Lecture L1 Introducing Strategy “Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations”. This is a broad statement for the longer term and it is used to drive the details of the specific short and long- range plans. It is the way of stating the current / present and upcoming future position of the company, and the objective, goals, major policies and required for taking the company from where it is to where it wants to be. It is a general framework that provides guidance for actions to be taken and, at the same time is shaped by the actions taken. it is journey between Imagination and actual make . Characteristics of Strategic Decisions Long-term direction Scope of an organization’s activities Competitive advantage Strategic fit with business environment.
Transcript
Lecture L1
Introducing Strategy
ldquoStrategy is the direction and scope of an organization over the long term which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectationsrdquo
This is a broad statement for the longer term and it is used to drive the details of the specific short and long- range plans It is the way of stating the current present and upcoming future position of the company and the objective goals major policies and required for taking the company from where it is to where it wants to be
It is a general framework that provides guidance for actions to be taken and at the same time is shaped by the actions taken it is journey between Imagination and actual make
Characteristics of Strategic Decisions
Long-term direction
Scope of an organizationrsquos activities
Competitive advantage
Strategic fit with business environment
Organization resources and competences
Values and expectations of power players
The strategic decisions are likely to affect the long ndashterm direction of an organization Strategy can also be seen as stretching an organizations resources and competences to create opportunities or capitalize on them It is not just about countering environmental threats and taking advantage of environmental opportunities it is also about matching organizational
resources to these threats and opportunities There would be little point in trying to take advantage of some new opportunity if the resources needed were not available or could not be made available or if the strategy was rooted in an inadequate resource-base
Implications of Strategic Decisions
Complexity
Integration
Relationships and networks
Change
Uncertainty
Operational decisions
Levels of Strategy
Corporate-level strategy
Business-level strategy
Operational strategy
Level of Strategy
Definition Example
Corporate strategy
Market definitionDiversification into new product or geographic markets
Business strategy
Market navigationAttempts to secure competitive advantage in existing product or geographic markets
Level of Strategy
Definition Example
Functional strategy
Support of corporate strategy and business strategy
Information systems human resource practices and production processes that facilitate achievement of corporate and business strategy
The basic purpose of strategy is ldquohow the organization will be different form other organization
Corporate-level strategies address the entire strategic scope of the enterprise This is the big picture view of the organization and includes deciding in which product or service markets to compete and in which geographic regions to operate For multi-business firms the resource allocation processmdashhow cash staffing equipment and other resources are distributedmdashis typically established at the corporate level There four it know as corporate level strategies
The Business level of strategy concerned with the question ldquoHow do we competerdquo Pertains to each business unit or product line within the organization
The operational level of strategy concerned with the question ldquoHow do we support the business-level strategyrdquo Pertains to all of the organizationrsquos major departments
What is a Strategic Business Unit
A strategic business unit (SBU) is a part of an organization for which there is a distinct external market for goods or services that is different from another SBU
A strategic business unit is a significant organization segment that is analyzed to develop organizational strategy aimed at generating future business or revenue
Exactly what constitutes an SBU varies from organization to organization In larger organizations an SBU could be a company division a single product or a complete product line In smaller organizations it might be the entire company1 although SBUs vary drastically in form they have some common characteristics All SBUs are a single business (or collection of businesses) have their own competitors and a manager accountable for operations and can be independently planned
Vocabulary of Strategy
Mission Identifies overall purpose of the organization Defines the scope and the boundary of the business What business are we in
Vision or strategic intent desired future state of the organization
Goal is the general aim in line with the mission may be qualitative in nature
Objectives are quantifiable in nature
Vocabulary of Strategy Nokia
VisionMission
Connecting is about helping people feel close to what matters Wherever whenever Nokia believes in communicating sharing and in the awesome potential in connecting the 2 billion who do with the 4 billion who donrsquot
What is Strategic Management
Strategic management includes understanding the strategic position of a organization making strategic choices for the future and managing strategy in action
Strategic management vs operational management
Strategic Management Operation Management
AmbiguousUncertain Re-utilized
Complex Operationally specific
Organization wide Short term implication
Fundamental
Long term implication
The Exploring Corporate Strategy Model
What is Strategic Position
Strategic position is concerned with the impact on strategy of the external environment an organizationrsquos strategic capability and the expectations and influence of stakeholders
A strategic position statement is kind of like a statement for your company You want to explain this statement how you view your company and how you view it within the rest of your marketplace
What are Strategic Choices
Strategic choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development
Strategic choice is the second element of the strategy formulation processChoice is at the centre of strategy formulation If there are no choices to be madeThere can be little value in thinking about strategy at all
This relatively modest interpretation of the word strategic mean that the view of planning as strategic choice is one that can be applied not only to decision making in formal organizational settings but to the choices and uncertainties which people face in their personal and community lives Ex any of us might find Ourselves involved in a process of strategic choice in addressing the problem of Where and when to go on holiday next year or how to sell an unwanted vehicle or how to deal with a difficult request from a relative or friend of course the craft of choosing strategically becomes more complicated where it involves elements of collective choice ndash of negotiation with others who view problems and possibilities in different ways
What is Strategy in Action
Strategy in action is concerned with ensuring that strategies are working in practice
Most organizations have a strategy Many strategies fail Why Strategies are seldom implemented properly because a suitable framework is missing ndash an architecture that reaches from strategy conception to strategy implementation and sustainability
Lecture 2
Strategy Making and strategy Execution Process
Strategists are CEO Top Management team and practicing managers
Characteristics of Effective Strategy Leaders
bull Mastery of analytical concepts and techniques
bull Social and influencing skills
bull Group acceptance as a player
What is a Strategic Planner
What is a Strategic Planner
Tasks performed by strategic planners
Information and analysis devising the strategy process and working on special projects
Roles Played by Strategy Consultants
Lecture 3
Henry Mintzberg (1998) suggests that authors on strategy characterise its meaning in one or more of the following 5 ways
1 A Ploy
2 A Position
3 A Perspective
4 A Plan
5 A Pattern
Kevin Hinde EC490 Corporate and Strategic Management Division of Economics University of Northumbria 17
The first two are concerned quite openly with the issue of competitive strategy Ploy refers to outwitting a rival Position is about how an organisation places itself in the market Both are concerned with obtaining a competitive advantage through the existence of core competence
The view that strategy is a perspective identifies with those organisations where there is a powerful group of strategy makers It is their whims predilections and personality that influence organisational direction This of course raises an issue about whether such views reflect an organisational consensus
Analysing prioritising
and generating options
Transferring knowledge
Promoting strategic decisions
Implementing strategic change
Most organisations have a strategic plan - a consciously intended course of action general or specific However Mintzberg (1990) as you will note later is very critical of what he calls the Design School of strategic management He implies that this approach relies heavily on a group of decision-makers (strategy as a perspective) and that the formulation of strategy is detached from its implementation He asks how such organisations can venture into new markets What is required is lsquocraftingrsquo which is in marked contrast to planning
ldquoCraft invokes traditional skill dedication perfection mastery through detail What springs to mind is not so much thinking and reason as involvement a feeling of intimacy and harmony with the materials at hand developed through long experience and commitment Formulation and implementation merge into a fluid process of learning through which creative strategies emergerdquo (Mintzberg (1987) p66)
Interestingly Mintzberg identifies strategy as a pattern because planners may justify what they have done even though it did not follow from the original plan After having taken action we reflect on what we have done and define it as a consistent pattern - whether or not it was intended Because we see a pattern what we do is ascribe it as being intentional strategy - the pattern stems from our plan
However there has been no overseeing intention Some plans may never be implemented or see the light of day In the same way a pattern of actions may arise without preconceived integrative planning Indeed they can arise through the political cultural and social forces that operate within and upon the organisation
Mintzberg identifies with two sorts of strategy ndash deliberate and emergent
1048713A deliberate strategy is an intended plan that is then realised (or otherwise)
1048713An emergent strategy arises from other sources usually political and cultural or through imposition (possibly by an event over which the organisation has no control)
Lecture 4
Strategic Position ndash Strategic position of the company can be understood by studying the Environment Strategic capability purpose of the organisation and the Culture of the organization
Environment
Business Environment consists of the following structure
MacroEnvironment
IndustrySector
Competitors
Organisation
Macro environment can be studied by the PESTEL framework Key Drivers and The Scenarios
Pestel Framework includes
Political Environment-govt policies regulations
Economic- Related with economic monitory fiscal policies
Social- cultural and social practices
Technological-
Environmental- Natural resources
Legal- Legal laws
Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy We chose those elements in the pestel framework which have high impact Those are the key drivers
Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty
Scenario 1 ndashwhat is the effect and strategy if it rains
Scenario 2 ndash what is the effect and strategy if it does not rains
We chose the key drivers and construct the scenarios for them and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
resources to these threats and opportunities There would be little point in trying to take advantage of some new opportunity if the resources needed were not available or could not be made available or if the strategy was rooted in an inadequate resource-base
Implications of Strategic Decisions
Complexity
Integration
Relationships and networks
Change
Uncertainty
Operational decisions
Levels of Strategy
Corporate-level strategy
Business-level strategy
Operational strategy
Level of Strategy
Definition Example
Corporate strategy
Market definitionDiversification into new product or geographic markets
Business strategy
Market navigationAttempts to secure competitive advantage in existing product or geographic markets
Level of Strategy
Definition Example
Functional strategy
Support of corporate strategy and business strategy
Information systems human resource practices and production processes that facilitate achievement of corporate and business strategy
The basic purpose of strategy is ldquohow the organization will be different form other organization
Corporate-level strategies address the entire strategic scope of the enterprise This is the big picture view of the organization and includes deciding in which product or service markets to compete and in which geographic regions to operate For multi-business firms the resource allocation processmdashhow cash staffing equipment and other resources are distributedmdashis typically established at the corporate level There four it know as corporate level strategies
The Business level of strategy concerned with the question ldquoHow do we competerdquo Pertains to each business unit or product line within the organization
The operational level of strategy concerned with the question ldquoHow do we support the business-level strategyrdquo Pertains to all of the organizationrsquos major departments
What is a Strategic Business Unit
A strategic business unit (SBU) is a part of an organization for which there is a distinct external market for goods or services that is different from another SBU
A strategic business unit is a significant organization segment that is analyzed to develop organizational strategy aimed at generating future business or revenue
Exactly what constitutes an SBU varies from organization to organization In larger organizations an SBU could be a company division a single product or a complete product line In smaller organizations it might be the entire company1 although SBUs vary drastically in form they have some common characteristics All SBUs are a single business (or collection of businesses) have their own competitors and a manager accountable for operations and can be independently planned
Vocabulary of Strategy
Mission Identifies overall purpose of the organization Defines the scope and the boundary of the business What business are we in
Vision or strategic intent desired future state of the organization
Goal is the general aim in line with the mission may be qualitative in nature
Objectives are quantifiable in nature
Vocabulary of Strategy Nokia
VisionMission
Connecting is about helping people feel close to what matters Wherever whenever Nokia believes in communicating sharing and in the awesome potential in connecting the 2 billion who do with the 4 billion who donrsquot
What is Strategic Management
Strategic management includes understanding the strategic position of a organization making strategic choices for the future and managing strategy in action
Strategic management vs operational management
Strategic Management Operation Management
AmbiguousUncertain Re-utilized
Complex Operationally specific
Organization wide Short term implication
Fundamental
Long term implication
The Exploring Corporate Strategy Model
What is Strategic Position
Strategic position is concerned with the impact on strategy of the external environment an organizationrsquos strategic capability and the expectations and influence of stakeholders
A strategic position statement is kind of like a statement for your company You want to explain this statement how you view your company and how you view it within the rest of your marketplace
What are Strategic Choices
Strategic choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development
Strategic choice is the second element of the strategy formulation processChoice is at the centre of strategy formulation If there are no choices to be madeThere can be little value in thinking about strategy at all
This relatively modest interpretation of the word strategic mean that the view of planning as strategic choice is one that can be applied not only to decision making in formal organizational settings but to the choices and uncertainties which people face in their personal and community lives Ex any of us might find Ourselves involved in a process of strategic choice in addressing the problem of Where and when to go on holiday next year or how to sell an unwanted vehicle or how to deal with a difficult request from a relative or friend of course the craft of choosing strategically becomes more complicated where it involves elements of collective choice ndash of negotiation with others who view problems and possibilities in different ways
What is Strategy in Action
Strategy in action is concerned with ensuring that strategies are working in practice
Most organizations have a strategy Many strategies fail Why Strategies are seldom implemented properly because a suitable framework is missing ndash an architecture that reaches from strategy conception to strategy implementation and sustainability
Lecture 2
Strategy Making and strategy Execution Process
Strategists are CEO Top Management team and practicing managers
Characteristics of Effective Strategy Leaders
bull Mastery of analytical concepts and techniques
bull Social and influencing skills
bull Group acceptance as a player
What is a Strategic Planner
What is a Strategic Planner
Tasks performed by strategic planners
Information and analysis devising the strategy process and working on special projects
Roles Played by Strategy Consultants
Lecture 3
Henry Mintzberg (1998) suggests that authors on strategy characterise its meaning in one or more of the following 5 ways
1 A Ploy
2 A Position
3 A Perspective
4 A Plan
5 A Pattern
Kevin Hinde EC490 Corporate and Strategic Management Division of Economics University of Northumbria 17
The first two are concerned quite openly with the issue of competitive strategy Ploy refers to outwitting a rival Position is about how an organisation places itself in the market Both are concerned with obtaining a competitive advantage through the existence of core competence
The view that strategy is a perspective identifies with those organisations where there is a powerful group of strategy makers It is their whims predilections and personality that influence organisational direction This of course raises an issue about whether such views reflect an organisational consensus
Analysing prioritising
and generating options
Transferring knowledge
Promoting strategic decisions
Implementing strategic change
Most organisations have a strategic plan - a consciously intended course of action general or specific However Mintzberg (1990) as you will note later is very critical of what he calls the Design School of strategic management He implies that this approach relies heavily on a group of decision-makers (strategy as a perspective) and that the formulation of strategy is detached from its implementation He asks how such organisations can venture into new markets What is required is lsquocraftingrsquo which is in marked contrast to planning
ldquoCraft invokes traditional skill dedication perfection mastery through detail What springs to mind is not so much thinking and reason as involvement a feeling of intimacy and harmony with the materials at hand developed through long experience and commitment Formulation and implementation merge into a fluid process of learning through which creative strategies emergerdquo (Mintzberg (1987) p66)
Interestingly Mintzberg identifies strategy as a pattern because planners may justify what they have done even though it did not follow from the original plan After having taken action we reflect on what we have done and define it as a consistent pattern - whether or not it was intended Because we see a pattern what we do is ascribe it as being intentional strategy - the pattern stems from our plan
However there has been no overseeing intention Some plans may never be implemented or see the light of day In the same way a pattern of actions may arise without preconceived integrative planning Indeed they can arise through the political cultural and social forces that operate within and upon the organisation
Mintzberg identifies with two sorts of strategy ndash deliberate and emergent
1048713A deliberate strategy is an intended plan that is then realised (or otherwise)
1048713An emergent strategy arises from other sources usually political and cultural or through imposition (possibly by an event over which the organisation has no control)
Lecture 4
Strategic Position ndash Strategic position of the company can be understood by studying the Environment Strategic capability purpose of the organisation and the Culture of the organization
Environment
Business Environment consists of the following structure
MacroEnvironment
IndustrySector
Competitors
Organisation
Macro environment can be studied by the PESTEL framework Key Drivers and The Scenarios
Pestel Framework includes
Political Environment-govt policies regulations
Economic- Related with economic monitory fiscal policies
Social- cultural and social practices
Technological-
Environmental- Natural resources
Legal- Legal laws
Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy We chose those elements in the pestel framework which have high impact Those are the key drivers
Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty
Scenario 1 ndashwhat is the effect and strategy if it rains
Scenario 2 ndash what is the effect and strategy if it does not rains
We chose the key drivers and construct the scenarios for them and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Level of Strategy
Definition Example
Functional strategy
Support of corporate strategy and business strategy
Information systems human resource practices and production processes that facilitate achievement of corporate and business strategy
The basic purpose of strategy is ldquohow the organization will be different form other organization
Corporate-level strategies address the entire strategic scope of the enterprise This is the big picture view of the organization and includes deciding in which product or service markets to compete and in which geographic regions to operate For multi-business firms the resource allocation processmdashhow cash staffing equipment and other resources are distributedmdashis typically established at the corporate level There four it know as corporate level strategies
The Business level of strategy concerned with the question ldquoHow do we competerdquo Pertains to each business unit or product line within the organization
The operational level of strategy concerned with the question ldquoHow do we support the business-level strategyrdquo Pertains to all of the organizationrsquos major departments
What is a Strategic Business Unit
A strategic business unit (SBU) is a part of an organization for which there is a distinct external market for goods or services that is different from another SBU
A strategic business unit is a significant organization segment that is analyzed to develop organizational strategy aimed at generating future business or revenue
Exactly what constitutes an SBU varies from organization to organization In larger organizations an SBU could be a company division a single product or a complete product line In smaller organizations it might be the entire company1 although SBUs vary drastically in form they have some common characteristics All SBUs are a single business (or collection of businesses) have their own competitors and a manager accountable for operations and can be independently planned
Vocabulary of Strategy
Mission Identifies overall purpose of the organization Defines the scope and the boundary of the business What business are we in
Vision or strategic intent desired future state of the organization
Goal is the general aim in line with the mission may be qualitative in nature
Objectives are quantifiable in nature
Vocabulary of Strategy Nokia
VisionMission
Connecting is about helping people feel close to what matters Wherever whenever Nokia believes in communicating sharing and in the awesome potential in connecting the 2 billion who do with the 4 billion who donrsquot
What is Strategic Management
Strategic management includes understanding the strategic position of a organization making strategic choices for the future and managing strategy in action
Strategic management vs operational management
Strategic Management Operation Management
AmbiguousUncertain Re-utilized
Complex Operationally specific
Organization wide Short term implication
Fundamental
Long term implication
The Exploring Corporate Strategy Model
What is Strategic Position
Strategic position is concerned with the impact on strategy of the external environment an organizationrsquos strategic capability and the expectations and influence of stakeholders
A strategic position statement is kind of like a statement for your company You want to explain this statement how you view your company and how you view it within the rest of your marketplace
What are Strategic Choices
Strategic choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development
Strategic choice is the second element of the strategy formulation processChoice is at the centre of strategy formulation If there are no choices to be madeThere can be little value in thinking about strategy at all
This relatively modest interpretation of the word strategic mean that the view of planning as strategic choice is one that can be applied not only to decision making in formal organizational settings but to the choices and uncertainties which people face in their personal and community lives Ex any of us might find Ourselves involved in a process of strategic choice in addressing the problem of Where and when to go on holiday next year or how to sell an unwanted vehicle or how to deal with a difficult request from a relative or friend of course the craft of choosing strategically becomes more complicated where it involves elements of collective choice ndash of negotiation with others who view problems and possibilities in different ways
What is Strategy in Action
Strategy in action is concerned with ensuring that strategies are working in practice
Most organizations have a strategy Many strategies fail Why Strategies are seldom implemented properly because a suitable framework is missing ndash an architecture that reaches from strategy conception to strategy implementation and sustainability
Lecture 2
Strategy Making and strategy Execution Process
Strategists are CEO Top Management team and practicing managers
Characteristics of Effective Strategy Leaders
bull Mastery of analytical concepts and techniques
bull Social and influencing skills
bull Group acceptance as a player
What is a Strategic Planner
What is a Strategic Planner
Tasks performed by strategic planners
Information and analysis devising the strategy process and working on special projects
Roles Played by Strategy Consultants
Lecture 3
Henry Mintzberg (1998) suggests that authors on strategy characterise its meaning in one or more of the following 5 ways
1 A Ploy
2 A Position
3 A Perspective
4 A Plan
5 A Pattern
Kevin Hinde EC490 Corporate and Strategic Management Division of Economics University of Northumbria 17
The first two are concerned quite openly with the issue of competitive strategy Ploy refers to outwitting a rival Position is about how an organisation places itself in the market Both are concerned with obtaining a competitive advantage through the existence of core competence
The view that strategy is a perspective identifies with those organisations where there is a powerful group of strategy makers It is their whims predilections and personality that influence organisational direction This of course raises an issue about whether such views reflect an organisational consensus
Analysing prioritising
and generating options
Transferring knowledge
Promoting strategic decisions
Implementing strategic change
Most organisations have a strategic plan - a consciously intended course of action general or specific However Mintzberg (1990) as you will note later is very critical of what he calls the Design School of strategic management He implies that this approach relies heavily on a group of decision-makers (strategy as a perspective) and that the formulation of strategy is detached from its implementation He asks how such organisations can venture into new markets What is required is lsquocraftingrsquo which is in marked contrast to planning
ldquoCraft invokes traditional skill dedication perfection mastery through detail What springs to mind is not so much thinking and reason as involvement a feeling of intimacy and harmony with the materials at hand developed through long experience and commitment Formulation and implementation merge into a fluid process of learning through which creative strategies emergerdquo (Mintzberg (1987) p66)
Interestingly Mintzberg identifies strategy as a pattern because planners may justify what they have done even though it did not follow from the original plan After having taken action we reflect on what we have done and define it as a consistent pattern - whether or not it was intended Because we see a pattern what we do is ascribe it as being intentional strategy - the pattern stems from our plan
However there has been no overseeing intention Some plans may never be implemented or see the light of day In the same way a pattern of actions may arise without preconceived integrative planning Indeed they can arise through the political cultural and social forces that operate within and upon the organisation
Mintzberg identifies with two sorts of strategy ndash deliberate and emergent
1048713A deliberate strategy is an intended plan that is then realised (or otherwise)
1048713An emergent strategy arises from other sources usually political and cultural or through imposition (possibly by an event over which the organisation has no control)
Lecture 4
Strategic Position ndash Strategic position of the company can be understood by studying the Environment Strategic capability purpose of the organisation and the Culture of the organization
Environment
Business Environment consists of the following structure
MacroEnvironment
IndustrySector
Competitors
Organisation
Macro environment can be studied by the PESTEL framework Key Drivers and The Scenarios
Pestel Framework includes
Political Environment-govt policies regulations
Economic- Related with economic monitory fiscal policies
Social- cultural and social practices
Technological-
Environmental- Natural resources
Legal- Legal laws
Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy We chose those elements in the pestel framework which have high impact Those are the key drivers
Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty
Scenario 1 ndashwhat is the effect and strategy if it rains
Scenario 2 ndash what is the effect and strategy if it does not rains
We chose the key drivers and construct the scenarios for them and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
A strategic business unit is a significant organization segment that is analyzed to develop organizational strategy aimed at generating future business or revenue
Exactly what constitutes an SBU varies from organization to organization In larger organizations an SBU could be a company division a single product or a complete product line In smaller organizations it might be the entire company1 although SBUs vary drastically in form they have some common characteristics All SBUs are a single business (or collection of businesses) have their own competitors and a manager accountable for operations and can be independently planned
Vocabulary of Strategy
Mission Identifies overall purpose of the organization Defines the scope and the boundary of the business What business are we in
Vision or strategic intent desired future state of the organization
Goal is the general aim in line with the mission may be qualitative in nature
Objectives are quantifiable in nature
Vocabulary of Strategy Nokia
VisionMission
Connecting is about helping people feel close to what matters Wherever whenever Nokia believes in communicating sharing and in the awesome potential in connecting the 2 billion who do with the 4 billion who donrsquot
What is Strategic Management
Strategic management includes understanding the strategic position of a organization making strategic choices for the future and managing strategy in action
Strategic management vs operational management
Strategic Management Operation Management
AmbiguousUncertain Re-utilized
Complex Operationally specific
Organization wide Short term implication
Fundamental
Long term implication
The Exploring Corporate Strategy Model
What is Strategic Position
Strategic position is concerned with the impact on strategy of the external environment an organizationrsquos strategic capability and the expectations and influence of stakeholders
A strategic position statement is kind of like a statement for your company You want to explain this statement how you view your company and how you view it within the rest of your marketplace
What are Strategic Choices
Strategic choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development
Strategic choice is the second element of the strategy formulation processChoice is at the centre of strategy formulation If there are no choices to be madeThere can be little value in thinking about strategy at all
This relatively modest interpretation of the word strategic mean that the view of planning as strategic choice is one that can be applied not only to decision making in formal organizational settings but to the choices and uncertainties which people face in their personal and community lives Ex any of us might find Ourselves involved in a process of strategic choice in addressing the problem of Where and when to go on holiday next year or how to sell an unwanted vehicle or how to deal with a difficult request from a relative or friend of course the craft of choosing strategically becomes more complicated where it involves elements of collective choice ndash of negotiation with others who view problems and possibilities in different ways
What is Strategy in Action
Strategy in action is concerned with ensuring that strategies are working in practice
Most organizations have a strategy Many strategies fail Why Strategies are seldom implemented properly because a suitable framework is missing ndash an architecture that reaches from strategy conception to strategy implementation and sustainability
Lecture 2
Strategy Making and strategy Execution Process
Strategists are CEO Top Management team and practicing managers
Characteristics of Effective Strategy Leaders
bull Mastery of analytical concepts and techniques
bull Social and influencing skills
bull Group acceptance as a player
What is a Strategic Planner
What is a Strategic Planner
Tasks performed by strategic planners
Information and analysis devising the strategy process and working on special projects
Roles Played by Strategy Consultants
Lecture 3
Henry Mintzberg (1998) suggests that authors on strategy characterise its meaning in one or more of the following 5 ways
1 A Ploy
2 A Position
3 A Perspective
4 A Plan
5 A Pattern
Kevin Hinde EC490 Corporate and Strategic Management Division of Economics University of Northumbria 17
The first two are concerned quite openly with the issue of competitive strategy Ploy refers to outwitting a rival Position is about how an organisation places itself in the market Both are concerned with obtaining a competitive advantage through the existence of core competence
The view that strategy is a perspective identifies with those organisations where there is a powerful group of strategy makers It is their whims predilections and personality that influence organisational direction This of course raises an issue about whether such views reflect an organisational consensus
Analysing prioritising
and generating options
Transferring knowledge
Promoting strategic decisions
Implementing strategic change
Most organisations have a strategic plan - a consciously intended course of action general or specific However Mintzberg (1990) as you will note later is very critical of what he calls the Design School of strategic management He implies that this approach relies heavily on a group of decision-makers (strategy as a perspective) and that the formulation of strategy is detached from its implementation He asks how such organisations can venture into new markets What is required is lsquocraftingrsquo which is in marked contrast to planning
ldquoCraft invokes traditional skill dedication perfection mastery through detail What springs to mind is not so much thinking and reason as involvement a feeling of intimacy and harmony with the materials at hand developed through long experience and commitment Formulation and implementation merge into a fluid process of learning through which creative strategies emergerdquo (Mintzberg (1987) p66)
Interestingly Mintzberg identifies strategy as a pattern because planners may justify what they have done even though it did not follow from the original plan After having taken action we reflect on what we have done and define it as a consistent pattern - whether or not it was intended Because we see a pattern what we do is ascribe it as being intentional strategy - the pattern stems from our plan
However there has been no overseeing intention Some plans may never be implemented or see the light of day In the same way a pattern of actions may arise without preconceived integrative planning Indeed they can arise through the political cultural and social forces that operate within and upon the organisation
Mintzberg identifies with two sorts of strategy ndash deliberate and emergent
1048713A deliberate strategy is an intended plan that is then realised (or otherwise)
1048713An emergent strategy arises from other sources usually political and cultural or through imposition (possibly by an event over which the organisation has no control)
Lecture 4
Strategic Position ndash Strategic position of the company can be understood by studying the Environment Strategic capability purpose of the organisation and the Culture of the organization
Environment
Business Environment consists of the following structure
MacroEnvironment
IndustrySector
Competitors
Organisation
Macro environment can be studied by the PESTEL framework Key Drivers and The Scenarios
Pestel Framework includes
Political Environment-govt policies regulations
Economic- Related with economic monitory fiscal policies
Social- cultural and social practices
Technological-
Environmental- Natural resources
Legal- Legal laws
Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy We chose those elements in the pestel framework which have high impact Those are the key drivers
Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty
Scenario 1 ndashwhat is the effect and strategy if it rains
Scenario 2 ndash what is the effect and strategy if it does not rains
We chose the key drivers and construct the scenarios for them and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Strategic management vs operational management
Strategic Management Operation Management
AmbiguousUncertain Re-utilized
Complex Operationally specific
Organization wide Short term implication
Fundamental
Long term implication
The Exploring Corporate Strategy Model
What is Strategic Position
Strategic position is concerned with the impact on strategy of the external environment an organizationrsquos strategic capability and the expectations and influence of stakeholders
A strategic position statement is kind of like a statement for your company You want to explain this statement how you view your company and how you view it within the rest of your marketplace
What are Strategic Choices
Strategic choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development
Strategic choice is the second element of the strategy formulation processChoice is at the centre of strategy formulation If there are no choices to be madeThere can be little value in thinking about strategy at all
This relatively modest interpretation of the word strategic mean that the view of planning as strategic choice is one that can be applied not only to decision making in formal organizational settings but to the choices and uncertainties which people face in their personal and community lives Ex any of us might find Ourselves involved in a process of strategic choice in addressing the problem of Where and when to go on holiday next year or how to sell an unwanted vehicle or how to deal with a difficult request from a relative or friend of course the craft of choosing strategically becomes more complicated where it involves elements of collective choice ndash of negotiation with others who view problems and possibilities in different ways
What is Strategy in Action
Strategy in action is concerned with ensuring that strategies are working in practice
Most organizations have a strategy Many strategies fail Why Strategies are seldom implemented properly because a suitable framework is missing ndash an architecture that reaches from strategy conception to strategy implementation and sustainability
Lecture 2
Strategy Making and strategy Execution Process
Strategists are CEO Top Management team and practicing managers
Characteristics of Effective Strategy Leaders
bull Mastery of analytical concepts and techniques
bull Social and influencing skills
bull Group acceptance as a player
What is a Strategic Planner
What is a Strategic Planner
Tasks performed by strategic planners
Information and analysis devising the strategy process and working on special projects
Roles Played by Strategy Consultants
Lecture 3
Henry Mintzberg (1998) suggests that authors on strategy characterise its meaning in one or more of the following 5 ways
1 A Ploy
2 A Position
3 A Perspective
4 A Plan
5 A Pattern
Kevin Hinde EC490 Corporate and Strategic Management Division of Economics University of Northumbria 17
The first two are concerned quite openly with the issue of competitive strategy Ploy refers to outwitting a rival Position is about how an organisation places itself in the market Both are concerned with obtaining a competitive advantage through the existence of core competence
The view that strategy is a perspective identifies with those organisations where there is a powerful group of strategy makers It is their whims predilections and personality that influence organisational direction This of course raises an issue about whether such views reflect an organisational consensus
Analysing prioritising
and generating options
Transferring knowledge
Promoting strategic decisions
Implementing strategic change
Most organisations have a strategic plan - a consciously intended course of action general or specific However Mintzberg (1990) as you will note later is very critical of what he calls the Design School of strategic management He implies that this approach relies heavily on a group of decision-makers (strategy as a perspective) and that the formulation of strategy is detached from its implementation He asks how such organisations can venture into new markets What is required is lsquocraftingrsquo which is in marked contrast to planning
ldquoCraft invokes traditional skill dedication perfection mastery through detail What springs to mind is not so much thinking and reason as involvement a feeling of intimacy and harmony with the materials at hand developed through long experience and commitment Formulation and implementation merge into a fluid process of learning through which creative strategies emergerdquo (Mintzberg (1987) p66)
Interestingly Mintzberg identifies strategy as a pattern because planners may justify what they have done even though it did not follow from the original plan After having taken action we reflect on what we have done and define it as a consistent pattern - whether or not it was intended Because we see a pattern what we do is ascribe it as being intentional strategy - the pattern stems from our plan
However there has been no overseeing intention Some plans may never be implemented or see the light of day In the same way a pattern of actions may arise without preconceived integrative planning Indeed they can arise through the political cultural and social forces that operate within and upon the organisation
Mintzberg identifies with two sorts of strategy ndash deliberate and emergent
1048713A deliberate strategy is an intended plan that is then realised (or otherwise)
1048713An emergent strategy arises from other sources usually political and cultural or through imposition (possibly by an event over which the organisation has no control)
Lecture 4
Strategic Position ndash Strategic position of the company can be understood by studying the Environment Strategic capability purpose of the organisation and the Culture of the organization
Environment
Business Environment consists of the following structure
MacroEnvironment
IndustrySector
Competitors
Organisation
Macro environment can be studied by the PESTEL framework Key Drivers and The Scenarios
Pestel Framework includes
Political Environment-govt policies regulations
Economic- Related with economic monitory fiscal policies
Social- cultural and social practices
Technological-
Environmental- Natural resources
Legal- Legal laws
Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy We chose those elements in the pestel framework which have high impact Those are the key drivers
Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty
Scenario 1 ndashwhat is the effect and strategy if it rains
Scenario 2 ndash what is the effect and strategy if it does not rains
We chose the key drivers and construct the scenarios for them and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Strategic choice is the second element of the strategy formulation processChoice is at the centre of strategy formulation If there are no choices to be madeThere can be little value in thinking about strategy at all
This relatively modest interpretation of the word strategic mean that the view of planning as strategic choice is one that can be applied not only to decision making in formal organizational settings but to the choices and uncertainties which people face in their personal and community lives Ex any of us might find Ourselves involved in a process of strategic choice in addressing the problem of Where and when to go on holiday next year or how to sell an unwanted vehicle or how to deal with a difficult request from a relative or friend of course the craft of choosing strategically becomes more complicated where it involves elements of collective choice ndash of negotiation with others who view problems and possibilities in different ways
What is Strategy in Action
Strategy in action is concerned with ensuring that strategies are working in practice
Most organizations have a strategy Many strategies fail Why Strategies are seldom implemented properly because a suitable framework is missing ndash an architecture that reaches from strategy conception to strategy implementation and sustainability
Lecture 2
Strategy Making and strategy Execution Process
Strategists are CEO Top Management team and practicing managers
Characteristics of Effective Strategy Leaders
bull Mastery of analytical concepts and techniques
bull Social and influencing skills
bull Group acceptance as a player
What is a Strategic Planner
What is a Strategic Planner
Tasks performed by strategic planners
Information and analysis devising the strategy process and working on special projects
Roles Played by Strategy Consultants
Lecture 3
Henry Mintzberg (1998) suggests that authors on strategy characterise its meaning in one or more of the following 5 ways
1 A Ploy
2 A Position
3 A Perspective
4 A Plan
5 A Pattern
Kevin Hinde EC490 Corporate and Strategic Management Division of Economics University of Northumbria 17
The first two are concerned quite openly with the issue of competitive strategy Ploy refers to outwitting a rival Position is about how an organisation places itself in the market Both are concerned with obtaining a competitive advantage through the existence of core competence
The view that strategy is a perspective identifies with those organisations where there is a powerful group of strategy makers It is their whims predilections and personality that influence organisational direction This of course raises an issue about whether such views reflect an organisational consensus
Analysing prioritising
and generating options
Transferring knowledge
Promoting strategic decisions
Implementing strategic change
Most organisations have a strategic plan - a consciously intended course of action general or specific However Mintzberg (1990) as you will note later is very critical of what he calls the Design School of strategic management He implies that this approach relies heavily on a group of decision-makers (strategy as a perspective) and that the formulation of strategy is detached from its implementation He asks how such organisations can venture into new markets What is required is lsquocraftingrsquo which is in marked contrast to planning
ldquoCraft invokes traditional skill dedication perfection mastery through detail What springs to mind is not so much thinking and reason as involvement a feeling of intimacy and harmony with the materials at hand developed through long experience and commitment Formulation and implementation merge into a fluid process of learning through which creative strategies emergerdquo (Mintzberg (1987) p66)
Interestingly Mintzberg identifies strategy as a pattern because planners may justify what they have done even though it did not follow from the original plan After having taken action we reflect on what we have done and define it as a consistent pattern - whether or not it was intended Because we see a pattern what we do is ascribe it as being intentional strategy - the pattern stems from our plan
However there has been no overseeing intention Some plans may never be implemented or see the light of day In the same way a pattern of actions may arise without preconceived integrative planning Indeed they can arise through the political cultural and social forces that operate within and upon the organisation
Mintzberg identifies with two sorts of strategy ndash deliberate and emergent
1048713A deliberate strategy is an intended plan that is then realised (or otherwise)
1048713An emergent strategy arises from other sources usually political and cultural or through imposition (possibly by an event over which the organisation has no control)
Lecture 4
Strategic Position ndash Strategic position of the company can be understood by studying the Environment Strategic capability purpose of the organisation and the Culture of the organization
Environment
Business Environment consists of the following structure
MacroEnvironment
IndustrySector
Competitors
Organisation
Macro environment can be studied by the PESTEL framework Key Drivers and The Scenarios
Pestel Framework includes
Political Environment-govt policies regulations
Economic- Related with economic monitory fiscal policies
Social- cultural and social practices
Technological-
Environmental- Natural resources
Legal- Legal laws
Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy We chose those elements in the pestel framework which have high impact Those are the key drivers
Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty
Scenario 1 ndashwhat is the effect and strategy if it rains
Scenario 2 ndash what is the effect and strategy if it does not rains
We chose the key drivers and construct the scenarios for them and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Strategists are CEO Top Management team and practicing managers
Characteristics of Effective Strategy Leaders
bull Mastery of analytical concepts and techniques
bull Social and influencing skills
bull Group acceptance as a player
What is a Strategic Planner
What is a Strategic Planner
Tasks performed by strategic planners
Information and analysis devising the strategy process and working on special projects
Roles Played by Strategy Consultants
Lecture 3
Henry Mintzberg (1998) suggests that authors on strategy characterise its meaning in one or more of the following 5 ways
1 A Ploy
2 A Position
3 A Perspective
4 A Plan
5 A Pattern
Kevin Hinde EC490 Corporate and Strategic Management Division of Economics University of Northumbria 17
The first two are concerned quite openly with the issue of competitive strategy Ploy refers to outwitting a rival Position is about how an organisation places itself in the market Both are concerned with obtaining a competitive advantage through the existence of core competence
The view that strategy is a perspective identifies with those organisations where there is a powerful group of strategy makers It is their whims predilections and personality that influence organisational direction This of course raises an issue about whether such views reflect an organisational consensus
Analysing prioritising
and generating options
Transferring knowledge
Promoting strategic decisions
Implementing strategic change
Most organisations have a strategic plan - a consciously intended course of action general or specific However Mintzberg (1990) as you will note later is very critical of what he calls the Design School of strategic management He implies that this approach relies heavily on a group of decision-makers (strategy as a perspective) and that the formulation of strategy is detached from its implementation He asks how such organisations can venture into new markets What is required is lsquocraftingrsquo which is in marked contrast to planning
ldquoCraft invokes traditional skill dedication perfection mastery through detail What springs to mind is not so much thinking and reason as involvement a feeling of intimacy and harmony with the materials at hand developed through long experience and commitment Formulation and implementation merge into a fluid process of learning through which creative strategies emergerdquo (Mintzberg (1987) p66)
Interestingly Mintzberg identifies strategy as a pattern because planners may justify what they have done even though it did not follow from the original plan After having taken action we reflect on what we have done and define it as a consistent pattern - whether or not it was intended Because we see a pattern what we do is ascribe it as being intentional strategy - the pattern stems from our plan
However there has been no overseeing intention Some plans may never be implemented or see the light of day In the same way a pattern of actions may arise without preconceived integrative planning Indeed they can arise through the political cultural and social forces that operate within and upon the organisation
Mintzberg identifies with two sorts of strategy ndash deliberate and emergent
1048713A deliberate strategy is an intended plan that is then realised (or otherwise)
1048713An emergent strategy arises from other sources usually political and cultural or through imposition (possibly by an event over which the organisation has no control)
Lecture 4
Strategic Position ndash Strategic position of the company can be understood by studying the Environment Strategic capability purpose of the organisation and the Culture of the organization
Environment
Business Environment consists of the following structure
MacroEnvironment
IndustrySector
Competitors
Organisation
Macro environment can be studied by the PESTEL framework Key Drivers and The Scenarios
Pestel Framework includes
Political Environment-govt policies regulations
Economic- Related with economic monitory fiscal policies
Social- cultural and social practices
Technological-
Environmental- Natural resources
Legal- Legal laws
Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy We chose those elements in the pestel framework which have high impact Those are the key drivers
Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty
Scenario 1 ndashwhat is the effect and strategy if it rains
Scenario 2 ndash what is the effect and strategy if it does not rains
We chose the key drivers and construct the scenarios for them and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Lecture 3
Henry Mintzberg (1998) suggests that authors on strategy characterise its meaning in one or more of the following 5 ways
1 A Ploy
2 A Position
3 A Perspective
4 A Plan
5 A Pattern
Kevin Hinde EC490 Corporate and Strategic Management Division of Economics University of Northumbria 17
The first two are concerned quite openly with the issue of competitive strategy Ploy refers to outwitting a rival Position is about how an organisation places itself in the market Both are concerned with obtaining a competitive advantage through the existence of core competence
The view that strategy is a perspective identifies with those organisations where there is a powerful group of strategy makers It is their whims predilections and personality that influence organisational direction This of course raises an issue about whether such views reflect an organisational consensus
Analysing prioritising
and generating options
Transferring knowledge
Promoting strategic decisions
Implementing strategic change
Most organisations have a strategic plan - a consciously intended course of action general or specific However Mintzberg (1990) as you will note later is very critical of what he calls the Design School of strategic management He implies that this approach relies heavily on a group of decision-makers (strategy as a perspective) and that the formulation of strategy is detached from its implementation He asks how such organisations can venture into new markets What is required is lsquocraftingrsquo which is in marked contrast to planning
ldquoCraft invokes traditional skill dedication perfection mastery through detail What springs to mind is not so much thinking and reason as involvement a feeling of intimacy and harmony with the materials at hand developed through long experience and commitment Formulation and implementation merge into a fluid process of learning through which creative strategies emergerdquo (Mintzberg (1987) p66)
Interestingly Mintzberg identifies strategy as a pattern because planners may justify what they have done even though it did not follow from the original plan After having taken action we reflect on what we have done and define it as a consistent pattern - whether or not it was intended Because we see a pattern what we do is ascribe it as being intentional strategy - the pattern stems from our plan
However there has been no overseeing intention Some plans may never be implemented or see the light of day In the same way a pattern of actions may arise without preconceived integrative planning Indeed they can arise through the political cultural and social forces that operate within and upon the organisation
Mintzberg identifies with two sorts of strategy ndash deliberate and emergent
1048713A deliberate strategy is an intended plan that is then realised (or otherwise)
1048713An emergent strategy arises from other sources usually political and cultural or through imposition (possibly by an event over which the organisation has no control)
Lecture 4
Strategic Position ndash Strategic position of the company can be understood by studying the Environment Strategic capability purpose of the organisation and the Culture of the organization
Environment
Business Environment consists of the following structure
MacroEnvironment
IndustrySector
Competitors
Organisation
Macro environment can be studied by the PESTEL framework Key Drivers and The Scenarios
Pestel Framework includes
Political Environment-govt policies regulations
Economic- Related with economic monitory fiscal policies
Social- cultural and social practices
Technological-
Environmental- Natural resources
Legal- Legal laws
Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy We chose those elements in the pestel framework which have high impact Those are the key drivers
Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty
Scenario 1 ndashwhat is the effect and strategy if it rains
Scenario 2 ndash what is the effect and strategy if it does not rains
We chose the key drivers and construct the scenarios for them and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Most organisations have a strategic plan - a consciously intended course of action general or specific However Mintzberg (1990) as you will note later is very critical of what he calls the Design School of strategic management He implies that this approach relies heavily on a group of decision-makers (strategy as a perspective) and that the formulation of strategy is detached from its implementation He asks how such organisations can venture into new markets What is required is lsquocraftingrsquo which is in marked contrast to planning
ldquoCraft invokes traditional skill dedication perfection mastery through detail What springs to mind is not so much thinking and reason as involvement a feeling of intimacy and harmony with the materials at hand developed through long experience and commitment Formulation and implementation merge into a fluid process of learning through which creative strategies emergerdquo (Mintzberg (1987) p66)
Interestingly Mintzberg identifies strategy as a pattern because planners may justify what they have done even though it did not follow from the original plan After having taken action we reflect on what we have done and define it as a consistent pattern - whether or not it was intended Because we see a pattern what we do is ascribe it as being intentional strategy - the pattern stems from our plan
However there has been no overseeing intention Some plans may never be implemented or see the light of day In the same way a pattern of actions may arise without preconceived integrative planning Indeed they can arise through the political cultural and social forces that operate within and upon the organisation
Mintzberg identifies with two sorts of strategy ndash deliberate and emergent
1048713A deliberate strategy is an intended plan that is then realised (or otherwise)
1048713An emergent strategy arises from other sources usually political and cultural or through imposition (possibly by an event over which the organisation has no control)
Lecture 4
Strategic Position ndash Strategic position of the company can be understood by studying the Environment Strategic capability purpose of the organisation and the Culture of the organization
Environment
Business Environment consists of the following structure
MacroEnvironment
IndustrySector
Competitors
Organisation
Macro environment can be studied by the PESTEL framework Key Drivers and The Scenarios
Pestel Framework includes
Political Environment-govt policies regulations
Economic- Related with economic monitory fiscal policies
Social- cultural and social practices
Technological-
Environmental- Natural resources
Legal- Legal laws
Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy We chose those elements in the pestel framework which have high impact Those are the key drivers
Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty
Scenario 1 ndashwhat is the effect and strategy if it rains
Scenario 2 ndash what is the effect and strategy if it does not rains
We chose the key drivers and construct the scenarios for them and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Environment
Business Environment consists of the following structure
MacroEnvironment
IndustrySector
Competitors
Organisation
Macro environment can be studied by the PESTEL framework Key Drivers and The Scenarios
Pestel Framework includes
Political Environment-govt policies regulations
Economic- Related with economic monitory fiscal policies
Social- cultural and social practices
Technological-
Environmental- Natural resources
Legal- Legal laws
Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy We chose those elements in the pestel framework which have high impact Those are the key drivers
Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty
Scenario 1 ndashwhat is the effect and strategy if it rains
Scenario 2 ndash what is the effect and strategy if it does not rains
We chose the key drivers and construct the scenarios for them and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Industry and Sectors
To study the environment of industry and sector we need to study the competitive forces Industry life cycle and competing cycles
Competitive Forces
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five competitive forces are
- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
New entrants to an industry can raise the level of competition thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (eg shipbuilding) whereas other industries are very easy to enter (eg estate agency restaurants) Key barriers to entry include
- Economies of scale- Capital investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on
- Buyers willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials amp other products into the industry
The cost of items bought from suppliers (eg raw materials components) can have a significant impact on a companys profitability If suppliers have high bargaining power over a company then in theory the companys industry is less attractive The bargaining power of suppliers will be high when
- There are many buyers and few dominant suppliers- There are undifferentiated highly valued products- Suppliers threaten to integrate forward into the industry (eg brand manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
- Suppliers do not threaten to integrate forward into the buyers industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on
- The structure of competition - for example rivalry is more intense where there are many small or equally sized competitors rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (eg steel coal) have greater rivalry industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - ie there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies rivalry is more intense Where competitors are milking profits in a mature industry the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (eg the cost of closing down factories) - then competitors tend to exhibit greater rivalry
Industry Life Cycle
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Cycle of competition
In the Competitor Environment we study the strategic groups market segments and the strategic customers
Strategic groups are organisations within an industry with similar strategic characteristics following similar strategies or competing on similar bases
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Characteristics for Identifying Strategic Groups- strategic group differs on this basis
Scope of activities
Extent of product diversity Extent of geographic coverage Number of segments served Distribution channels
Benefits of Identifying Strategic Groups
Understanding competition Understanding competition Analysis of mobility barriers
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Bases Of Market Segmentation
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased
A strategic Gap is an opportunity in the competitive environment that is not fully exploited by competitors
To understand the environment of the Organisation the companies goes for the SWOT analysis
SWOT is an abbreviation for Strengths Weaknesses Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified they feed into business objectives particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis such as PEST analysis and Porters Five-Forces analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors For example a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet or changing consumer lifestyles that potentially increase demand for a companys products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths Weaknesses Opportunities and Threats are listed in the example SWOT analysis below
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Lecture -5
Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
The idea is to convert the threshold resources to the unique resources and the threshold competencies to the Core competence
Tangible resources are physical assets of an organisation such as plant labour and finance
Intangible resources are non-physical assets such as information reputation and knowledge
Resources are physical financial human and intellectual resources
Core competences are the skills and abilities by which resources are deployed through an organisationrsquos activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain
How can we achieve cost efficiency
By economies of scale By enhancing product design reducing the supply cost By experience
Economies of scale production level should be such so as to meet the cost of the plant setup capacity and resources which is very high
Supply cost is influenced by location ownership of raw material etc
Competences in activities develop over time based on experience resulting in cost efficiencies
Growth may not be optional Unit costs should decline year on year First mover advantage is important
Core Competences Lead to Competitive Advantage Whenhellip
They relate to an activity that underpins the value in the product features They lead to levels of performance that are significantly better than
competitors They are difficult for competitors to imitate
Dynamic capabilities are an organisationrsquos abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Organisational knowledge is the collective experience accumulated through systems routines and activities of sharing across the organisation
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Strategic Capability of the company can be found out by
1 Value Chain Networks2 Activity maps3 Benchmarking4 SWOT analysis
A value chain describes the categories of activities within and around an organisation which together create a product or service
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities - those that are directly concerned with creating and delivering a product (eg component assembly) and
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
(2) Support Activities which whilst they are not directly involved in production may increase effectiveness or efficiency (eg human resource management) It is rare for a business to undertake all primary and support activities
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced)
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage For example a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition By contrast a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities or a reduction in the total amount of resources used
Primary Activities
Primary value chain activities include
Primary Activity
Description
Inbound logistics
All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (eg materials) are converted to outputs (eg products)
Outbound logistics
All those activities associated with getting finished goods and services to buyers
Marketing and sales
Essentially an information activity - informing buyers and consumers about products and services (benefits use price etc)
Service All those activities associated with maintaining product performance after the product has been sold
Support Activities
Support activities include
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
Secondary Activity
Description
Procurement This concerns how resources are acquired for a business (eg sourcing and negotiating with materials suppliers)
Human Resource Management
Those activities concerned with recruiting developing motivating and rewarding the workforce of a business
Technology Development
Activities concerned with managing information processing and the development and protection of knowledge in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance planning quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps
(1) Break down a marketorganisation into its key activities under each of the major headings in the model
(2) Assess the potential for adding value via cost advantage or differentiation or identify current activities where a business appears to be at a competitive disadvantage
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
A value network is the set of interorganisational links and relationships that are necessary to create a product or service
Activity Maps
It shows how the different activities of an organisation are linked together It can be developed by using network diagrams or by using computer
programs
BenchMarking
Benchmarking is the process of identifying best practice in relation to both products (including) and the processes by which those products are created and delivered The
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
search for best practice can taker place both inside a particular industry and also in other industries (for example - are there lessons to be learned from other industries)
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business organisation industry region or country) to examine how others achieve their performance levels and to understand the processes they use In this way benchmarking helps explain the processes behind excellent performance When the lessons learnt from a benchmarking exercise are applied appropriately they facilitate improved performance in critical functions within an organisation or in key areas of the business environment
Application of benchmarking involves four key steps
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise To be effective it must become an ongoing integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice
Types of Benchmarking
There are a number of different types of benchmarking as summarised below
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed It involves considering high level aspects such as core competencies developing new products and services and improving
- Re-aligning business strategies that have become inappropriate
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
capabilities for dealing with changes in the external environment Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services Benchmarking partners are drawn from the same sector This type of analysis is often undertaken through trade associations or third parties to protect confidentiality
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services Process benchmarking invariably involves producing process maps to facilitate comparison and analysis This type of benchmarking often results in short term benefits
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes This sort of benchmarking can lead to innovation and dramatic improvements
- Improving activities or services for which counterparts do not exist
Internal Benchmarking
involves benchmarking businesses or operations from within the same organisation (eg business units in different countries) The main advantages of internal benchmarking are that access to sensitive data and information is easier standardised data is often readily available and usually less time and resources are needed There may be fewer barriers to implementation as
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly throughout the organisation
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
SWOT Discussed earlier
practices may be relatively easy to transfer across the same organisation However real innovation may be lacking and best in class performance is more likely to be found through external benchmarking
External Benchmarking
involves analysing outside organisations that are known to be best in class External benchmarking provides opportunities of learning from those who are at the leading edge This type of benchmarking can take up significant time and resource to ensure the comparability of data and information the credibility of the findings and the development of sound recommendations
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world perhaps because there are too few benchmarking partners within the same country to produce valid results Globalisation and advances in information technology are increasing opportunities for international projects However these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficientnational businesses against which to benchmark
