out its own
capabilities.
102
Merger and acquisition definition
Merger Two companies merged together (David,
1998). Or a combination and Pooling of equals,
which the newly created company often taking on a
new Name (Thompson etc. 2004) Acquisition One
company purchases another (David, 1998). Or is
when one company, The acquirer, purchases and
absorbs the operations of another, the
acquired (Thompson etc, 2004) Difference
relates to the details of ownership, management
control and Financial arrangements.
103
Samples of merger and acquisitions
Mergers HP- Compacq merger (cost saving, reduce
competition) Tongji and Shanghai railway
university merger (History reason) Daimler-Benz
and Chrysler merger (cost reduction and
etc.) Acquisitions Intel (around 500
mergers) Hair and its development (more than 20
mergers) GE Unilever Procter Gamble
104
M-A Experience
  • Question Why some companies acquire good
    performance companies
  • and some AC bad or even bankrupt companies?
  • Haier
  • Fuxin
  • -

105
Other intensive strategies
  • Market penetration
  • Increase market share through greater efforts of
    marketing
  • Market development
  • Bring products or services to a new market area
  • Product development
  • Increase sales through the development of new
    products or services

106
Unit 9-2 Strategic options - Defending Strategies
  • Retrenchment or re-organization (?????)
  • ????????????????,????????????
  • Divestiture (??)
  • ?????????????
  • Liquidation(??)
  • ??????????????????????

107
Case study GM in China
108
Unit 10 diversification strategies
109
Related Diversification - definition
  • Add new products and services which are related
    to the
  • original business Or add activities which are
    supplement
  • or complementary and support to the main
    business
  • (David, 1998)
  • Or when there are competitively valuable
    relationships among the activities comprising
    their respective value chain
  • ( Thompson etc, 2004)
  • ?????????????????
  • ?????????????????????????

110
Un-related diversification - definition
  • Add new products and services that are not
    related
  • to the companys original business (David,
    1998)
  • ??????????????????
  • Or when the activities comprising their
    respective value
  • chains are so dissimilar that no real potential
    exists to
  • transfer skills or technology from one business
    to another
  • or to combine similar activities and reduces
    costs or to
  • otherwise produce competitively valuable
    benefits from
  • operating under a common corporate umbrella
    (Thompson
  • etc, 2004)

111
Strategic fit of related diversification or
business
Business A
Supply Chain activities
Techno-Logy
Operation
Sales And marketing
Distribution
Customer Service
  • Efficient transfer of key skills, tech expertise,
    managerial know-how
  • Lower cost
  • Share a common brand name
  • Build resource strengths and capabilities

Customer Service
Supply Chain activities
Techno-Logy
Operation
Sales And marketing
Distribution
Business B
112
Sample of related diversifications
  • Technology (AT T into cable TV service,
    internet access, BHP mining)
  • cost reduction (samples of most backward
    integration)
  • Sales and marketing (Pepsi-cola into sports
    products)
  • Distribution activities
  • Managerial expertise

113
Economics of scope and scale
  • Economics of scope arising whenever it is less
    costly to perform certain
  • value chain activities for two or more
    businesses operated under
  • centralized management than being performed
    independently.
  • Economics of scale are cost savings that accrue
    from increases in size
  • and number

114
Reasons to enter into Un-related diversification
  • Decline of main business
  • targeted industry has great growth potential
  • Company has extra capital
  • Company has extra human resources
  • Top managers intentions

115
Pros Cons of unrelated diversification
  • Business risk is scattered over a set of diverse
    industries (research)
  • Maximum employ company capital by investing
    what-ever good
  • industries
  • 3. More stable financial situation
  • 4. Bargain-priced company and increase
    shareholder values

116
Why Chinese firms are more diversified
Early early 70s middle 80s now Last century
United states
China
Early 70s early 80s middle 90s now
117
Unit 10-2 Competing in global market
  • Reasons for companies enter into international
    market
  • To access new customers or great potential of
    targeted
  • market (New demand areas, such as Chinese
    market)
  • To achieve lower cost
  • to capitalize on companys core competency
  • to spread business risk across a wider market
    base
  • profit growth problems in home market
  • Looking for R D capabilities
  • Looking for political legitimacy

118
Multi-country or Global competition
Multi-country competition (??) Competition in
one national market is independent of competition
in another national market. Global
competition Competitive conditions across
national markets ar linked strongly enough to
form a true international market and when leading
competitors compete head to head in many
different countries.
119
Strategic options for going international
  • Export
  • Licensing
  • Franchising
  • Multi-country
  • Global strategy

120
Entry model of MNCs
  • MA JV SA SO
  • Cost High .. Low High
  • Speed Slow . Fast Low
  • Investment High . Low High
  • Learning High . Low
  • Risk High . Low High
  • Leveraging High . Low High
  • Other

121
Competitive advantages by competing
multi-nationally
  • Deploy activities among various countries to gain
    lower costs
  • R D, parts manufacture, assembly, distribution,
    sales
  • and marketing, customer service
  • Transfer of valuable competencies and
    capabilities to foreign markets
  • Draw on its ability to deepen or broaden its
    resource strength and capabilities and to
    coordinate its dispersed activities in ways that
    a domestic competitor can not.
  • (Porter)

122
Cost reduction or differentiation
Local responsiveness Differentiation
B (production ?) C (marketing)
D (R D) A
Global integration Cost reduction
123
MNCs strategic Position in Chinese Market
  • Cost leader ship?
  • High Differentiation?
  • Industry difference ?
  • Other ?
  • Customer are price sensitive in emerging market

124
Chinese local company reactions
Quality
How will the Chinese local firm react to MNCs
entry to The Chinese market??
Price
125
Case analysis Ericsson in China (not)
Case Ericsson in China, Questions 1) Analyze
in detail as what has contributed to the success
of Ericsson in China before 2002? 2) What
strategies do you suggest Ericsson should take in
future to have further development in the Chinese
market? (analysis can be focus onto a specific
area)
126
Unit 11 Strategy Evaluation
  • Evaluation standards
  • 1) Suitability (???)
  • Can the strategy take advantage of the
    organizational strength and make use of the
    opportunities that offered by the environment?
  • Can the strategy resolve or improve the weakness
    of the organization?
  • Will the strategy be consistent with
    organizational objectives?

127
Strategy Evaluation (cont.)
  • 2) Feasibility (???) will the organization have
    enough capacity to reach this strategy?
  • Has enough capital?
  • Has managerial skills?
  • Has marketing know-how?
  • Has technology capabilities?
  • Has enough materials and services?

128
Strategy Evaluation (cont.)
  • 3) Acceptability (????)
  • Top management
  • Middle management
  • Employees
  • External stakeholders (suppliers, customers
    competitors)
  • And government, community, environment concerns
    and regulations

129
SWOT Analysis
Opportunity
OW strategies (turn around strategies)
SO strategies (Growth strategies)
Strength
Weakness
WT strategies (defending Stra.)
ST strategies (attack strategies)
Treats
130
Portfolio Analysis
BCG Matrix
Question marks
High low
Market Growth rate
Stars
Cash cows
Lin dogs
High Low
Market share
131
Four intensive growth strategies Ansoffs
product/market expansion grid
Increasing risk
4. Diversification
132
Life Circle Portfolio Matrix ????????
Product life circle
Beginning increase mature
decrease
???? ???? ???? ?????? ????? ???? ???? ?????\?? ???? ?? ??????
???? ??? ???? ???? ?????? ??, ??? ????,??????? ??? ??,??? ????? ?????? ??
???? ??? ?? ??? ??,?? ??????? ??,????? ??,???,?? ??????? ?? ??
??????? ?? ??,?? ????? ??,?? ??,??, ????? ?? ?? ??
????? ?? ?? ?? ?? ?? ??
Leader Strong Welcome Retain weak
Competitive position
133
Research Evidence (SPI, 3000 org.)
  1. The importance of market share

Return on investment ()
Will the strategies that organizations employ
bring benefits ?
134
Research Evidence (SPI, 3000 org.)
2. Consolidate Strategies
Relative market share
Low 25 60 high
Low -10 10 high
Relative quality
10 10 21
14 19 27
22 27 35
Note numbers are average PIMS ROI ()
a) Industry leaders have strong competitive
positions
135
Research Evidence (SPI, 3000 org.)
Marketing / sales
Low 5 10 high
Low 25 60 high
18 15 9
20 20 21
33 32 33
Note numbers are average PIMS ROI ()
Relative market share
b) Market share is important when marketing
expenses are high
136
Research Evidence (SPI, 3000 org.)
Marketing / sales
5 10
Relative quality
Note numbers are average PIMS ROI ()
15 17 15
21 22 22
29 31 25
-7 11
C) Intensive marketing can not replace product
quality
137
Research Evidence (SPI, 3000 org.)
d) Negative impact of high investment on ROI
138
Research Evidence (SPI, 3000 org.)
3. Results related to other strategies
RD / sales
Low 0.5 2.1 high
Low 26 60 high
14 15 10
22 24 17
30 35 31
Relative market share
  • Intensive investment wont hurt industry leaders

139
Research Evidence (SPI, 3000 org.)
3. Results related to other strategies
60 50 40 30 20 10 0 -10
ROI ()
Market leaders
Best 1/4
Average
Poor 1/4
0 10 40
New products (recent 3 years) / sales ()
140
Research Evidence (SPI, 3000 org.)
3. Results related to other strategies
60 50 40 30 20 10 0 -10
Best 1/4
ROI ()
Average
Poor 1/4
0 10 40
141
Unit 11 Activity Case study
  • ????????,???
  • ????????????????????????
  • ???,???????????????????????

142
Unit 12 Implementing Strategies
  • Turn a strategy into actions and good results
  • Make thing happen
  • Demands a managers ability to direct
    organization change, motivate people, develop
    core competencies, build valuable capabilities,
    create a strategy-supportive corporate culture,
    and meet best performance target
  • It is easier to develop a sound strategic plan
    than to make it happen

143
A Frame-work for Implementing Strategy
  • No framework
  • Reasons for not having proven paths
  • Some managers are more effective than others
  • Different org.

Culture, leadership, business practice Different
competitive circumstances, work environment,
policies, mixes of personalities.
144
The Principal Tasks of Implementing Strategy
Building an org. with the capabilities needed for
successful strategy execution
Allocating resources to strategy-critical activiti
es
Exercising the strategic leadership
  • The Strategy
  • implementers
  • Action agenda
  • What to do now vs later
  • What requires much time
  • and
  • personal attention

Establishing strategy supportive policies
Shaping the work environment and corporate culture
Instituting best practice
Tying rewards and incentives to the achievement
of key strategic targets
Installing information, communication and
operating systems that enable company personal to
better carry out their strategic roles
145
Leading the Implementation Process
  • How managers lead the implementation task is the
    function of
  • Their experience and knowledge of the business
  • Their network of personal relationship
  • Problem solving skills
  • The authority theyv been given
  • The leadership style they are comfortable with
  • Their view of the role they need to play to get
    things done
  • The most important leadership is a strong
    confident sense of what to do to get desired
    results

146
Implementing Strategy culture and leadership
  • Culture a companys values, believes,
    traditions, operating styles and internal work
    environment
  • The power of culture
  • Strong cultures promote good strategy execution
  • A powerful lever for successful strategy
    execution
  • Strong vs weak culture
  • Weak culture many subcultures, few values, few
    behavioral norms, few traditions, little cohesion
    and glue across units

147
Balanced scorecard
  • PSC ??????????,???????????,????????
  • ????? (Olve, 2004)
  • Supplemented traditional financial measures with
    criteria that
  • measured performance from 3 additional
    perspective those of customers,
  • internal business processes, and learning and
    growth (Kaplan, 1996).
  • -It enabled companies to track financial results
    while simultaneously
  • monitoring progress in building the capabilities
    and acquiring the intangible
  • assets they would need for future growth
    (Kaplan, 1996).
  • -financial measures and target bear little
    relation to companys long-term
  • strategic objects ( Kaplan, 1996)

148
Four perspectives (or dimensions of BSC)
Financial Profitability Growth of
revenue shareholder equity
Customer Satisfaction Growth of new customer
Process Operation efficiency
??? ??
Learning and innovation Learning ability New
skills attained
149
BSC chart
Strategic plans 2004 2006 2007 Actions
KSF KPI
Financial result.
Customer
Process
Learning
150
Implications to strategic implementation
  • BSC ???(Olve ?, 2004)
  • ?????? ??????????
  • ???????????? ????????????,???????
  • ???????????
  • BSC???(???,2003)
  • ????????????????(??)
  • ????,??????????, ???????????
  • BSC??? (Niwen, 2003)
  • ???????,????????

151
Roles of BSC
  • Kaplan and Norton (1996)
  • Traditional management system inability to
    link companys long term
  • strategy with its short term actions. BSC can.
  • The four processes that, separately and
    combination, contribute to linking
  • long-term strategies objects with short-term
    actions
  • first process (translating the vision) helps
    managers to build a consensus
  • org. vision and strategy
  • second process (communicating and linking) can
    let managers to
  • communicate their strategy up and down the org.
    and link it to departmental
  • and individual objects
  • the third process (planning) integrate business
    plans with financial plans
  • fourth process (feedback and learning) gives
    companies the capacity of
  • strategic learning

152
Typical school of strategic management thought
  • the designing school (Christensen, Andrews and
    Guth, 1965)
  • shift from Chandlers internal structure to
    external strategy. The basic
  • model is SWOT analysis identify strategies
    which match org. internal
  • distinctive capabilities with its environment
  • criticism from Mintzberg the environment has
    to be stable
  • the planning school (Ansoff, 1965)
  • analyze the components of strategy, deposed into
    corporate, business
  • and functional strategies
  • criticizes..
  • from consulting industry
  • experience curve
  • BCG matrix
  • PIMS
  • positioning school (Porter, 1980)
  • industry structure and position org. in it
    (five-force)
  • late conditioned to competitive advantage

153
Typical school of strategic management thought
(cont.)
  • resource based view (Prahalad and Hamel, 1990)
  • emphasis on solving the need for analytical
    content on strength
  • and weakness side of SWOT framework
  • the concept of core competency
  • internal determinants of org. success

154
Unit 12 Activity implementation (not)
?????,??????????? 1) ?????????,????????????? 2)
?????????????????
155
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