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PRESENTATION 1: STRATEGY AND STRATEGIC MANAGEMENT
TOPIC 1. WHAT IS STRATEGY? 10/09/
A lot of people describes strategy as an aspirations, as an action (like internationalize or to merge with other companies), like a vision, but all of these definitions are wrong.
Strategy is the “explicit, rigorous formal planning” versus “a set of flexible, goal oriented actions”. It can be described as a plan, as an action, as integration, as a theory (how to compete successfully). Strategy answers to the question “where do you see yourself 10 years from now?”
The fact that you have already a firm does not mean that you cannot change it. You need to reinvent. Firms may differ in the strategies and not every strategy can be applied in every context, for this reason firms have to search their own strategy, because the different cultures and the networks of relationships have powerful effect.
How do firms behave? 13/09/
- Industry-based view – focus on competitive forces within an industry that impact all firms (which kind of firm are we in?). Suppliers, clients,.. (external)
- Resource-based (capabilities) view –focus on internal strengths and weakness, firm specific resources and capabilities.
- Institution-based view – institutional forces, such as economic reforms and government policy.
A strategy can be emergent, intended and unrealized.
Competitive advantage: a firm’s ability to create value in a way that its rivals cannot. It is the value creation and has to be sustainable, has to last for a certain period of time.
- Internal: “resource view”, firms with superior resources and capabilities, so it is difficult for the competitors to compete.
- External: “position view” to be more attractive to customers.
- Dynamic: try to predict the future based in past actions and take decisions (hypercomptetition) Ex: Smartphones improve and improve a product to be “the best”.
The worst error in strategy is to compete with rivals on the same dimensions, is not about to be the best or to be unique, it’s to be different.
Goals: Create economic value, superior long-term return on investment, growth…
- Economic value: value appropriation (capturing): it’s good to create value but who owns this new value?
ROIC (Return On Invested Capital): Shareholders invest in a firm and want to obtain that money returned and more.
- Profitability must be measured fairly, capturing the actual profits on the full investment.
If someone has shares of a company, can sell it to another people but the money gain is not visible for the firm.
Economic performance: Sustained ROIC, sustained Revenue growth; Shareholders value: Stock price, EPS growth (Result of creating economic value)
Shareholders value is the result of creating economic value. But pleasing today’s shareholders is not the goal.
Strategy over the long-term, however, stock price adjust to true economic value as financial results are revealed.
The fundamental unit of strategy analysis is the industry “Which industry are we in?”
If we talk about “Bonpreu” or “Mercadona” talk about a 3% margin is actually a very good margin, but the same number for pharmaceutical industry it is a real disaster.
Value chain
Primary activities: are those ones that support the firm, they are the base of the firm and their fundamental product/service.
Support activities: are those ones that use to be more or less that other firms have, because they support the primary activities.
Primary activities + Secondary activities = Value creation
The value creation + Margin = Value: What buyers are willing to pay.
Competitive advantage 17/9/
Competitive advantage is seen concentrated in a few parts of the value chain. Strategy depends on “Key” success factors, “Core” competences and “Critical” resources.
Strategic continuity Continuity of strategy is fundamental to sustainable competitive advantage. It allows the organization to understand the strategy, building truly unique skills and assets related strategy, establishing a clear identity with customers, channels and other outside entities, strengthening the fit across the value chain. Reinvention and frequent shifts in direction are costly and confuse the industry and the organization. Continuity in the value proposition enhances competitive advantage. Successful companies continuously improve in how they realize their strategy. Moreover allows faster and more effective learning.
Sometimes there is misunderstanding of strategy principles, poor industry’ definition. Industrial pressures:
- Industry conventional wisdom lead all companies to follow common practices
- Labor agreements limit ways of configuring activities
- Regulation constrains price, product, service or process alternatives
- Customers ask for incompatible features or request new precuts or services that do not fit the strategy.
- Inappropriate goals and performance metrics bias strategy choices
- Short-term horizon
- A desire for consensus undermines strategic tradeoffs
- Inappropriate cost allocation leads to may products, services, or customers Outsourcing makes activities homogeneous and less distinctive. Rapid turnover or leadership undermines strategic direction to achieve short-term performance benefits.
Overcoming Barriers:
- Strong pressure for short-term “surprises” in the earnings or revenue
- Strong pressure to grow faster that the industry
- Industry-wide analyst metrics are misaligned with true value and drive strategic convergence
- Strong pressures to emulate currently “successful” peers.
- A strong bias for “doing deals”
- Over-weighting of equity-based management compensation amplifies such unhealthy pressures. Communicating strategy Involves everyone in a organization. Communicate widely in the organization. Do NOT assume that subordinates understand the strategy or agree with it.
Case: Danone and Grameen 27/9/ Grameen is a firm that has different portfolios as Grameen Bank (microfinance; little loans with little interests); NGO activities; Grameen telenor (telecommunication) Joint venture: Sometimes, firms joint together to achieve a similar goal and split the profits. This is the case of Danone and Grameen. In the video we can see that they are selling in Bangladesh a yogurt that have micronutrients that satisfy the 30% daily requirement nutrients (per yogurt). With that, Grameen guaranties
an adequate nutrition, rural economic development because people stays in village (not going to cities), job/employment creation “Grameen lady” (women’s job incorporation) and additional side employment (milk boiling, farms, water plants, …). For Danone is an investing for improve CSR (Corporate Social Responsibility) and develop a new market. Moreover there are 18M people (approximately) that are able to buy those yogurts so they still making profits, they learn how to distribute their product in a place where there’s not highways, and they are developing a new product that could be also sold in other places around the world.
TOPIC 2. STRATEGY AND SOCIETY
There is an inevitable link between a business and society. The competitiveness of companies depends on the surrounding community. The health of a society depends on competitive companies that can create wealth. There is a long-term synergy between economic and social objectives. In order to maximize this synergy, business decisions and social policies must follow the principle of shared value. Company competitiveness and social conditions must benefit simultaneously.
There are two ways to obtain profit:
- Profit maximization: Focused exclusively on profit, the higher the profit the better (shareholders’ view)
- Profit optimization: Profits are important but not at any price (stakeholders’ view) Consumers decide how firms should behave by not buying their products.
Responsive CSR (Corporate Social Responsibility)
- Act as a good corporate citizen
- Mitigate harm from value chain activities Strategic CSR
- Identify a small number of social impacts where the company can make a significant contribution to society while improving the long-term competitiveness of its business.
TOPIC 3. STRATEGY AND LEADERSHIP
The role of leaders in strategy is to make a distinction between operational effectiveness improvement and strategy. The CEO is the chief strategist and the strategy cannot be entirely democratic. He has to communicate the strategy to the whole company and to be disciplinary. He has to decide which industry changes, technologies, and customer needs to respond to, and how the response can be tailored to the company’s strategy. Sell the strategy and how to evaluate progress to the financial markets and the commitment to strategy is tested every day.
TOPIC 4: STRATEGIC MANAGEMENT 1/10/
Strategic management is a set of managerial decisions and actions that determines the long- run performance of a corporation.
Business Strategy Diamond 4/10/ Arenas: Segmentation, consumer focus, product categories and orientation (geographically, areas, technologically…) Vehicles: Development, experimentations, joint ventures (Grameen-Danone)… Differentiators: Image, price, reliability, speed, product/company differentiation Staging: Expansion, initiatives, globalization Economic logic: 3 ways of differentiation: Low cost differentiation (through scale advantages) Premium prices due to unmatchable service Premium prices due to proprietary product features
PRESENTATION 2. LEADING STRATEGICALLY THROUGH EFFECTIVE MISSION AND VISION
TOPIC 1. STRATEGIC LEADERSHIP
Leadership: the task of exerting influence on other people’s pursuit of goals in an organizational context. Motivate the group people. Strategic leadership: Influence key organizational outcomes, such as company’s wide performance, competitive, superiority, innovation, strategic change, and survival.
Mintzberg (Mont real) – Leader research, classification:
- Interpersonal roles: (Figure head, leader, liaison) Extensive network of contact, political connections. Respect to the competence of this person.
- Informational role: o Monitoring how market changes and in which direction, try to predict the future and act in accordance. o Dissemination: information of issues, problems, results to board of directors o Spokesperson: the face of the company
- Decision roles: o Entrepreneur: top decision o Disturbance handler: if there are conflicts in the company they manage them. o Resource allocation: Where put the money/finance/investment o Negotiator: Salary, remuneration, firing people…
Economic Logic
Arenas
Vehicles
Differentiators
Staging
- Humility is the most important factor. It is difficult because it doesn’t come naturally because you made some efforts to be CEO.
Professional will: People belief in you, trust in you. Transform strategic intent into the need resolving.
Professional modesty: Determinate, calm, ambitious, public attention…
How to be CEO?
Charisma: Something for which people will follow you, attractive, interesting…
MBA (master): It helps you but it’s not relevant/not a key element. But it won’t hurt you.
Integrity/international management experience: very important, mostly in international firms. Internal policy in some companies.
Leadership Team
Sometimes the CEO comes from outside the firm, which means that the team won’t be “your friends” because they don’t know how do you work/behave, and the same with internal CEO, because they use to be “promoted” which means that someone else didn’t get it. But they are a very important part of the company because they respond to a complex and changing environment. They develop a coherent plant for executive succession.
Vision/mission
Vision: a simple statement or understanding of what the firm will be in the future. Looking forward and anticipates the desired long-term status of the company. The express long-term action horizons, are ambitious and they are ambiguous.
Mission: declaration of what a firm is and what it stands for- fundamental values and purpose.
Goals and objectives are more concrete/specific, short-term actions.
Strategy
It is a plan about how the firm is going to achieve their mission, vision, goals and objectives. Has to be coherent with the diamond strategy.
PRESENTATION 3. EXAMINING THE INTERNAL ENVIRONMENT- RESOURCES, CAPABILITIES,
AND ACTIVITIES
1. INTERNAL CONTEXT OF STRATEGY
Organization analysis: concerned with identifying and developing an organization’s resources and competences.
Resources: an organization’s assets
Capabilities: a corporation’s ability to exploit its resources
- RESOURCES, CAPABILITIES, AND PERFORMANCE
- Resources: The inputs that firms use to create goods and services o Undifferentiated or firms-specific o Tangible or intangible o Easy to acquire or difficult
- Capabilities: A firm’s skill in using its resources to create goods and services
Tangible: Resources and capabilities, that are observable and easily quantified. Broadly quantified in three categories: Financial, physical and technological.
Intangible: Resources and capabilities not easily observed or difficult to quantify:
- Knowledge: o Explicit: can be easily articulated and communicated o Tacit: not easily communicated because it Is deeply rooted in employee experience or in the company’s culture
- Corporate reputation: perception of a company by the general public
- Brand: A name given to a company’s product which identifies that item in the mind of the consumer (vaio, iPhone, Galaxy)
- Corporate brand: A type of brand in which the company’s name serves as the brand (apple, coca-cola)
- Corporate culture: the collection of beliefs, expectations and values learned and shared by a corporation’s members.
Dynamic capabilities: are firm processes that integrate, reconfigure, acquire, or divest resources to achieve new configurations of resources and capabilities.
Competences
Competency: a cross-functional integration and coordination of capabilities Core competency: a collection of competences that are cross divisional boundaries. Distinctive competency: Core competences that are superior to those of the competition. Clusters: Geographic concentrations of interconnected companies and industries
Competitive advantage Customers’ needs + Company’s capabilities = Sweet spot
Rating: 3 = Average positioning of your firm to take advantage of internal resources and capabilities. 3> Your business is doing well in order to take advantage of internal resources and capabilities. 5 = outstanding positioning of your firm Internal factor analysis (strengths & weaknesses) + External factor analysis (opportunities & threats) = SWOT
3. THE VRIO (VRINE) MODEL
Are firm’s resources and capabilities…
- Valuable? o Resources and capabilities add economic value (in order to increase the price and competitive advantage)
- Rare? o How rare are the valuable resources and capabilities? Valuable but common = parity, not advantage (parity=Same position as other firms) Valuable and rare = Temporary advantage
- Imitable? o Tangible resources/capabilities easier to imitate than intangible Value, rare but imitable = temporary advantage Value, rare and hard-to-imitate =sustained competitive advantage
- Organization is built around them? o Exploit resources and capabilities in the most efficient way.
Example: Pfizer Zoloft (drug/pills) It is valuable because they have patents, so anybody can have this product. It is rare because anybody can produce it because has a patent. Maybe it is imitable ors substitutable but it is receipted by doctors so just is needed to convince them. And it is exploitable because they have the patent for 10 years.
- So a patent gives advantages.
4. VALUE CHAIN ANALYSIS
Value chain: organizational activities that add value from the raw materials until they arrive to the consumer.
Components of the value chain:
- Primary activities: directly associated with the development production, and distribution of goods and services. There are ones that use to be more important than others, depending on the industry where we are in. o Inbound logistics (suppliers)
Raw materials (^) manufacturingPrimary Fabrication Distributor Retailer
There are different pressures favoring industry globalization: Markets: homogeneous customer needs (but not all goods can be homogeneous, because you cannot sell a cow burger in India, for instance) Costs: large scale and scope economies, efficiency Governments: Favorable trade Competition: different areas. Perfect competition (rarely/not observed, duopoly, fragmented. Industrial organization: defining positioning of the fi
*Competitive intelligence: get information about competitors in a legal way.
2. THE FIVE FORCES FRAMEWORK
They are useful to analyze the degree of competitiveness within an industry and the position of a firm within the industry. For this reason is important to define correctly in which industry a firms is operating.
- Rivalry among existing competitors:
- Degree of rivalry: Copying actions. Ex: if a firm drops prices, all firms (in this industry) have to reduce prices
- Exit barriers: after investing a lot in firms that have huge fixed cost there are going to be troubles to exit.
- Industry concentration: More concentration the harder is the competition (a solution would be to find a niche market, segmentation that is not
- Fixed cost/Value added
- Industry growth
- Intermittent overcapacity: Overproduction, after that firms have to reduce production…
- Product differences (substitutes)
- Switching costs
- Brand identity: Compete with a firm with a brand known is difficult
- Diversity of rivals
There are different pressures favoring industry globalization: Markets: homogeneous customer needs (but not all goods can be homogeneous, because you er in India, for instance) Costs: large scale and scope economies, efficiency Governments: Favorable trade Competition: different areas. Perfect competition (rarely/not observed, duopoly, fragmented. Industrial organization: defining positioning of the firm inside the industry
*Competitive intelligence: get information about competitors in a legal way.
2. THE FIVE FORCES FRAMEWORK
useful to analyze the degree of competitiveness within an industry and the position y. For this reason is important to define correctly in which industry
Rivalry among existing competitors: Degree of rivalry: Copying actions. Ex: if a firm drops prices, all firms (in this industry) have to reduce prices Exit barriers: after investing a lot in firms that have huge fixed cost there are going to be troubles to exit. Industry concentration: More concentration the harder is the competition (a solution would be to find a niche market, segmentation that is not Fixed cost/Value added
Intermittent overcapacity: Overproduction, after that firms have to reduce
Product differences (substitutes)
Brand identity: Compete with a firm with a brand known is difficult
Markets: homogeneous customer needs (but not all goods can be homogeneous, because you
Competition: different areas. Perfect competition (rarely/not observed, duopoly, fragmented.
useful to analyze the degree of competitiveness within an industry and the position y. For this reason is important to define correctly in which industry
Degree of rivalry: Copying actions. Ex: if a firm drops prices, all firms (in this
Exit barriers: after investing a lot in firms that have huge fixed cost there are going
Industry concentration: More concentration the harder is the competition (a solution would be to find a niche market, segmentation that is not satisfied)
Intermittent overcapacity: Overproduction, after that firms have to reduce
Brand identity: Compete with a firm with a brand known is difficult
- Bargaining power of suppliers:
- Supplier power: If a firm is loyal to a supplier it will get more benefits than another one.
- Supplier concentration: If there are a lot of suppliers it is easy to change from one to another
- Importance of volume to supplier: they are important, so if a firm depend just on one supplier and this one decides to make a strike, this firm won’t have supplies.
- Differentiation of inputs: there are inputs that have a guarantee certificate.
- Impact of inputs on cost or differentiation
- Switching costs of firms in the industry
- Presence of substitute inputs
- Threat of forward integration: suppliers absorb the firm (that means that this firms is performing bad, due to the fact that the suppliers want to be themselves producing the products but they need the industry)
- Cost relative total purchases in industry
- Threat of substitutes:
- Switching costs
- Buyer inclination to substitute: How easy is to change from one substitute to another
- Price-performance tradeoff of substitutes
- Varity of substitutes:
- Necessity of product or service
- Bargaining power of buyers
- Buyer power (end of the value chain)
- Bargaining leverage (negotiation of the price)
- Buyer volume: it is not the same the consumer of the shop than a supermarket (That is also a buyer).
- Buyer information
- Brand identity: they decide who are brand named and if they buy “white label”
- Price sensitivity
- Threat of backward integration
- Product differentiation
- Buyer concentration vs. industry
- Substitutes available: buyers compare all prices of substitutes available
- Buyer’s incentives
- Threat of New Entrants (make difficult the entrance of new firms to reduce competitions, patents help to do that)
- Absolute cost advantage: fixed cost are huge, and if there is a firm that actually had paid all the fixed cost, the new entrants will have to pay huge amount of money to have the right to use the installations (railways, for example)
Changes in social patterns are also important because, for example, the fact of having ageing population will affect the future consumption, the future income and the consumption preferences.
Local events, such Eurovision, football champion league… are good opportunities to firms to obtain money and promote themselves.
Threats
Obstacles that you have to face. Emerging trends can be also threats for this companies that are not enough prepared to the change. Competitors are also a threat (serial entrepreneur: they build a company, and when they get a good position in the market they sell the company to another big firm, so they get money doing that). And financial entities are also a threat if your company has bad debts or cash flow problems.
SWOT tips
Only accept precise and verifiable statements. Do not generalize and quantify as much as possible.
List all SWOT characteristics and try to rank them, there are things that are more important than others and in those one is where you are going to focus more intensively.
Apply it at the right level. There are different levels, product-line level, company level, .. so it is important to don’t be confused.
Use your strengths to take advantage of the opportunities and avoid real and potential threats. Use your opportunities to overcome the weaknesses and minimize always your weaknesses and threats.
SWOT analysis has to be always complemented with other kind of analysis. And can be applied in any kind of companies being profit or non-profit organizations, it does not matter.
- DIAMOND MODEL (PORTER)
This model look at clusters, a number of small industries, where the competitiveness of one company is related to the performance of other companies and other factors tied together in the value-added chain, in customer-client relation, or in a local or regional contexts.
Factor conditions
They are human resources, physical resources, knowledge resources, capital resources and infrastructure. Specialized resources are often specific for and industry and important for its competitiveness. They are surrounded of universities to get the human resources from there.
Demand conditions
Buyers pressure firms to innovate faster and to create more advanced products than those of competitors.
Related and supporting activities
Producing inputs which are important for innovation and internationalization. Someone that provides you an input/service.
Firm strategy, structure and rivalry
Competitiveness. People coming from two firms different can share information from their workplace when they are having a coffee, so that knowledge could beneficial for the competitor. Competitiveness also pressures firms to improve their products/services and innovate.
Government
It can influence each of above four determinants of competitiveness because it can influence supply and demand conditions, competitiveness (controlling monopolies), time needed to start a business, etc.
Chance
They are occurrences that are outside of control of a firm. They create discontinuities between firms so they can gain or lose competitive positions.
- PEST (PESTEL) ANALYSIS 5/11/
Environmental scanning – monitoring, evaluation and dissemination of information from the external and internal environments to key people within the corporation:
- Pay very close attention to natural environment (physical resources, wildlife, climate). Do not assume that its effects cannot affect you industry.
- Societal environment: economic- crisis, technological – fast improvements, demographics – age, race, …
- Task environment: are facts closer to the firm. Government, local communities, suppliers, competitors, customers.
Probability impact on corporation High Medium Low Probability of occurrence
High High priority High priority Medium priority Medium High priority Medium priority Low priority Low Medium priority Low priority Low priority
We have to be careful and aware about the laws in every country. In fact, if you buy some raw materials from a supplier that bought them to a factory that uses child labor, you can be punished and you will have a negative consequence.
Another example is the Greece payment that is a quantity paid in order to increase the speed of delivering something, but if you exceed this amount it is considered bribe (soborno)
Socio-cultural
Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety.
Firms have to be able to find some social factors that become opportunities to them, for example, life expectances are a good example to build a business of social services, due to the ageing population, but it can be a threat if you would to start a business that is young- oriented.
It is also relevant the level of education within a country and the quality of this one, in order to know if you are going to contract them or not.
We have to consider, also, the religion. Remember the case of MacDonald’s in India. It is not possible to sell cow burgers in India, so let look for an alternative.
- INSTITUTIONS AND STRATEGIC MANAGEMENT
Institutions provide stability and meaning to social behavior. They create the rules that regulate how to behave and make life easier.
Formal institutions → Regulatory → Law, rules, regulaPons (Must)
Informal institutions → NormaPve and CogniPve → Norms, ethics, cultures (Should)
Institutional theory: a theory that studies how to become legitimate in the eyes of their stakeholders. If your ideas are strange and nobody understands them, nobody will buy it or cooperate with you.
An example is Golden parachute (finiquito): it is when someone in the firm get fired and gets an enormous amount of money in compensation for that.
Organizational isomorphism: Similarity among organizations in a population (homogeneity) of structures and process.
- Coercive pressure: you have/must to do it, there is no option of not doing it, not choice, you have to accept it how it is. Legal mandates.
- Mimetic pressures. Copy successful forms/firms that are respectable
- Normative: peers, similar attitudes of groups. You should do that because everybody does it.
7. DISTANCE MATTERS: THE CAGE FRAMEWORK
In the (semi)globalized world borders continue to matter.
Culture, Administrative, Geographic and Economic distance (CAGE)
Culture distance: ways of interaction among people, cultural differences, language issues, ethnicity, religion.
Administrative distance: Encompass laws, policies, and institutions. International relationships between countries, colonial ties, colonizer-colony, restrictions on FDI, corruption…
Geographic distance: Physical distance, different zones (rural/urban), climates, access to ocean, land border, transportation…
Economic distance: economic mechanisms, process of payments, infrastructures, currency, per capita incomes, labor costs, natural resources…
- VALUE CURVE 12/11/
Example: Comparison between “Traditional circus” and “Circus du solei”.
Traditional circus: They have animals, clowns, artists-acrobatics, some music and stars They used to be in a tent, with multiple arenas, continue selling food and items Demand: Children and their parents/grandparents. Circus du solei: They don’t have animals, better: customes, choreography, acrobatics, light/scene and visual, new music/singing (they have different group performance). It is more an art than entertainment. They can be in a fixed place or moving city-to-city. Demand: Adults (high price) Circus du solei had created a niche (non-existing competition) and with that they create the brand. They mixed the circus with the theatre/opera, and with that they create a new demand.
