JohnRhoton'sSPNotes2010

7/26/2019 JohnRhoton'sSPNotes2010

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Module 1 Introduction to Strategy, Planning and Structure 1/11.1 Strategic Planning: The Context 1/21.2 What Is Strategic Planning? 1/41.3 The Process of Strategy and ecision !a"ing 1/231.4 #$siness %nit and Cor&orate Strategy 1/4'1.( Is Strategic Planning )nly for To& !anage*ent? 1/4+

Module 2 Modelling the Strategic Planning Process 2/12.1 The !odelling ,&&roach 2/12.2 Strategy !a"ing 2/-

Module 3 Company Objectives 3/13.1 Setting )ecti0es 3/23.2 ro* ision to !ission to )ecti0es 3/33.3 The a& Conce&t 3/+3.4 Credile )ecti0es 3/1'3.( $anti5ale and 6on7$anti5ale )ecti0es 3/113.8 ,ggregate )ecti0es 3/133.+ isaggregated )ecti0es 3/143.- The Princi&al/,gent Prole* 3/1(3.9 !eans and nds 3/1+3.1' #eha0io$ral 0ers$s cono*ic and inancial )ecti0es 3/1-3.11 cono*ic )ecti0es 3/1-3.12 inancial )ecti0es 3/21

3.13 Social )ecti0es 3/293.14 Sta"eholders 3/313.1( thical Considerations 3/3-

Module !he Company and the "conomy 4/14.1 The Co*&any in the cono*ic n0iron*ent 4/24.2 ;e0en$e and Costs: The #asic !odel 4/34.3 The Wor"ings of the cono*y 4/44.4 orecasting: What Will of !acro and !icro !odels (/81(.1( n0iron*ental Threat and )&&ort$nity Pro5le: Part 2 (/82

Module % Internal &nalysis o' the Company 8/18.1 )&&ort$nity Cost 8/28.2 ixed Costs ariale Costs and S$n" Costs 8/48.3 !arginal ,nalysis 8/(8.4 i*inishing !arginal Prod$ct 8/-8.( Pro5t !axi*isation 8/1'8.8 cono*ies of Scale and the x&erience C$r0e 8/118.+ cono*ies of Sco&e 8/138.- Prod$ction Costs 8/148.9 @oint Prod$ction 8/1(8.1' #rea"70en ,nalysis 8/188.11 Payac" Period 8/1+8.12 ,cco$nting ;atios 8/1-8.13 #ench*ar"ing 8/218.14 Sensiti0ity ,nalysis 8/238.1( ;esearch and Inno0ation 8/24

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8.18 e0elo&*ent 8/288.1+ ;eso$rce !anage*ent 8/318.1-


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1 7 Introd$ction to Strategy Planning andStr$ct$re101 Strategic Planning !he Conte*t B

;ationale for core co$rses:)rganisational #eha0io$r: organisations are r$n y &eo&le. ecti0eness relies on $nderstanding *oti0es and ho>they interact.cono*ics: I*&ortance on three le0els:

7 #$siness aected y $siness cycle interest rate exchange rate go0ern*ent &olicy etc.7 !ar"et o&eration &rice deter*ination co*&etiti0e forces eects of *ar"et str$ct$re7 Dciency *arginal analysis

!ar"eting: ;elating &rod$ct characteristics to *ar"et de*and. Winning and *aintaining co*&etiti0e ad0antageinance: $antitati0e e0al$ation of alternati0e o&tions,cco$nting: Dcient reso$rce allocation isolating rele0ant costsProect !anage*ent: i*&le*enting &roects eecti0ely in ter*s of ti*e cost E$alityF *a& assess and *onitorris".

102 hat Is Strategic Planning 1/4

Co*&arale in co*&lexity to econo*ic decision *a"ing G*any factors and iss$esH7 Pro5taility sales gro>th *ar"et share relati0e costs co*&etiti0e &osition &ricing en0iron*ental

scanning h$*an reso$rce *anage*ent acco$nting ratios in0est*ent a&&raisal shareholder 0al$edi0idend &olicy

,&&roach: *erge $siness conce&ts to $nderstand ho> co*&anies o&erate in co*&etiti0e en0iron*ent7 e0elo& $nderstanding of inter7relationshi&s7 x&lain >hy co*&anies ha0e s$cceeded/failed ho> to o&erate s$ccessf$lly in f$t$re

,dded di*ension of sco&e and co*&lexity Gen0iron*ental scanningH

1.2.1 !anagersJ e5nitions of Strategy 1/(

!any dierent de5nitions7 Setting oecti0es long7ter* thin"ing *ar"et align*ent selecting est o&tions...

1.2.2 Strategy in the #$siness Context 1/8

Infor*al 0ers$s for*alStrategic &lanning ta"es &lace in co*&lex and dyna*ic en0iron*ent,tte*&t to identify critical s$ccess factors

7 e&ends on correlating actions and o$tco*es Gca$se/eectH: iDc$lt in $siness7 e&ends on eha0io$r of co*&etitorsF ao$t the $n"no>ale and $n&redictale

1.2.3 Three ,&&roaches to Strategic Planning 1/-

Planning Co$rse of ,ction )$tco*es of ;eso$rces

Planning a&&roach: &rescri&ti0e rational oecti0es7 eter*ine oecti0es7 ,nalyse $siness en0iron*ent7 !a"e forecasts7 esign &lan and &ass do>n for exec$tion

,ss$*&tions:7 $t$re can e &redicted acc$rate eno$gh for rational choice7 Possile to detach strategy for*$lation fro* e0eryday *anage*ent

o ;ele0ant infor*ation can e extracted for strategy *a"ers7 Possile to forego short7ter* ene5t for long7ter* ad0antage7 Strategies can e *anaged as &ro&osed7 C) has "no>ledge and &o>er to choose fro* o&tions

o

oes not need consens$s7 )nce de5ned strategy decision does not need to change7 I*&le*entation is distinct &hase that only egins once strategy is agreed

*ergent strategy: strategy is not &lanned $t e*erges in an $n&redictale *anner7 6o ca$se eect



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7 !anagers only can handle li*ited o&tions7 !anagers are iased7 !anagers see" satisfactory Gnot o&ti*alH sol$tion7 )rganisations are coalitions of interest gro$&s i*&le*entation reE$ires negotiation7 !anagers consider c$lt$re and &olitics as *$ch as reso$rces and esternal factors7 #o$nded rationality K rational ased on li*ited Ginco*&lete $nrelialeH infor*ation7

;eso$rce7ased strategy:7 Co*&any not &assi0e collection of reso$rces7 e0elo&s aility to ta"e ad0antage of o&&ort$nities and create ne> o&&ort$nities

1.2.4 ;ittellJs Ta*e ,nd Wic"ed Prole*s 1/13

1 &bility to 'ormulate the problemCan e >ritten do>n 7L7 6o de5niti0e for*$lation2 +elationship beteen problem and solution Can e for*$lated inde&endently of sol$tion L %nderstanding&role* is sa*e as sol0ing it3 !estabilityither tr$e or false 7L7 Sol$tions good or ad relati0e to each other .inality Clear sol$tion 7L7 6o clear end and no o0io$s test# !ractabilityIdenti5ale list of o&erations can e $sed 7L7 6o exha$sti0e identi5ale list of o&erations% 4evel o' analysis Can identify root ca$se 7L7 6e0er s$re >hether a &role* or a sy*&to*( +eproducibility: Can e tested o0er again as in a laoratory 7L7 )nly one try: no roo* for trial and error) +eplicability: !ay occ$r often 7L7 %niE$e

1.2.( The )rigins of Strategy and Tactics 1/1(

Strategio K generalF strat$s K ar*y agein K leadTa"tos K ordered G*anoe$0reH!ilitary:#$siness analogy not co*&lete

1.2.8 Strategy and the Scienti5c ,&&roach 1/1+

6o agree*ent on >hat scienti5c *ethod isMarl Po&&er: theories can only e falsi5ed G&role*: not &ossile to &ro0e in0erse eitherHMala"os: testing not i*&ortant K o0erall research &rogra**eeyeraend: scienti5c *ethod $nd$ly constricti0e lateral thin"ing necessaryM$hn: scienti5c &aradig* changes o0er ti*e

Intractale &role*s:7 ierent 0ie>s of strategic &lanning7 ;ange of 0ariales Gco*&any ty&e en0iron*entH enor*o$s7 Signi5cant interaction a*ong 0ariales7 Changing 0ariales co*ined >ith ti*e lags et>een actions and o$tco*es NO diDc$lt to disentangle

ca$se and eect

T>o le0els of &role*7 Scienti5c *ethod cannot &ro0ide de5niti0e ans>ers7 ata not s$Dcient to test hy&otheses

T>o a&&roaches: in7de&th 0ers$s larges7scale ed$cational st$dies7 Strategy research *ore in7de&th GanecdotalH cas$al e*&iricis*7 n Search of xcellence: - attri$tes of 43 s$ccessf$lQ co*&anies not eE$ally &redo*inant

o ,lternati0e inter&retation: co*&anies >ill contin$e7 o f$nda*ental s"ills for strategic &lanner7 Synthesis GreadthH across disci&lines7 0al$ation Gde&thH y a&&lying *odels

103 !he Process o' Strategy and 5ecision Ma$ing 1/23

Strategic decision *a"ing7 Cannot e ex&ressed in *echanistic fashion7 6onetheless s$sce&tile to str$ct$red analysis

1.3.1 Strategy yna*ics 1/23



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Co*&lex interde&endent non7linear dyna*ic syste*7 6ot rando*: deter*inistic/chaotic NO not &redictale7 0en if &ossile to &in7&oint strategic s$ccess

o !$st ens$re not te*&orary and can e s$stained

1.3.2 The !ythical Co*&any 1/2(1.3.3 Well ,re We Perfor*ing? 1/2(1.3.4 What Sho$ld We #e oing in the $t$re? 1/2-

1.3.( Can We ,chie0e S$ccessf$l Change? 1/31

ierent 0ie>s of strategy ex&ressed in each f$nctionJs lang$ageC) *$st arri0e at strategy s$&&orted y all

7 Since all f$nctions *$st i*&le*ent

1.3.8 Strategy and Crises 1/31

Strategy challenges:7 %rgent day7to7day &role*. i0ert attention

C) o&tions:7 efer strategic changes7 ,*end changes G*o0ing targetH

7 Insist on strategy

1.3.+ le*ents of Strategic Planning 1/33

le*ents:1. !anagers $se str$ct$re to tac"le &role*s in their areas2. !anager a&&lies str$ct$re to data analysis3. C) integrates analyses NO decision4. 0al$ation syste* *onitors reso$rce allocation(. Strategy *ay e *odi5ed in f$t$re

Str$ct$re7 ierent ex&ertise for each f$nctional *anager7 #ody of theory introd$ces order to real7>orld co*&lexity

7 Str$ct$re >ithin >hich can estalish &riorities and identify oecti0eso =ac" of str$ct$re NO reaction aritrary7 Ca$tion: str$ct$re *ay e ina&&ro&riate or osolete

,nalysis7 Tools and techniE$es to *a"e sense of relationshi&s and data7 hat is i*&ortant/irrele0ant7 onJt conf$se rigo$r >ith n$*ers7 Precision is not essential7 ata can e: relati0e order of *agnit$de &ositi0e/negati0e E$alitati0e/E$antitati0e

Integration7 I*&lications of reco**endations in one area for other as&ects of co*&any o&erations7 Challenge: reconcile i*&lications

0al$ation:7 ariety of *eas$re*ents G;)S ! Sales/*&loyeeH7 arnings7 6ot &ossile to ex&ress all targets E$antitati0ely7 Co*&etiti0e ench*ar"s in0al$ale7 or &ersons gro$&s: not aggregated *$st relate to oecti0es

o )r can e irrele0ant co$nter&rod$cti0e

eedac":7 !aintain align*ent >ith act$al e0ents

10 6usiness 7nit and Corporate Strategy 1/4'

S#% strategy7 What is *ar"et7 Which target seg*ents7 Who is co*&etition7 to s$stain co*&etiti0e ad0antage7 !ay e inde&endent of other $siness $nits

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Cor&orate strategy7 S#R strategies not detri*ental to each other7 ;eso$rce allocation

S$ccessf$l S#% strategy is necessary no s$Dcient condition for s$ccessf$l cor&orate strategy

1.4.1 ,llocating Cor&orate ;eso$rces 1/41

T>o a&&roaches to cor&orate reso$rce allocation Ge.g. >ith t>o gro$&s of three S#%s eachH7 #y S#% G*ost eDcient $t not al>ays est choiceH

7 #y gro$&

1.4.2 e0elo&*ent of Cor&orate Strategies 1/42

Cor&orate str$ct$re: cost ene5ts Gelse rea"7$&H

F enlightened self7interest &aradox7 $nctional and ser0ices in$enceF ins$lated s$&&lier eating the s&ecialists &aradox7 Cor&orate de0elo&*ent acti0itiesF *"ost de> 0ent$res !, $siness redeif

loalisation7 6o g$arantee of econo*y of scale7 6o g$arantee siAe >ill &rod$ce co*&etiti0e ad0antage

10# Is Strategic Planning Only 'or !op Management 1/4+

Process of de5ning &lan &otentially *ore 0al$ale than &lan7 #etter $nderstanding of indi0id$al *anager of o&&ort$nity costs collaoration reE$ire*ents alanced

0ie> of other gro$&s eli*ination of $nnecessary conicts7 %nderstanding of *anager of o0erall &lan i*&ro0es aility to &osition defend reE$ests select >hich

&ro&osals *ost a&&ro&riate7 asier for *anager to ada&t to en0iron*ental changes and ded$ce i*&act

1.(.1 Co*&any #ene5ts of Strategic Planning 1/4+1.(.2 Indi0id$al #ene5ts of %nderstanding Strategic Planning 1/4-

#etter $nderstanding of co*&any direction7 Predict changes7 ,lign &ro&soals / reE$ests NO i*&ro0ed s$&&ort

1.(.3 %nderstanding Strategic Planning: Who Sho$ld Pay? 1/4-

al$e to oth

+evie -uestion 1 1/49+evie -uestion 2 1/49+evie -uestion 3 1/49+evie -uestion 1/49+evie -uestion # 1/49



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2 7 !odelling the Strategic PlanningProcess201 !he Modelling &pproach 2/1

!odel &ro0ides str$ct$re >ithin >hich &role*s can e analysed7 SP *odel not ased on cas$e/eect relationshi&s7 ,tte*&t to rationalise co*&lex &rocesses

2.1.1 The Co*&onents of a !odel 2/2

Planning as a o> &rocess

1 Setting goals2 orecasting &ayos3 orecasting shortfalls4 Identifying &otential strategies( Selecting the est strategy *ix8 )rganisation and i*&le*entation+ Control and rea&&raisal- eedac" to &re0io$s acti0ities

Wea"nesses: goals *ay e in0alidStrength: no etter a&&roach identi5es *ain co*&onents

eedac" &otentially *ost i*&ortant ele*ent

!ilton ried*an: real test of *odel: ho> >ell it &redicts f$t$re e0ents

Ste&s not necessarily consec$ti0e

2.1.2 #ene5ts and Costs of the !odelling ,&&roach 2/4

Str$ct$red 0ers$s $nstr$ct$red a&&roach%nstr$ct$red: diDc$lt to identify general &rinci&les

#ene5ts of *odelling &lanning Gstr$ct$redH7 Pro0ides str$ct$re7 Si*&li5es co*&lex &rocesses7 ,cts as a chec"list7 Identi5es areas of disagree*ent

Costs:7 !echanistic i*&ression7 Introd$ces rigidity to dyna*ic &rocess7 i0es i*&ression strategy can e deri0ed fro* *odel

2.1.3 , $nctional !odel 2/(

o$r areas for analysis:7 eneral en0iron*ent7 Co*&etition in ind$stry7 Internal strength and >ea"nesses7 Co*&etiti0e &osition

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$estions for *odel:7 o strategists ha0e a&&ro&riate characteristics?7 ,re oecti0es clear?7 Was en0iron*ent analysed adeE$ately?7 Was correct alternati0e selected?7 ,re reso$rces allocated eecti0ely?7 oes *odel ada&t to feedac"?

6o single critical s$ccess factorF ho> *any >ea"nesses can &rocess ear?

202 Strategy Ma$ing 2/-

Peters Water*an: strong leader is rec$rring factor of s$ccessf$l co*&anies

2.2.1 Strategy and the 0ol$tion of the Co*&any 2/9

Co*&any e0ol$tionQ:7 S*all/entre&rene$rial K controlled y o>ner7 Integrated K o>ner controls strategy delegates o&erations7 i0ersi5ed K oecti0e criteria &rod$ct/*ar"et decisions are delegated to $sinesses

2.2.2 Strategists 2/1'

;esearch into *anagerial styles and a&&roaches7 %nale to identify ca$sal relations et>een eha0io$r and o$tco*es

Strategic &lanning: *$ltidi*ensional *$ltile0el

!anage*ent roles:7 Strategist entre&rene$r goal setter7 ,nalyser Gco*&etition en0iron*entH7 Strategy decision *a"er Gad0isorH7 I*&le*enter and controller Greso$rce allocationH7 Co**$nicator

Conict inherent in &rocess: eDciency exiility ...

+evie -uestion 2/13Case 1 +over &ccelerates into the .ast 4ane 8199: 2/13Case 2 !he Millennium 5ome ;o to 4ose Money in the 21st Century 82


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3 7 Co*&any )ecti0es301 Setting Objectives 3/2

!anagers tend to react to circ$*stances and seiAe o&&ort$nitiesStrategic &lan is ased on achie0e*ent of s&eci5ed oecti0es

x&licit oecti0es: alance et>een infor*ing *anagers and ens$ring that co*&etitors cannot &re7e*&t strategic*o0es

7 )ften *ission state*ents are de0oid of o&erational i*&lications7 eneral fra*e>or" >ithin >hich strategies are elaorated

302 .rom =ision to Mission to Objectives 3/3

ision: long7ter* 0ie> of >hat co*&any is ao$t and *ar"ets >ithin >hich sho$ld o&erate7 e0elo&ed y C)

Ste&s:7 e0elo& *ission state*ent7 isaggregate *ission7 eri0e oecti0es

!ission state*ent characteristics:7 e5ne $siness that organisation is in7 #e clearly $nderstood y e*&loyees7 Pro0ide foc$s for acti0ities

3.2.1 e5ning the #$siness of the )rganisation 3/4

Prod$cti0e sco&e Ge.g. *a"e or $yH!ar"et &ositioning Gdistri$tion and *ar"eting channelsH#readth and oc$s of $siness

Target *ar"ets

3.2.2 eri0ing the !ission State*ent 3/(

!ission state*ent can relate to Ge.g.H:7 Prod$ct E$ality7 egree of dierentiation7 eogra&hical area7 Target seg*ents

ach state*ent i*&lies dierent allocation of reso$rces and *ar"eting a&&roach

So*eti*es *ission state*ent descries stat$s E$oSo*eti*es descries *anage*ent >ishQ

7 !$st e attainale

3.2.3 isaggregating the !ission 3/8

!ission state*ent a&&lies to >hole co*&anySho$ld e a&&lied to indi0id$al &arts Ge.g. f$nctional de&ar*entsH

3.2.4 Setting )ecti0es 3/+

Stated as *eas$rale &erfor*ance targets7 Introd$ce acco$ntaility into $siness

303 !he /ap Concept 3/+

a&: dierence et>een ex&ected and desired f$t$re states7 6e> &rod$cts *ar"et share &ro5taility etc

Proections co*&licatedF one sol$tion: What ifQ scenarios,fter identifying ga&:

7 xternal or internal factors?7 S$Dcient &otential reso$rces to close ga&?7 Strategy &ossile to close ga&?



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Possile that ga& et>een ex&ected and desired f$t$re state is larger than dierence et>een c$rrent and desiredGi.e. negati0e trendH

3.3.1 xternal 0ers$s Internal a& actors 3/9)$tside ga& factors

7 Can e too great to constraino ;ed$ction in *ar"et siAe &rod$ct &rices

7 !ay e &ossile to co$nteracto ,ggressi0e co*&etitor actions go0ern*ent inter0ention

Internal ga&7 Ina&&ro&riate allocation of reso$rces7 Ins$Dcient GE$antity or E$alityH of reso$rces

3.3.2 a&s and ;eso$rces 3/9

6ot only aility to acE$ire reso$rces7 ,lso ti*ing is i*&ortant7 Co*ine ga& analysis >ith dyna*ic scenario a&&roach

Identify critical s$ccess factors7 ,rrange 5nance &ersonnel &rod$cti0e ca&acity7 !ay e &ossile to defer $ntil needed

3.3.3 a&s and Incenti0es 3/1'

C$rrent incenti0e syste* $s$ally aligned to ex&ected state rather than desired state7 7 *ay e necessary to change incenti0es to &ro*ote ga& clos$re

30 Credible Objectives 3/1'

)ecti0es *$st e a&&ro&riate to co*&any circ$*stancesyna*ic &rocess constantly $nder re0ie>;ele0ant to *anagers and achie0ale

30# -uanti>able and ?on@-uanti>able Objectives 3/11

Cost ene5t analysis can hel& assign relati0e i*&ortance of intangiles

30% &ggregate Objectives 3/13

,ggregating oecti0es Ge.g. *axi*ixe shareholder >ealthH7 !axi*iAe 0al$e to sta"eholders

o o0ern*ent c$sto*ers co**$nity e*&loyees s$&&lierso S$r&l$s o0er *ini*$* reE$ire*ents to &er*it contin$ed o&eration

7 Conicting interests

30( 5isaggregated Objectives 3/14

Cor&orate oecti0es NO S#% oecti0es NO GSales oecti0es Prod$ction oecti0esH

!ay e conicting: e.g.

7 Sales: increase *ar"et share7 Prod$ction: decrease in0entory

30) !he PrincipalA&gent Problem 3/1(

,lternati0e to disaggregating oecti0es: s&ecify series of *eans for each end

309 Means and "nds 3/1+301< 6ehavioural versus "conomic and .inancial Objectives 3/1-

#eha0io$rist a&&roach:Inter&ersonal &rocesses i*&act &roaility of s$ccess:

7 Dcient co**$nications7 ood lao$r relations7 Content >or"force7 Socially conscio$s &$lic &ro5le

3011 "conomic Objectives 3/1-

cono*ic oecti0es roader than 5nancial:7 What is eing *axi*ised

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o ,dditional reso$rces li"ely yield di*inishing ret$rns7 Indi0id$als *axi*ise >elfare / ha&&iness7 Co*&anies *axi*ise &ro5ts7 ,ltr$is* not necessarily non7*axi*ising

!axi*ising &role*s:7 Search costs G0ast n$*er of o&tionsH7 yna*ic en0iron*ent Gins$Dcient ti*e for analysisH

3012 .inancial Objectives 3/21

nale E$anti5cation of &ro5t *axi*ising oecti0e

3.12.1 isco$nting and Present al$e 3/213.12.2 6et Present al$e 3/223.12.3 Ca&italised al$e 3/22

Ca&italised 0al$e of inco*e strea*s:7 i0ide ann$al inco*e y interest rate

3.12.4 Choice of Interest ;ate: The Cost of Ca&ital 3/23

T>o 5nancing *ethods: det eE$ityE$ity rate not "no>n 777 *$st e esti*ated

7 Ca&ital asset &ricing

3.12.( ;et$rn on In0est*ent 3/2(

!isleading 0ie> of single in0est*ent $t a0erage ;)I of co*&any s$Dcient to *onitor &erfor*ance

3.12.8 Shareholder Wealth 3/28

Stage 1: ecide on the Planning Period 7 ty&ically aro$nd 50e yearsStage 2: eter*ine the Cost of Ca&italStage 3: ecide on the ;esid$al Cash lo> 7 constant net cash o> &redicted &lanning &eriod endsStage 4: eter*ine the Cash lo>s d$ring the Planning PeriodStage (: Calc$late 6et Present al$e of Cash lo>s d$ring the Planning PeriodStage 8: Calc$late the Present Ca&italised al$e of the ;esid$al Cash lo>

Stage +: ,dd the 6et Present al$e Ca&italised ;esid$al al$e !ar"etale Sec$rities *in$s et

3013 Social Objectives 3/29

!ini*isation of &oll$tionF creating e*&loy*ent for disad0antaged

ried*an: ,ny goal other than &ro5t *axi*isation leads to *isallocation of reso$rcesS*ith: society interests ser0ed y self7see"ing indi0id$alsF tac"le $ndesirale side7eects >ith collecti0e action=ac" of eDciency:

7 *$ch of reso$rces for each oecti0e7 ;ed$ce co*&etiti0eness7 Dciency 0ers$s eE$ity

o iss$es:7 Conict of interest: >hich is *ore i*&ortant?7 In$ence of sta"eholders on co*&any

3.14.2 Sta"eholder Interests: The Priorities 3/32

Shareholders: highest &riority Gcontrol s$&&ly of ca&italH $t often short7ter* 0ie>!anagers: er of s$&&lier Gs$stit$tes n$*er... HC$sto*ers: =o> &riorityCreditors: only need ass$rance dets >ill e ser0ices. 6o other interest=ocal co**$nity: *$t$al de&endency 0alid sta"eholder interesto0ern*ent: Interest: &ay taxes aide y la>F no sta"eholder interest $nless ci0il ser0ice



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3.14.3 Sta"eholder In$ence 3/34

.g. trade $nions interest gro$&s7 in$ence often in conictPrinci&al7agent &role*s

Shareholders: little day7to7day in$ence re&resented y exec$ti0es7 Instit$tional shareholders re&resent indi0id$als: d$al role G*anager shareholderH

!anagers: in$ence of *anager increases Gand shareholder di*inishesH >ith siAe of co*&any7 Incenti0e str$ct$re *$st e aligned >ith shareholder interest

*&loyees: in$ence of trade $nions is di*inishing Glegislation n$*er of *e*ersH7 x&erience c$r0e: not feasile to re&lace entire >or"force at once7 irect in$ence less i*&ortant than extent of collaoration

o ;elated to c$lt$re organisational str$ct$re incenti0esS$&&liers: de&ends on n$*er of s$&&liers s$stit$tesC$sto*ers: de&ends on n$*er of c$sto*ers s$stit$tesCreditors: *ay >ant re&resentati0e on oard Ge.g. for a start$& >ith C f$ndingH

7 In$ence di*inishes >ith trac" record=ocal co**$nity: series of constraints:

7 ood e*&loyer re&$tation: recr$it*ent7 Poll$tion: &er*ission for ex&ansion

o0ern*ent: ;eg$lation7 ;ole as &$rchaser7 Policies on s$sidies and trade

3.14.4 !a&&ing Sta"eholders 3/3+

Precise location of sta"eholders is s$ecti0e

301# "thical Considerations 3/3-

ic"ensian Ga*oralH ca&italist is rareeogra&hical 0ariation in ethics GriesH!oral 0al$es as *eans to ends of &ositi0e i*age

7 histle7lo>ing

301% &re Objectives SM&+! 3/3-

+evie -uestion 1 3/4'+evie -uestion 2 3/4'Case Porsche /lamour at a Price 81993: 3/4'



13/44

4 7 The Co*&any and the cono*y01 !he Company in the "conomic "nvironment 4/2

n0iron*ental scanning:PST K Political econo*ic social technological

T)P K en0iron*ental threat o&&ort$nity &ro5le

02 +evenue and Costs !he 6asic Model 4/3

;e0en$e N total *ar"et x *ar"et share x &rice)$tlay N n$*er of >or"ers x >age rate

V $nits of ca&ital x &riceV $nits of *aterial x &rice

ariale eter*ining factors:!otal mar$et6ational inco*eF oreign national inco*eF Po&$lationF PreferencesF Co*&eting &rod$ctsF Prod$ctlife cycleMar$et sharePriceF !ar"eting ex&endit$reF !ar"eting strategiesF Co*&etitor *ar"eting ex&endit$reF Co*&etitorstrategiesPricee*and conditionsF Co*&etiti0e reactionF Co*&etiti0e ad0antageF !ar"et seg*entationor$'orce=ao$r *ar"et conditionsF ;egional s$&&ly 0ariationsF Wage rate oeredF Wor"ing conditionsage rate=ao$r *ar"et conditionsF %ne*&loy*ent rateCapitalCa&acity of the ca&ital goods sectorCapital priceCa&ital *ar"et conditionsMaterials Ca&acity of s$&&liersMaterials price !aterials *ar"et conditions

03 !he or$ings o' the "conomy 4/4

;easons for analysing econo*y7 isting$ish et>een internal and external in$ences7 Identify o&&ort$nities and threats7 cono*ic context necessary to inter&ret ex&ert &redictions

4.3.1 %nderstanding and %sing cono*ic Infor*ation 4/+

!ini*$*: 0ie> of c$rrent state of econo*y7 .g. $ne*&loy*ent ind$strial o$t&$t cons$*er s&ending7 Ca&acity / 0ol$*e &lanning de&ends on extra&olation of trends

4.3.2 S$&&ly and e*and in the cono*y 4/1'

Potential Gf$ll e*&loy*entH 6P7 If all reso$rces f$lly e*&loyed no excess ca&acity7 ,ct$al *ay exceed &otential

o Shortages of lao$r NO o0erti*e

Three ele*ents of $ne*&loy*ent

7 Str$ct$ral: large scale disr$&tions >hen ind$stries fold G%M 19-'s: !iningH7 rictional: o search transition

o Correlation to $ne*&loy*ent co*&ensation7 e*and7related: dierence et>een act$al and &otential o$t&$t

4.3.3 %ne*&loy*ent and Ination 4/13

When *ar"et econo*y a&&roaches f$ll e*&loy*ent s$&&ly ottlenec"s e*erge7 Increased >age rates ca&ital costs *aterial &rices7 e*and7&$ll ination: too *$ch *oney chasing too fe> goods

Phili&s c$r0e G19('sH:in0erse relation et>een ination and $ne*&loy*ent19+'s stagation: Phili&s c$r0e shifted

7 x&ectations Gextra&olation of inationH

li*ination of ex&ectation:7 !onetarist: "ee& *oney s$&&ly gro>th constant7 ,lternati0e: increase $ne*&loy*ent and >ait

Ination de&ends on:7 %ne*&loy*ent Gde*and7&$llH



14/44

7 =ast &eriodJs >age ination Gcost7&$sh: &rod$ction costsH7 =ast &eriodJs ination Gex&ectationsH

4.3.4 The International cono*y 4/18

;elati0e ination rates7 I*&lications on &rices and costs

xchange rate $ct$ations7 International ca&ital o>s are -'x real trade o>s

o NO exchange rate inde&endent of alance of trade7 Pri*ary factors: relati0e interest rates and ex&ectations7 Tendency to o0ershoot $ndershoot NO

o #ias to>ard cyclical 0ariations7 Co*&anies not in foreign exchange $siness

o ardo #$t: i*&ossile to &redict cash o> &recisely so resid$al ris" re*ains

Co*&etiti0e ad0antage of nationsPorter: co*&etiti0e &osition geogra&hically concentrated

7 rather than &redict change7 6o connection et>een *odel co*&lexity and acc$racy

Si*&le a&&roach: leading indicator7 Chosen since ser0ed as &redictor in the &ast G$t no g$arantee for f$t$reH7 %n&redictale e0ents Goil &rices >ar...H

#$siness cycle7 Clear in retros&ect diDc$lt to &redict7 Three co*&onents

o eneral trend Gseries deco*&ositionHo %nderlying s*ooth cycle

o ;anso* $ct$ations Gecono*ic &olicy exchange rates...H

0# P"S! &nalysis 4/2(

Identi5cation of rele0ant factors and interrelationshi&sPolitical: *ono&oly eha0io$r lao$r la>scono*icSocial: de*ogra&hic co*&osition social nor*s Gty&ically E$alitati0e not E$antitati0eH

Technological: contin$o$s &rocess $t can e disr$&ti0e

0% "nvironmental Scanning 4/28

Ta"e PST analysis for>ard y s&ec$lating ao$t f$t$re7 Predict changes

7 ,ssess i*&licationsWider range of 0ariales than PSTPredict eyond extra&olationsarning syste*



15/44

0( Scenarios 4/2+

I*&lications of &ossile f$t$res not forecaste.g. &rice red$ction of co*&etitor NO *ar"et share cash o>e.g. ination falls...

0) !he "conomy and Pro>tability 4/2+4.-.1 I*&lications for Co*&any Sales and ;e0en$es 4/2-

6P elasticity K res&onsi0eness of &rod$ct de*and to changes in 6P

6ot >hole story: not only siAe of 6P $t distri$tion of national ex&endit$re

4.-.2 Co*&etiti0e ;eaction and the cono*ic n0iron*ent 4/29

,ntici&ate co*&etitor reaction to en0iron*ental changes Ge.g. &rice c$tH

4.-.3 I*&lications for In&$ts and Co*&any Costs 4/3'

6P gro>th *ay lead to increased costs7 =ao$r rates in&$t &rices7 !ay exceed re0en$e gro>th

09 "nvironmental !hreat and Opportunity Pro>le Part 1 4/31

ra*e>or" for indentifying factors:1. %se the PST a&&roach as a chec"list.2. ,&&ly *acroecono*ic ideas to econo*y >ide in$ences.3. Consider international factors oth in ter*s of exchange rates and international co*&etiti0e in$ences.4. %se the en0iron*ental scanning a&&roach to thin" eyond the i**ediate sit$ation.(. P$t together so*e scenarios to hel& &$t factors into context.8. #$ild a &ro5le of o&&ort$nities and threats.

+evie -uestions 4/34Case +evisit Porsche /lamour at a Price 4/34

@$ne 2''9 Strategic Planning 1( / 44


16/44

( 7 The Co*&any and The !ar"et#01 !he Mar$et (/3

!ar"et is &rinci&al *echanis* for reso$rce allocation in ind$strialised nations.7 %nderstanding o&eration is critical for insight into c$sto*er co*&etitor eha0io$r

7 Wea"nesses are asis for legiti*ate go0ern*ent inter0ention

#02 !he 5emand Curve (/3

Price elasticity of de*andCeteris &ari$s K changing one 0ariale and holding others constant

(.2.1 e*and actors (/(

eter*inants of *ar"et siAe Glargely o$tside co*&any controlH7 Prod$ct life cycle7 #$siness cycle7 xogeno$s shoc"s7 6P elasticity7 xchange rates

eter*inants of *ar"et share Gcan e in$enced7 Price7 !ar"eting

e*and c$r0e: &rice aects &osition other factors shift c$r0e

(.2.2 e*and C$r0e and ;e0en$e (/8

Price elasticity de&ends on &oint on c$r0e

(.2.3 e*and C$r0e and !ar"et Share (/-


17/44@$ne 2''9 Strategic Planning 1+ / 44


18/44

(.3.2 The Min"ed e*and C$r0e (/18Price P: lo> elasticityPrice OP: high elasticityPrice P *axi*ises re0en$e GPxH!ar"et conditions *ay change "in"Ind$stry consolidation increases slo&e elo> "in" Gdecreases elasticityH

(.3.3 Co*&etiti0e Pricing (/1+

or*s of co*&etiti0e &ricing:Price leadershi&:

7 o*inant 5r* initiates &rice changes7 ;etaliates against defectors7 iDc$lt >itho$t sending conicting signals

o Penalising defector &enalises all the s*all co*&anies=i*it &ricing:

7 ntry arriers: lo> &rice deters entry7 )nly >orth>hile if cost ad0antage

o 0en then: E$estionale >hether it >ill e s$stainale/o&ti*al in long7ter* NO ga*e

Predatory &ricing:7 ri0e ne> entrants Gand >ea" co*&etitorsH o$t of $siness

7 ;eE$ires strength Ge.g. cash reser0esH

These a&&roaches re&resent extre*e for*s that are rarer in &ractice than in theory

#0 Segmentation (/1-

!ar"et seg*ent: gro$& of cons$*ers >ith co**on set of characteristics!ar"et de*and c$r0e: s$* of *ar"et seg*ent de*and c$r0es

Seg*entation characteristics:7 Inco*e social class geogra&hical location age sex fa*ily siAe ed$cation7 iDc$lt to dierentiate &rice exce&t y geogra&hy

;eE$ired characteristics to enale ex&loitation

7 Identi5ale7 e*and7related7 ,deE$ate siAe7 ,ttainale Greachale y *ar"eting and ad0ertisingH

Identifying seg*entation 0ariales7 6o general criteria7 Identify "ey &rod$ct characteristics7 eri0e characteristics of target *ar"et7 Identify location G&hysical inco*e class...H of target seg*ent

Constr$ct seg*entation *atrix7 Identify t>o "ey 0ariales Ge.g. resta$rant ethnicity x E$alityH7 ill in >ith oerings

7 Identify ga&so o not necessarily *ean good o&&ort$nityo !ay ha0e een tested and fo$nd $n&ro5tale

,nalyse seg*ent attracti0eness7 Co*&lex 0ariety of strategic *odels7 e*and and s$&&ly analyses *ar"et str$ct$res entry arriers

Identify "ey s$ccess factors Gnecessary K not s$Dcient K conditionsH7 .g. s$&&ly so$rce E$ali5ed &ersonnel a&&ro&riate locale

(.4.1 The ect of Prod$ct ierentiation (/21

ierences *ay e *ore a&&arent than real7 Perce&tion of $yers

!ost i*&ortant deter*inants of s$ccess7 Percei0ed &rice 0ers$s co*&etition7 Percei0ed dierentiation

(.4.2 Pricing in Seg*ents (/23

@$ne 2''9 Strategic Planning 1- / 44


19/44

Prices *ay 0ary across seg*ents e0en >hen &rices are eE$i0alentiscri*inating *ono&oly: *ono&olist charges higher &rices in *ar"et >ith lo> de*and elasticity than high de*andelasticity

Ste& 1: eter*ine seg*ent characteristics and *atching &rod$ct characteristicsSte& 2: eri0e &rice inco*e elasticity Galso called res&onsi0enessH

!ar"eting: identify 0iale &rod$ct seg*entationcono*ics: *eas$re de*and calc$late *arginal costs re0en$e,cco$nting: cost allocation to seg*ents/&rod$cts *axi*ise &ro5ts

#0# Product -uality (/24

ag$e de5nition of E$ality7 Co*&arati0e st$dies: dierences only *arginal

o ,ct$al dierences not necessarily correlated to *an$fact$rer clai*s7 *&loyee 0ie>s

o Prod$ction &rocesso Prod$ct reliaility

Transcendent E$ality: Platonic GCirc$larH de5nition: can only e recognised in light of ex&erience.

Prod$ct7ased E$ality

7 #$ndle of characteristics >hich can e *eas$redo ,ssociate &rice elasticity of >ith characteristic

7 So*e &rod$cts incl$de irrele0ant characteristicso Too *$ch E$ality: e.g. 1''* >ater&roof >atch

7 Ser0ice ind$strieso Correlation et>een E$ality and consistencyo !ean7ti*e et>een fail$re

%ser7ased E$ality7 ,&&earance: only o&tion >here f$nction is &rede5ned Ge.g. "ettleH7 $nctional characteristics:

o $raility exiility strength s&eed...7 Interaction of E$ality di*ensions can &rod$ce *ore $tility than s$* of co*&onents

Prod$ction7ased E$ality7 Confor*ance to s&eci5cations7 Statistical E$ality control7 Cost red$ction

al$e7ased E$ality7 Co*ines notion of cost and E$ality7 !arginal total $tility

(.(.1 i*ensions of $ality (/2+

ar0inJs di*ensions of E$ality7 Perfor*ance7 eat$res

7 ;eliaility7 Confor*ance7 $raility7 Ser0iceaility7 ,esthetics7 )0erall &ercei0ed E$ality

Statistical *ethods can esti*ate >eights.Cl$ster analysis can relate *ar"et seg*ents and &rod$ct di*ensions

7 .g. higher inco*es *ay >eight aesthetics higher

illing to &ay7 S$* of >eights *$lti&lied y characteristics

(.(.2 $ality and Strategy (/29

$ality i*&lications are not straightfor>ard7 Price: not al>ays correlated7 ,d0ertising ex&endit$re: higher ret$rn on ad0ertising for high E$ality $t *ay also e in0est*ent

s$stit$te



20/44

7 !ar"et share7 Pro5taility

Total $ality !anage*ent GT!H7 #eca*e *ore of a &hiloso&hy than $siness techniE$e

o S$ccess de&endent on energy and co**it*ento S$r0eys: -'U of initiati0es failed

7 ,ssociated feat$res do not &rod$ce co*&etiti0e ad0antageo $ality training &rocess i*&ro0e*ent ench*ar"ingo Can e i*itated y co*&etitors

7 #eha0io$ral feat$res associated >ith ad0antageo )&en c$lt$re e*&loyee e*&o>er*ent exec$ti0e co**it*ent

7 So*e initial s$ccess in eli*inating ineDciencieso iDc$lt to 5nd s$seE$ent costless i*&ro0e*ents: cost/E$ality trade7o

#0% Product 4i'e Cycles (/31

Introd$ction:7 In0est*ent in &rod$ction and *ar"eting7 6egati0e cash o>7 s

ecline:7 ecide on exit &hase7o$t

Prod$ct =ife Cycle *odel aected y $siness cycle

#asis for de5nition7 Co*&any sales *ar"et sales &ro5t7 !ar"et de5nition

o C$*$lati0e sales ann$al sales sales 0al$e $nit n$*ers ...

Prediction of sha&e and d$ration of &rod$ct life cycle is i*&recise. I*&acted y:7 S$stit$tes7 Technology Gosolescence7 $raility and re&lace*ent Gafter *ar"et sat$rationH

alidity of &rod$ct life cycle conce&t is contro0ersial7 ierent sha&es d$rations seE$ences7 Still &ro0ides str$ct$re >ithin >hich to inter&ret data

#0( Port'olio Models (/34

cono*ic *odels of de*and analysis dierentiation seg*entation ased on co*&arati0e statics

Portfolio ta"es dyna*ics into acco$nt ex&licitly

(.+.1 The #C ;elati0e Share ro>th !atrix (/3(

;elati0e *ar"et share is so$rce of co*&etiti0e ad0antage:7 cono*y of scale7 x&erience eect

er &rice

7 #$ild ca&acity ahead of de*and

!at$re stage:7 !ar"et share eco*es *ore sec$re

o ;ed$ce *ar"etingo ;aise &rices



21/44

#C !atrix:7 og: =o> *ar"et share lo> gro>th rate

o !ay still e &ro5tale 6iche Gfrag*ented *ar"etH ;elati0e eDciency of co*&any

o If not &ro5tale e0en tho$gh eDciently &rod$ced then little f$t$re7 $estion !ar": =o> *ar"et share high gro>th rate

o $t$re is Star or ogo $estion is ho> *$ch reso$rces to allocate

7 Star: th ceaseso gro>tho cono*ies of scale ex&erience c$r0e N O relati0ely costless co*&etition

(.+.2 )ther Portfolio !odels (/3-

!ore co*&lex than #C

!cMinsey &ortfolio *odel7 #$siness Strength

o Ca&acity $tilisation relati0e costs7 Ind$stry attracti0eness

o ro>th rate &ro5taility cost trends ind$stry str$ct$re

(.+.3 =i*itations of Portfolio !odels (/39

I*&lications not $ni0ersal7 #ased on ass$*&tions7 6ot al>ays econo*ies of scale

o !ay e disecono*ies of scale

(.+.4 Portfolio !odels and Cor&orate Strategy (/39

)&ti*$* &ortfolio: Cash co>s generate cash to satisfy shareholders and 5nance Stars and $estion !ar"s

Selection not *echanistic

7 iDc$lt to identify >hich $estion !ar"s / Stars li"ely to s$cceedo !atrix 0ariales do not ca&t$re all rele0ant infor*ation

7 Portfolio of >holly $nrelated &rod$cts *ay e $n*anagealeo 6eed to e lin"ed to ene5t fro* cor&orate co*&etencies

7 ,nalysis of co*&etitor &ortfolio rele0anto .g. *ay e easier to defend Star y attac"ing Co*&etitor Cash Co> rather than Co*&etitor Star

S#% Princi&al ,gent &role*7 S#% *ay e $n>illing to dis&ose of Star $t it *ight add *ore 0al$e to allocate reso$rces else>here

,nso ro>th ector !atrix: GC$rrent 6e>H x GProd$ct !ar"etH7 C$rrent Prod$ct !ar"et: Increase &enetration7 6e> Prod$ct C$rrent !ar"et: Prod$ct re&lace*ent7 C$rrent Prod$ct 6e> !ar"et: !ar"et de0elo&*ent G$ses seg*entsH

7 6e> Prod$ct 6e> !ar"et: i0ersi5cation

Penetration:7 !at$re *ar"et gro>th at ex&ense of co*&etition

o og NO Cash Co>7 ro>th !ar"et

o $estion !ar" NO Star7 Pricing and *ar"eting strategies

Prod$ct re&lace*ent:7 .g. &rod$ct at end of life cycle7 $l5ls existing reE$ire*ents7 Satis5es changing cons$*er &references

!ar"et e0elo&*ent7 6e> geogra&hical locations seg*ents niches7 e&ends on &ricing and *ar"eting strategies

i0ersi5cation:7 %nrelated di0ersi5cation Gne> *ar"ets ne> &rod$ctsH



22/44

(.+.( Strategy and Prod$ct Infor*ation (/43

,ct$al &rod$cts oer *ore insight than astractions7 Price elasticity inco*e elasticity *ar"eting eect co*&etiti0e conditions7 !ar"et siAe gro>thF relati0e *ar"et share &rod$ct life cycle



23/44

#0) Supply (/43

%&>ard slo&ing s$&&ly c$r0e: PN fGH7 Position and sha&e de&end on &rod$ction costs

(.-.1 The Ind$stry S$&&ly C$r0e and Strategy (/44

I*&lications of sha&e on co*&any strategy:7 Increase in de*and Gright shift of de*and c$0eH antici&ated then:

o Stee& GinelasticH s$&&ly c$r0e: =arge increase in &rice Prod$ce sa*e a*o$nt charge *ore

o lat GelasticH s$&&ly c$r0e: =arge increase in E$antity Prod$ce *ore

(.-.2 Shifting the Ind$stry S$&&ly C$r0e (/44

actor cost increase: shift s$&&ly c$r0e leftactor cost decrease: shift s$&&ly c$r0e right

#09 Mar$ets and Prices (/4(

Infor*ation on ind$stry s$&&ly and de*and conditions can hel& assess i*&act of:7 ntry of co*&etitors Gincrease of s$&&lyH7 *ergence of s$stit$tes Gdecrease in de*andH

#01< Mar$et Structures (/4+

!ar"et str$ct$re is *ain deter*inant of long7ter* &ro5taility

(.1'.1 Perfect Co*&etition (/4-

Perfect *ar"et:7 Prod$ct is ho*ogeneo$s7 6o entry arriers7 6o econo*ies of scale

7 %ni0ersal a0ailaility of infor*ation7 =arge n$*er of $yers and sellers

e*and c$r0e is horiAontal7 ir* is &rice ta"er7 $antity is lo>est a0erage cost

o Intersection of *arginal and a0erage cost

Perfect co*&etition is not realistic7 #$t: $sef$l as ench*ar"7 ierentiation and i*&erfect cons$*er "no>ledge

Identify i*&erfections and ca&italise on these factors7 ntry arriers K enale *ono&oly &ro5ts

7 6on7ho*ogeneity: &rod$ct dierentiationo Pac"aged ser0ices e.g. *aintenance and s$&&orto 6e> feat$res Ge.g. PC *e*ory colo$r ...H

(.1'.2 !ono&oly (/('

e*and c$r0e slo&es do>n: 5r* is not &rice ta"er.

Pro5t *axi*isation: >here *arginal re0en$e *eets *arginal cost

ntry of co*&etitor G*ono&olistic co*&etitionH7 Wo$ld &$sh de*and c$r0e do>n7 Wo$ld also aect cost side Gco*&etition for in&$tH

(.1'.3 #arriers to ntry (/(1

Str$ct$ral arriers Go$tside control of 5r*H:7 SiAe of *ar"et7 S$c" costs Gexit costsH

o xit arriers $st as i*&ortant as entry arriers



24/44

7 =egislation or tacit agree*ent Ge.g. )PCH7 cono*ies of scale7 x&erience eect

o Cost ad0antage of 5rst *o0ersStrategic arriers

7 =i*it &ricing7 Predatory &ricing

%s$ally i*&ossile to &re0ent co*&etition in the long r$n7 eterring strategies *ay defer entry

o S$Dcient ti*e to $ild *ar"et share econo*ies of scale...

(.1'.4 Contestale !ar"ets (/(3

Perfectly contestale *ar"et:7 ntry costs not s$n" NO no exit costs7 Where no str$ct$ral arriers: entry deterring ineecti0e GcostOene5tH7 Threat of hit7and7r$n

o 6e0er oers *ore than nor*al rate of &ro5t

(.1'.( Co*&etition a*ong the e>: )ligo&oly (/(4

a*e theoryMin"ed de*and c$r0e

#011 !he +ole o' /overnment (/(4

=ess eDcient at reso$rce allocation than *ar"et $t i*&ortant role in *ar"et fail$resIn&$t into PST analysis and en0iron*ental scanning

(.11.1 o0ern*ent and ;$le !a"ing (/(4

*&loy*ent la>7 Stat$tory rights7 !oility of lao$r

!ono&oly7 %S *ore o&&osed than $ro&e

nershi& GPrinci&al / ,gentH

7 xtent to >hich *anager can e *ade res&onsile to shareholders

=a>s changes >hen go0ern*ents change

(.11.2 o0ern*ent and ;eg$lating (/((

xternalities: costs and ene5ts >hich do not accr$e to &arties in exchange7 Pri0ate cost 0ers$s social cost

o0ern*ent actions:7 Internalising the externality7 ;eg$lating o$t&$t7 Setting e*ission standards Ge.g. for &oll$tionH7 I*&osing taxes

(.11.3 o0ern*ent and ,llocating (/(8

P$lic goods: Ser0ices >hich cannot excl$de non7&aying cons$*ers7 efence7 =ightho$se7 e*and is dictated y go0ern*ent7&ercei0ed right E$antityQ

#012 !he Structural &nalysis o' Industries (/(+

PorterJs 50e forces7 Threat of ne> entrants

o cono*ies of scaleo ;eg$lationo ntry &riceo Technological factors Ge.g. ; costsH

7 Threat of s$stit$tes



25/44

o Technological &rogresso Characteristics >hich $niE$ely de&end on &rod$ction &rocess Ge.g. >ool fro* shee&H

7 S$&&lier argaining &o>ero !ono&oly Ge.g. trade $nionsHo !ono&sony

7 #$yer argaining &o>ero Price elasticityo Inco*e elasticityo ree o> of infor*ationo #rand identify / loyaltyo #$yer gro$&s

7 Ind$stry co*&etiti0e ri0alryo 6$*er of 5r*so ierentiation/seg*entation et>een 5r*s

Collecti0ely deter*ine aility to earn ao0e nor*al Gca&ital costH rates of ret$rn

(.12.1 Pro5ling the i0e orces (/(9

oc$s of co*&any eorts >ill e on forces >ith high threatsCo**on fail$re is lac" of recognition of changes in alance and realign*ent of strategy

(.12.2 Criticis*s of the i0e orces !odel

7 gi0es the i*&ression that all forces are eE$ally i*&ortant7 foc$ses on threats rather than coo&eration and alliances7 internal iss$es s$ch as h$*an reso$rces and eDciency

#013 Strategic /roups (/8'

Challenge: identifying direct co*&etitors

e5ne "ey di*ensions of characteristics and strategy7 )rganisation: scale degree of 0ertical integration di0ersi5cation distri$tion channels7 Prod$ct characteristics: E$ality i*age le0el of technology7 inancial str$ct$re: ret$rn on assets gearing

.g.: E$ality s&ecialisation of ethnic resta$rants

.irst mover advantage7 cono*ies of scale7 x&erience c$r0e

Costs:7 x&eri*entation7 Prod$ction techniE$es7 !ar"eting

#01 &n Overvie o' Macro and Micro Models (/81

!acro *odels oc$s7 !acroecono*ics: eter*ination of 6P and $siness cycles 6P elasticity interest rates ination

$ne*&loy*ent and their relationshi& to co*&any costs re0en$es and &ro5ts7 Co*&etiti0e ad0antage of nations: 6ational *ar"et factors >hich relate to the so$rce of co*&etiti0e

ad0antage7 orecasting: Predicting changes in "ey factors in the econo*y and the *ar"et &lace7 PST: Chec"list of factors >hich *ay aect the co*&any in the f$t$re7 n0iron*ental scanning: Identifying and trac"ing &otentially i*&ortant changes7 Scenarios: S&ec$lating ao$t the f$t$re and assessing the co*&anyJs aility to res&ond

!icro *odels oc$s7 e*and and s$&&ly: Inter&reting the i*&act of changes in *ar"et conditions7 !ar"et str$ct$res: Ty&es of co*&etition and intensity of ri0alry7 a*e theory: eri0ing co*&etiti0e res&onse >ith li*ited infor*ation7 Seg*entation: Identifying $nex&loited o&&ort$nities in existing *ar"ets7 ierentiation: Prod$ct &ositioning

7 $ality: eter*inant of de*and and dierentiation7 =ife cycle: yna*ic &rod$ct *anage*ent7 Portfolio *odels: Strategic *anage*ent7 Strategic gro$&s: Co*&any &ositioning7 i0e forces analysis: Identifying co*&etiti0e forces7 irst *o0er ad0antage: Ca&italise on early lead



26/44

Is Competition Changing7 the increased &ace of technological changeF7 i*&ro0e*ents in co**$nicationsF7 the internetF7 gloalisation.

le Part 2 (/82

+evie -uestion 1 (/84+evie -uestion 2 (/84Case 1 &pple Computer 81991: (/84Case 2 Salmon .arming 81992: (/8(Case 3 4ymesold Cheese 81991: (/88Case Cigarette Price ars 8199: (/8+Case # & Prestigious Price ar 8199%: (/+1Case % &n International +omance that .ailed 6ritish !elecom and MCI 8199): (/+3



27/44

8 7 Internal ,nalysis of the Co*&any%01 Opportunity Cost 8/2

#est alternati0e foregone

%02 .i*ed Costs, =ariable Costs and Sun$ Costs 8/4

!isconce&tions:7 ach &rod$ct sho$ld ear its share of o0erhead NO *isallocation of reso$rces7 Considering s$n" costs in decision *a"ing

%03 Marginal &nalysis 8/(

)nly rele0ant costs Gnot a0erage costsH sho$ld e considered in decision *a"ing!arginal cost excl$des 5xed cost

7 $ide for *ini*$* acce&tale &rice7 Constant or increasing in the short r$n

!arginal costs diDc$lt to E$antify!arginal re0en$e diDc$lt to esti*ate

Short r$n: &rod$cti0e ca&acity is constant. )nly 0ariale in&$ts can change

%0 5iminishing Marginal Product 8/-

,dding factor in&$t yields di*inishing ret$rns >hen &rod$ction ca&acity is 5xed7 .g. hectare of land >ith additional >or"ers

;eso$rce allocation for S#%s7 ,llocate $ntil *arginal &rod$ct of S#%s is eE$al

%0# Pro>t Ma*imisation 8/1'

6ot extortion Ga*oral ca&italis*H

7 Dcient allocation of reso$rces7 %sef$l for co*&aring co*&eting co$rses of action

Increase E$antity $ntil *arginal re0en$e N *arginal cost

%0% "conomies o' Scale and the "*perience Curve 8/11

cono*y of scale7 ;elation et>een a0erage cost of &rod$ction and &rod$cti0e ca&acity7 s of ,cco$ntants and cono*ists:7 !arginal 0ers$s a0erage costs

o cono*ist: !arginal costs allo>s assess*ent of contraction/ex&ansion o&tionso ,cco$ntant: ,ll costs *$st e allocated NO a0erage costs *ore a&&ro&riate

7 $t$re 0ers$s historical costso cono*ist: S$n" costs are irrele0ant historical costs only $sef$l if good &redictor of f$t$re

@$ne 2''9 Strategic Planning 2+ / 44


28/44

o ,cco$ntant: Ignoring any historical costs >ill distort &ict$re

actors deter*ining $nit cost are co*&lex and interconnected7 ith7li"e is diDc$ltH ,re &ortfolios si*ilar ,re there synergies not easily identi5ed Sa*e life7cycle stages co*&etiti0e conditions

o 6o g$arantee co*&etitors are &$rs$ing est &racticeso onJt re0eal ho>Q co*&etiti0e ad0antage is achie0eed

%01 Sensitivity &nalysis 8/23

!ini*$*: #est / Worst scenario for each i*&ortant 0arialeierent di*ensions of &erfor*ance: 6P Payac" &eriod cash o> rea"7e0en...

6on7o0io$s o$tco*e: Co*ination of conditions that are necessary for s$ccess

%01# +esearch and Innovation 8/24

Sch$*&eter: Creati0e destr$ction7 Periods of E$iet &$nct$ated y shoc"s >hen old so$rces of co*&etiti0e ad0antage are destroyed and

re&lacedJ,0en$:


29/44

7 *$ch to s&end?7 What criteria to $se for selection

)&&ort$nity cost a&&roachProle*s:

7 =argely $n&redictale ret$rns7 istant f$t$re

)ne a&&roach:7 ;esearch ex&endit$re as constant &ercentage of total costs or sales7 Si*&le a0oids conict

7 ,ritrary K *isallocation of reso$rces

Co*&lication:7 6ot al>ays &ossile to segregate research fro* de0elo&*ent >here there is oint &rod$ction

o Prod$ct research 0ers$s &$re research

%01% 5evelopment 8/28

ierence et>een research o$tco*e and de0elo&*ent in&$t:7 ;esearch o$t&$t: Prototy&e7 )&en E$estions

o *$ch to s&end on de0elo&*ento When to la$nceo Price to charge

o !ar"eting eort

Prod$ct de0elo&*ent conicts:7 e0elo&*ent engineer: $ality *axi*isation NO Peer re&$tation7 inancial controller: Cost >ithin $dget7 !ar"eting *anager: arly la$nch NO 5rst *o0er ad0antage7 Cor&orate *anager: ,lternati0e $se of reso$rces de0elo&er and *ar"eting *oti0ation

!arginal analysis:7 oes last dollar s&ent on de0elo&*ent yield *ore or less than one dollar &ro5t7 ,cco$ntant 0ie>: *arginal re0en$es are $n"no>n and *arginal cost *ay e diDc$lt to identify7 ,fter la$nch:

o !ar"eting deter*ines *ar"et shareo Prod$ction deter*ines $nit cost

Inno0ation as stage7gate &rocess:7 Invention: incenti0es for disclos$re IP;

o In0ention to &rototy&e: screening *echanis*7 Prototype: criteria to deter*ine &otential

o Prototy&e to &atent: is delay $sti5ed or y&ass this ste&?7 Patent: de5nition of in0ention i*itaility

o Patent to de0elo&*ent: &rioritisation in de0elo&*ent &rogra**e7 5evelopment: *$ch to s&end

o e0elo&*ent to la$nch: conict et>een engineers and *ar"eting7 4aunch: ierentiation and &rice

o =a$nch to *ar"et ex&loitation: aandon or add reso$rces7 Mar$et e*ploitation:

%01( +esource Management 8/31

;eso$rce Planning7 ;eacti0e:

o =oo" one &eriod ahead7 Proacti0e

o Prod$ct life cycleso Prod$ct la$nch &eriodso Selecting &lanning horiAono ;eso$rce &lano !ar"eting strategy i*&licationso =earning eects in0entories etc

Predicted o0er&rod$ction Go$t&$t greater than de*andH

7 iscard reso$rceso


30/44

o e&ends on &rice elasticity co*&etiti0e reaction7 Increase *ar"eting ex&endit$re

o Co*&etiti0e reaction

Predicted $nder&rod$ction7 ;eallocation reso$rces

o er c$lt$re: re0ol0es aro$nd one indi0id$al Gor s*all gro$&H

o Co**on in ne> / s*all co*&anies Galso 6e>s&a&er ind$stryHo Strategy ased on do*inant leadero =ac"s analysis $n&redictale

7 ;ole c$lt$re: co**ittees str$ct$res a&&lication of logico #$rea$cratic Gci0il ser0ice old style retail an"sHo S$itale for stale en0iron*ento )ften does not recognise external changeso Slo> resistant

7 Tas" c$lt$re: exile tea*so !$ltidisci&linaryo ,d0ertising agencies cons$ltancieso lexile change is nor*

7 Personal c$lt$reo ;are 0ol$ntary >or"ers indi0id$al &rofessionalso Indi0id$al doesnJt &ay attention to organisationo =ac"s foc$s $n&redictale

Warning: fail$re often ascried to c$lt$ral &role*sQ. !ay act$ally e d$e to general &rinci&al7agent &role*sGe.g. incenti0es not aligned to strategic oecti0esH.

%019 =ertical Integration 8/3(

!a"e or $y:!ar"et Gi.e. $yQH ene5ts

7 !ar"et 5r*s >ith econo*ies of scale7 !ar"et 5r*s s$ect to disci&line of *ar"et

o ;igoro$s internal controls $nnecessaryCosts:

7 Co*&ro*ise of &rod$ction o> coordination Gdierence of &rioritiesH7 Pri0ate infor*ation lea"ed to co*&etitors7 Transaction costs

allacio$s arg$*ents for $ying:7 ,0oid costs of *a"ing &rod$ct K costs *$st e orne y so*eone e0en if c$rrent excess ca&acity7 ,0oid &ro5t *argin K lac" of ex&erience and scale *ean co*&any co$ld not $nderta"e *ore chea&ly7 ,0oid high &rices d$ring &ea" de*and K higher &rices reect higher in&$t costs in co*&etiti0e *ar"et

Co*&lete contract cannot e achie0ed in sa*e >ay as internal contract:7 Too co*&lex to consider all e0ent$alities7 S&ecifying and *eas$ring &erfor*ance is not s$Dciently acc$rate7 6either &arty >ill re0eal all infor*ation G&laces $yer at disad0antageH

erf$l go0ernance str$ct$reso Increased incenti0e d$e to contin$o$s internal relationshi&o Co**on &$r&oseF alancing incenti0es is a to& goal of *anage*ent

!a"e rather than $y: Princi&al/,gent &role*s7 Internal &ricing *$st &erfor* sa*e f$nction as *ar"et7 Internal &ricing ased on acco$nting con0entions *ay &ro0ide *isleading signals



31/44

%02< !he =alue Chain 8/3-

Porter rea"s 0al$e chain into &ri*ary and s$&&ort acti0ities:7 Pri*ary acti0ities Glogistics of &rod$ction and salesH

o In7o$nd logistics: recei0ing storingo )&erations: transfor*ing in&$ts into o$t&$tsF *a"ing testing &ac"agingo )$t7o$nd logistics: *o0ing &rod$ct to $yer Gtangile &rod$ctH or rining $yer to &rod$ct

Gser0icesHo !ar"eting and sales: &ro0iding infor*ation ind$ce*ent and o&&ort$nities to $y

o Ser0ice: *aintain the 0al$e of the &rod$ct7 S$&&ort acti0ities

o Proc$re*ent: &rocess of acE$iring reso$rceso Technology de0elo&*ent: technology for each 0al$e acti0ity G&rod$ct design de0elo&*ent...Ho or"forceo !anage*ent syste*s: E$ality control 5nance o&erational &lanning

6otion of 0al$e7 I*&ossile to *eas$re7 Identify co*&etiti0e dierences and distincti0e co*&etencies

al$e chain ene5ts:7 Tool for analysing eecti0eness and asis for co*&etiti0e ad0antage7 Identifying strategic o&tions

7 Identifying strengths and >ea"nesses

Si*&le disaggregation doesnJt tell >hole story7 =in"ages contri$te to co*&etiti0e ad0antage7 Co*&etitors can identify areas of s$ccess $sing ench*ar"ing $t

o !ore diDc$lt to re&licate lin"ages

%021 5iversi>cation 8/4'

,cE$isitions: stoc" &rice o$tco*es7 Co*ined 0al$e of &arent and target rises follo>ing anno$nce*ent Gte*&oraryH7 ,nor*al ret$rns accr$e to target 5r*7 ,cE$iring 5r*s ret$rns statistically s*all

Incenti0es for di0ersi5cation:7 !ini*ise ris"

o !anager ris" $t not shareholder ris"7 cono*ies of sco&e

o !ay also lead to 0al$e destr$ction7 ,dd 0al$e thro$gh &arenting f$nction

o o*inant *anage*ent logic7 #ene5t fro* synergy

o #rand stretching

%022 Synergy 8/41

Int$iti0e a&&eal $t diDc$lt to &in do>n in &ractice7 Identify >here the ene5ts of synergy are generated

7 =ittle e*&irical e0idence to g$ide co*&any in act$al sit$ations

Co*&onents of synergy:7 Cor&orate *anage*ent

o !ay e identi5ale after the e0ent $t diDc$lt to &redict Ge.g. for acE$isitionH7 cono*y of scale

o Sco&e ex&erience7 ertical integration

o cono*ies: ca&acity $tilisation trans&ort costs7 Ca&acity $tilisation

o S&are ca&acity can e reallocated to other S#%7 @oint &rod$ction

o !erged o&erations facilitates the s$* of the s&ecialisations7 Inno0ati0e sti*$l$s

o Certainly &ossile diDc$lt to &redict

*&irical e0idence of synergy and ;)I7 Total synergy increases ;)IF *agnit$de de&ends on s&eci5c generating co*&onents and ty&es of $siness7 Sales synergy increases ;)I7 )&erating synergy is *ixed. Internal &$rchases de&ress ;)I Internal sales ha0e no eect.



32/44

7 In0est*ent synergy de&resses ;)I7 !anage*ent synergy increases ;)I7 6o $siness ty&es ene5t across all fo$r di*ensions.

Concl$sion: challenge synergy clai*s y E$estioning so$rce

%023 Competence 8/44

istincti0e co*&etence7 )ften not single co*&etence $t integration of co*&etencies that generate co*&etiti0e ad0antage

Core co*&etencies7 I*&ortant for restr$ct$ring delayering do>nsiAing...7 ,lso i*&ortant for ex&ansion

Con0entional S#% *entality leads to:7 %nderin0est*ent in core co*&etencies Gfoc$s on o>n eecti0eness >itho$t >ider 0ie> of lin"agesH7 I*&risoned reso$rces Gca&ital $dgeting >or"s for ho*ogeno$s reso$rces $t not h$*an s"illsH7 #o$nded inno0ation Gno &$rs$it of hyrid o&&ort$nitiesH

Core co*&etence is 6)T:7 )$ts&ending on ;7 Sharing reso$rces Ge.g. excess ca&acityH7 ertical integration

Three tests or core co*&etence:7 Potential access to >ide array of *ar"ets7 Signi5cant contri$tion to &ercei0ed c$sto*er ene5ts7 iDc$lt to i*itate

;are ty&ically no *ore than 50e or six &er co*&any

If $nrecogniAed they can e $n>ittingly s$rrendered >hen c$tting in0est*ents

Core co*&etencies lead to core &rod$cts*ight e co*&onent rather than co*&lete end &rod$ct

Chiesa !anAini Three le0els of co*&etence:7 Syste*s: oals c$lt$re organisational design of co*&any7 istincti0e ca&ailities: re&eatale &atterns enaling coordinated de&loy*ent of "no>ledge and reso$rces7 Core o$t&$t: can e ex&loited for ne> &rod$cts/ser0ices/*ar"ets

Chiesa !anAini: ;o$tines GCa&ailitiesH 0ers$s reso$rces Ge.g. core in&$tsH7 ;o$tine ased di0ersi5cation

o ScottishPo>er: *anaging >ater gas teleco**$nications7 ;eso$rce7ased di0ersi5cation

o #S: 6e> ro$tines for distance learning7 ;e&lication7ased

o =east ris"y7 %nrelated: *ost ris"y

i0ersi5cation traectory:7 yna*ic ele*entF *ay signal a *o0e a>ay fro* core

%02 Strategic &rchitecture 8/49

eri0ed fro* 0al$e chain and core co*&etencies

Strategic ,rchitect$re: 6et>or" of relational contracts7 Internal ,rchitect$re: ;elations >ith e*&loyees7 xternal architect$re: S$&&liers and c$sto*ers7 6et>or"s: gro$&s of 5r*s in related acti0ities

%02# !he 5e>nition o' Competitive &dvantage 8/('

So$rce of co*&etiti0e ad0antage:7 P$re chance7 Inno0ation7 irst *o0er7 ierentiation

$estion is >hether it is s$stainaleT>o so$rces of s$stainale co*&etiti0e ad0antageF



33/44

7 !ar"et &osition GStrategic assetsHo Str$ct$ral entry arriers: siAe of *ar"et s$n" costs legislation econo*ies of scale ex&erience

eects7 Internal strengths Gdistincti0e ca&ailitiesH

o ,rchitect$reo ;e&$lationo Inno0ationo Core co*&etencies

Protection of co*&etiti0e ad0antage:

7 Ca$sal a*ig$ityo Which characteristics contri$te to s$ccess

7 %ncertain i*itailityo I*itation *ay not >or"

%02% Strategic &dvantage Pro>le 8/(3

Si*ilar to n0iron*ental Threat and )&&ort$nity Pro5le $t for internal strengths and >ea"nesses7 ;esearch

o ision recent in0entions7 e0elo&*ent

o =ead ti*e cost o0err$ns7 Prod$ction

o $ll ca&acity t$rno0er rate

7 !ar"etingo C$sto*er dataan" E$ali5ed sales&eo&le

7 inanceo Share &rice liE$idity

Case 1 &nalysing Company &ccounts 8/((Case 2 &nalysing Company In'ormation 8/(+Case 3 4u'thansa ;as a +ough 4anding 81993: 8/8'Case /eneral Motors the Story o' an "mpire 8199): 8/81



34/44

+ 7 !a"ing Choices a*ong Strategies(01 & Structure 'or +ational Choice +/2

Process:7 Co*&any oecti0es

7 !acroecono*ic en0iron*ent7 Target *ar"ets T)P7 Co*&any and strategic ad0antage &ro5le

Can ne0er generate co$rse of action a$to*atically7 Pro0ides asis for infor*ed choice

(02 Strengths, ea$nesses, Opportunities and !hreats +/3

#$ilt on7 n0iron*ental Threat and )&&ort$nity Pro5le7 Strategic ,d0antage Pro5le

(03 /eneric Strategies +/(

;e&resented dierently at cor&orate and #% le0el7 Cor&orate: sco&e of co*&any direction of &$rs$it &rod$ct &ortfolio *ergers and acE$isitions7 #$siness: Co*&eting in area c$rrently occ$&ied

+.3.1 Cor&orate =e0el eneric )&tions +/(

Staility x&ansion ;etrench*ent7 Scale and sco&e of co*&any o&erations7 6ot directly tied to &ro5taility Goecti0e of all threeH

Staility7 6o change in siAe of *ar"ets &rod$ct lines $sinesses7 6ot necessarily steady stateQ

o S*all &erfor*ance ga&: Con0ergence >itho$t change to &olicyo !at$re *ar"ets: =ong life cycles *ay *ean no need for in0est*ento Internal >ea"nesses: Increase o&erating eDciency ex&ansion not cost7eecti0eo %nstale 5nancial history: danger of hostile ta"e7o0ero Poor econo*ic &ros&ects: do>nt$rn declining *ar"eto Co*&etiti0e threat: ;eE$ires foc$sed defenceo Percei0ed costs of change: *ay e >rong reasono ;is"7a0erse *anagers

x&ansion7 Co**on if &rod$cts are in gro>th &hase

o i0ersifying ris": contro0ersialo Searching for co*&etencieso

cono*ies of scaleo x&erience eectso #$ilding ad0ance ca&acityo !anagerial *oti0ation

;etrench*ent7 o>nsiAing delayering restr$ct$ring7 $est for *ore eDciency7 Stig*a fro* i*&lication of &ast *ista"es

o )ften necessary to a&&oint ne> C)7 6ot necessarily inco*&etenceF can e logical strategy

o Prod$ct life cycleso ,cE$isition of ogs for &$r&oses of di0ersi5cation

o )0erextended *ar"ets =osing *oney on so*e c$sto*ers G*arginal cost exceeds *arginal re0en$eH

Co*ination:7 !$lti&le S#%s &$rs$ing dierent generic strategies7 ierent seE$ential strategies



35/44

7 0al$ate y considering o&&ort$nity cost7 6or*al for so*e S#%s to ex&and >hile others contract7 In the long ter* *ost co*&anies co*ine generic strategies

,ssessing eneric Strategies:7 Which adds the *ost 0al$e to co*&any

+.3.2 #$siness =e0el eneric )&tions +/11

Porter: o$r generic strategies: Cost leadershi& ierentiation oc$s 6o distincti0e strategy

)0erall Cost =eadershi&7 %nit costs are signi5cantly lo>er7 cono*ies of scale/sco&e/ex&erience7 Strategy:

o Increase *ar"et shareo Dcient reso$rce allocation

ierentiation7 Charge &re*i$*7 Strategy

o Search for and add characteristico $antify &rice &re*i$* cons$*ers are >illing to &ay

oc$s7 Identify niches >here confrontation can e a0oided

St$c" in the !iddle7 Ty&ically &oor &erfor*ance

Co*&etiti0e Sco&e G6arro>/6iche #roadH and Co*&etiti0e ,d0antage GCost ierentiationH

+.3.3 ecision !a"er eneric Strategies +/14

!iles Sno>:7 Pros&ector: identify ne> *ar"et o&&ort$nities

o P$rs$e gro>th >ith dierentiated or lo>7cost &rod$cts7 ,nalyser: so&histicated infor*ation syste*s detailed in0estigations

o Start fro* core and ex&and into related areas7 efender: *aintain *ar"et &osition >itho$t ne> de0elo&*ent

o )&erate in *at$re *ar"ets c$lti0ate cash co>s

7 ;eactor: ad hoco )ne of the ao0e $t $n&redictale

!any *anagers ha0e no clear idea of the strategy of their o>n co*&any7 )ften ;eactors &retending to e Pros&ectors

+.3.4 eneric Strategies and Co*&any Perfor*ance +/18

6ot &ossile to &roscrie o&ti*al strategy ased on co*&any and context7 Strategy is a *eansF Perfor*ance is the end7 Pro5taility reects added 0al$e not short7ter* cash o>sF there *ay e other considerations Ge.g.

*aintain fa*ily controlH7 6o data to a&&ly scienti5c *ethod of hy&othesis testing

(0 Identi'ying Strategic =ariations +/1+

xa*&le ariations:7 Internal 0ers$s external *ar"et de0elo&*ent7 ith $siness

o !ar"eting and selling techniE$eso Si*ilar &rod$ction &rocesses

7 Shared o0erheads

isad0antages7 Co*&etiti0e legislation7 ;an"ing of relatedness *ay foc$s on >rong 0ariales

o I*&ortant is relatedness a*ong strategic assets .g. co**on distri$tion syste* Potential to $se core co*&etence



36/44

%tilise core co*&etency to create ne> strategic assets x&and &ool of core co*&etencies Gand le0erage in existing $sinessesH

%s$al arg$*ents: cost eDciency and *ar"et "no>ledge NO short ter* ad0antage that can e re&licatedStrategic asset relatedness less o0io$s

+.4.2 ertical Integration +/19

So*e ene5ts $t *ay e co$nteracted y costs of $nrelated di0ersi5cation

ariation: Ca&ti0e Co*&any7 =arge &ro&ortion of o$t&$t &$rchased y single c$sto*er7 C$sto*er carries o$t so*e f$nctions nor*ally carried o$t y co*&any

Ca&ti0e co*&any *ay e so$nd or *ay e >ea" Gde&ends on circ$*stances: e.g. a$to*oti0eH

Critical E$estion: >o$ld co*&any add 0al$e y controlling other &arts of the &rod$cti0e chain

+.4.3 ,cE$isitions +/19

;easons:7 %nrealised 0al$e &otential7 #$ying into *ar"ets7 ;ed$cing co*&etiti0e &ress$res

7 $est for synergy7 #alancing &ortfolio7 e0elo&ing core co*&etence

%nrealised 0al$e:7 IneDcient de0elo&*ent ex&endit$re: *ar"et share too lo> $nit cost too high7 !ar"et strategy has not &$rs$ed o&&ort$nities7 x&ected increase in de*and7 Wea" &rod$cts: di0est to release reso$rces,dditional considerations:7 )ther &otential acE$irers ha0e not co*e to sa*e concl$sion Gco*&etiti0e iddingH7 Possile to realise &otential gains

#$ying *ar"et share

7 If c$rrently at f$ll ca&acity gro>th >o$ld reE$ire in0est*ent7 Ta"e7o0er a0oids costs of co*&etiti0e thr$st7 =ao$r force high on ex&erience c$r0e

;ed$cing co*&etiti0e &ress$re7 ,nti7tr$st la>s li*it o&tions7 !ono&oly &o>er does not eE$ate to *ono&oly &ro5ts Gcontestale *ar"etsH

Synergy7 6o g$aranteeF history not enco$raging

#alancing &ortfolio7 oes not add 0al$e >itho$t synergy or econo*y of sco&e

Core co*&etencies7 6o o0io$s >ay to deter*ine &otential contri$tion to core co*&etencies efore e0en7 #ased on general 0ie> of strategic thr$st

+.4.4 ,lliances and @oint ent$res +/23

PrisonerJs dile**a: no contract can co0er all e0ent$alities one side al>ays has incenti0e to cheat.

+.4.( International x&ansion +/23

Co*&etiti0e ad0antage in one location does not easily transfer aroad

ariales >hich co*&licate o&erations:7 olatile exchange rates

o Prod$ce as close as &ossile to cons$*ers7 ;elati0e factor costs 0ary

o =ao$r ca&ital7 Prod$cti0ity 0aries7 o0ern*ent &rotection for ho*e &rod$ction7 C$lt$ral nor*s 0ary7 cono*ies of dierent co$ntries are not in ste&



37/44

o Co*&licates infor*ation gathering and inter&reting

@$ne 2''9 Strategic Planning 3+ / 44


38/44

+.4.8 ro* enerics to )&tions +/2(

Strategic 0ariations *$st satisfy criteria:7 Consistency >ith oecti0es7 S$itaility in ter*s of reso$rces7 easiility

(0# Strategy Choice +/28

Strategy: !axi*ise shareholder >ealth7 Present 0al$e of all f$t$re cash o>s

Challenges in real >orld:7 $t$re is too $ncertain K cannot e ca&t$red in cash7o> &roection7 Strategy *$st consider *eans as >ell as ends: &ro&osed co$rses of action

+.(.1 Shareholder Wealth +/2+

Identify cash o> for generic strategies Gstaility ex&ansion retrench*entH and consolidate to &resent 0al$e forco*&arison#rea" do>n analysis into S#%s to identify >hich S#%s are contri$ting *ost 0al$e

7 Co*&are >ith reso$rce allocation &er S#%o Potential to reallocate reso$rces

7 Consider lin"ages et>een S#%s

Ca$tion: often f$t$re e0ents are too $ncertain K esti*ation errors are too great to &er*it their $se

+.(.2 Perfor*ance a&s +/3'

a& identi5es *ost a&&ro&riate strategy: staility ex&ansion retrench*entxtent of ga&: >hether to reallocate reso$rcesWays of closing ga&: .g. internal Gcost controlH 0ers$s external G*ar"eting eortH

+.(.3 Cor&orate !anage*ent +/3'

Cor&orate *anage*ent oecti0e: decide co*&onents of &ortfolioS#% !anage*ent: o&ti*al *anage*ent of selected &rod$cts

Strategy o&tions:7 li*inate ogs7 Identify Stars to re&lace Cash Co>s G>hen they co*e to an endH7 Transfor* $estion !ar"s into Stars

o ;eE$ires signi5cant eorto !ay eco*e ineecti0e if co*&etitor is E$ic"ero !ay need to aandon if Cash Co> is $nder threat

Portfolio *$st alance fa*iliarity of *ar"et >ith fa*iliarity of technology7 So*e research: *ore fa*iliarity NO greater s$ccess

Cor&orate strategy K concern >ith intangile factors7 6o rightQ alance of &rod$cts in &ortfolio *atrix7 6o hard criteria for selecting *ar"ets to enter7 6o o0io$s reso$rce allocation et>een S#%s

+.(.4 S#% !anage*ent +/33

)ecti0e:7 x&loitation of &rod$cts and *ar"ets7 Dcient allocation of reso$rces7 ,chie0e co*&etiti0e ad0antage in &rod$cts selected y cor&orate

Iss$es:7 I*&act of *ar"et share on ;)I7 Target *ar"ets7 ;ed$cing $nit cost

Proect a&&raisal:7 orecast of e0elo&*ent ex&endit$re *ar"et share &rice $nit cost contri$tion c$*$lati0e cash o>7 Calc$late 6et Present al$e,ss$*&tions:

@$ne 2''9 Strategic Planning 3- / 44


39/44

7 Total *ar"et deri0ed fro* &rod$ct life cycle7 !ar"et share and &rice closely related G&rice red$ction increases shareH7 %nit cost declines >ith ex&erience eect7 C$*$lati0e cash o> indicates &ayac" &eriodra*e>or" &er*its ex&loration of dierent scenarios sensiti0ity analysis

+.(.( ;is" and %ncertainty ,nalysis +/34

,ll strategy o&tions are $ncertain,tte*&t to incor&orate decision *a"ing into a str$ct$red fra*e>or"

7 ,ssign &roailities to ex&ected 0al$eso S$ecti0e esti*ates >hich de&end on crediility of indi0id$al *anagers

7 Consider ris" a0ersion: ris"s are not sy**etrical7 %nforeseen ris" G$ncertaintyH cannot e E$anti5ed

o !a"e allo>anceso Contingency &lanning K address >ide 0ariety of scenarios

!ini*ise &roaility of loss d$e to ris" identify alternate co$rses of action Strategic res&onse to *aor $n&redictale e0ents GdiDc$ltH

+.(.8 !anagerial Perce&tions +/3-

Infor*ation gathering / ,nalytical techniE$es do not generate strategic choiceiDc$lt for o$tside oser0ers to assess rationality of decision *a"ing &rocessactors:

7 xternal de&endence K c$sto*ers s$&&liers shareholders7 ;is" attit$de K related to co*&any c$lt$reF

o ;is" a0ersion: e.g. *ini*ax criteriono ;is" a0ersion not the sa*e as conser0atis* G"ee&ing stat$s E$o K >hich *ay e higher ris"H

7 Pre0io$s strategy K s$n" in0est*ents lead to &assi0e stance7 !anagerial Po>er ;elationshi&s K &rinci&al agent iss$es Gconict of interest >ith S#R *anagerH7 Consens$s decisions K &aradox of 0oting K can e *ani&$lated

+.(.+ ro* SW)T to enerics +/42

Start >ith SW)T analysis $sing &rioritisation fro* T)P and S,P,lign strengths >ith o&&ort$nities and >ea"nesses >ith threats

!ay lead to dia*etrically o&&osed strategies de&ending on foc$s o n strengths or >ea"nesses.

Case 1 +evisit Salmon .arming +/43Case 2 +evisit 4ymesold +/43Case 3 +evisit a Prestigious Price ar +/43Case +evisit /eneral Motors +/43Case # !he +ise and .all o' &mstrad 81993: +/44

Case % hat Is a Baguar orth 81992: +/44Case ( /ood Morning !elevision ;as a 6ad 5ay 81993: +/4(Case ) !he +ise and .all o' 6rands 8199%: +/4-



40/44

- 7 I*&le*enting and 0al$ating Strategy)01 Implementing Plans -/2

I*&le*entation 0is$alised as starting after strategy de5nition7 Constant feedac" >ith earlier stages

Strategy is not end in itself K &rocess7 etailed &lans not necessary *ay e co$nter7&rod$cti0eo Inhiit agility

)02 Organisational Structure -/3

$estion: oes strategy follo> str$ct$re or 0ice 0ersa?)rganisational str$ct$re aects &o>er str$ct$re

7 %7or*: $nctional7 !7or*: i0isional

o ;esol0es &rinci&al/agent dile**a: di0ision res&onsile for &ro5taility

$nctional:,d0antages:7 S&ecialisation i0ision of =ao$r Si*&li5ed training Strategic control &reser0edisad0antages:7 Cross7f$nctional coordination f$nctional foc$s interde&art*ental coordination lac" of roadly trained

*anagersi0isional:

,d0antages7 i0isional &erfor*ance ex&ressed in &ro5t Interf$nctional coordination roadly trained *anagersisad0antages:7 Coordination a*ong s&ecialised areas co**$nication et>een f$nctions d$&lication of f$nctions loss of

strategic control

Selection criteria:7 Which str$ct$re adds *ost 0al$e?7 Which is est ale to ada&t to change?

!atrix:7 When econo*ies of sco&e lead to *ore than one di*ension of organisation7 Intersections ha0e t>o re&orting lines NO irection/control &role*s GPrinci&al / agentH

6et>or"s7 ro$&s organised y f$nction geogra&hy or c$sto*er ase7 o0erned y changing i*&licit / ex&licit reE$ire*ents of co**on tas"s Gnot for*al re&orting linesH

o Prole*s of direction and control

Selection considerations:7 Scale/sco&e econo*ies7 Transaction costs7 ,gency costs7 Infor*ation o>s

)03 +esource &llocation -/8

Partic$larly challenging >hen strategy change in0ol0es ne> $ses of reso$rces

-.3.1 !anage*ent of Change -/8

;eallocation of reso$rces *ay e easier for Pros&ectors than for efendersCor&orate c$lt$re >hich re>ards ada&taility inno0ation and exiility;eallocation *ore than in0esting retooling and hiring

TechniE$es:7 S$r0ey feedac"s tea* $ilding confrontation transactional analysis

-.3.2 Critical S$ccess actors -/+

Identi5cation not straightfor>ard in0ol0es $nderstanding:7 ,0ailale reso$rces7 ;eE$ired reso$rces7 SeE$ence of e0ents7 =i"ely indi0id$al reactions



41/44

-.3.3 !anage*ent Style -/+

!anage*ent tea* *ay not e eE$i&&ed for changing reE$ire*ents:7 i0ersi5cation: cor&orate le0el 0ers$s &rod$ct7line decision *a"ing7 Strategy change: ca&aility to r$n cash co> not the sa*e as Star.

=eadershi& style and )rganisational c$lt$re aect aility to change:7 ith &lanned strategic changeso .g. fa*ily control *ay inhiit di0ersi5cation into ne> *ar"ets >here inno0ati0e >or"force is

essential

-.3.4 #$dgets -/-

Cor&orate le0el7 In theory there sho$ld e no $dget constraints

o In0est*ents >ith &ositi0e 6P sho$ld attract f$ndso e0er *ar"et *ay not agree >ith co*&any esti*ates and co*&any *ay not re0eal f$ll

intentionsS#% le0el

7 So&histicated ca&ital rationing techniE$eso onJt necessarily resol0e &role*: diDc$lt to ex&lain to *anagers

7 ,cross7the7oard $dget li*itso galitariano IneDcient reso$rce allocation

In ad0erse *ar"et conditions:7 %s$ally c$ts >here c$rrent &erfor*ance least aected

o Training research *aintenance

-.3.( Incenti0es and ,lign*ent -/9

Incenti0es sho$ld e aligned to 0al$e7creating acti0ities7


42/44

-.4.1 !onitoring !ar"et Share -/14

!ay e necessary to $&date &olicies in light of changing *ar"et conditions

-.4.2 !onitoring Pro5taility -/1(

Pro5t calc$lated Gfor &artic$lar S#%H de&ends on ho> costs are calc$lated6et Contri$tion *ay not e a good indicator of cash o>s

7 6ot s$Dcient as sole indicator Ge.g. Cash co>s *ay e ex&ected to s$sidiAe $estion !ar"sHCash lo>s:

7 6ot necessarily closely connected to &ro5taility in the short r$n7 !ay e negati0e d$ring &eriod of ex&ansiono #$t s$Dcient reser0es/orro>ing *$st e a0ailale

)0# .eedbac$ -/1-

Co*&anies *$st &ay ex&licit attention to feedac".7 Co*&any ada&taility: &art of co*&any c$lt$re K >illingness to listen ad*it *ista"es and e &roacti0e7 Co*&any co**$nications: deter*ine *ost a&&ro&riate co**$nications str$ct$re7 Co*&any learning: $ild on &ast ex&erience. or*alised &roced$res not s$Dcient &recondition.

)0% !he &ugmented Process Model -/19

)0er0ie> of co*&etiti0e &osition: integration of *odels relating to:7 %nit cost co*&etiti0e reaction and *ar"et share

Integrated a&&roach:7 #asis for e0al$ating o0erall co*&etiti0e &osition7 6e> &rod$ct de0elo&*ent la$nch in0est*ent a&&raisal entering ne> *ar"ets7 ;ationale for ta"eo0er *a"e 0ers$s $y...

)0( Postscript Strategic Planning or$s -/23

Strategy:7 et ig &ict$re right7 irect reso$rces accordingly

+evie "*ercise -/24Case 1 !he 6ody Shop 81992: -/24Case 2 5aimler in a Spin 8199%: -/2(Case 3 "urotunnel a .inancial ;ole in the /round 8199%: -/2+Case !he 6alanced Scorecard -/3'



43/44

Case # +evisit &n International +omance that .ailed 6ritish !elecom and MCI -/33



44/44

Strategic Process Model

Who ecides >hat?7 Strategy

o Pros&ector ,nalyser efender ;eactoro o0ernance Sta"eholders Princi&al7,gento C$lt$re: Po>er ;ole Personal Tas"

7 )ecti0eso S!,;T a&s !ar"ets inancial

,nalysis iagnosis7 !acro PST7 Ind$stry

o P=C #C ( orces7 Internal factors

o al$e chain: Pri*ary =ogistics )&erations !ar"etingF Secondary: ...

7 Co*&etiti0e Positiono ierentiation Seg*entation Strategic ro$&so Pricing: lasticity Ge*and 6PH

Choice7 eneric

o ;etrench*ent Staility x&ansion Co*ination7 #$siness le0el

o Cost dierentiation foc$s st$c"7in7the7*iddle7 Strategic ariations

o ;elated/%nrelated ertical/

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