What Factors Are Driving

Industry Change?
“If you don’t have a strategy you
will be . . . part of somebody
else’s strategy.”
- Alvin Toffler
What Factors Are Driving Industry Change and
What Impacts Will They Have?

• Industries change because forces are driving

industry participants to alter their actions

• Driving forces are the major underlying

causes of changing industry and competitive
conditions
 Analyzing Driving Forces

1. Identify forces likely to exert greatest influence over

next 1 - 3 years
– Usually no more than 3 - 4 factors qualify as real
drivers of change
2. Assess impact
– Are the driving forces causing demand for product
to increase or decrease?
– Are the driving forces acting to make competition
more or less intense?
– Will the driving forces lead to higher or lower industry
profitability?
 Strategic Groups within Industries
Strategic Groups are groups of companies that
follow a business model similar to other companies
within their strategic group – but are different from
that of other companies in other strategic groups.
The basic differences between business models in
different strategic groups can be captured by a
relatively small number of strategic factors.
 Implications of Strategic Groups –
1. The closest competitors are within the same Strategic Group
and may be viewed by customers as substitutes for each other.
2. Each Strategic Group can have different competitive forces
and may face a different set of opportunities and threats.
 Mobility Barriers – factors within an industry that inhibit the
movement of companies between strategic groups
• Include barriers to enter another group or exit existing group
 Strategic Group Mapping

• Firms in same strategic group have two or more

competitive characteristics in common
– Have comparable product line breadth
– Sell in same price/quality range
– Emphasize same distribution channels
– Use same product attributes to appeal
to similar types of buyers
– Use identical technological approaches
– Offer buyers similar services
– Cover same geographic areas
 Procedure for Constructing
a Strategic Group Map

STEP 1: Identify competitive characteristics that differentiate firms in

an industry from one another

STEP 2: Plot firms on a two-variable map using pairs of these

differentiating characteristics

STEP 3: Assign firms that fall in about the same strategy space to
same strategic group

STEP 4: Draw circles around each group, making circles

proportional to size of group’s respective share of total
industry sales
Analyzing Company’s
Resources &
Competitive Position
Abell’s Framework for Defining the Business

Figure 1.5

Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning
 Types of Resources
Tangible Relatively easy to identify, and include
Resources physical and financial assets used to
create value for customers
– Financial resources
• Firm’s cash accounts
• Firm’s capacity to raise equity
• Firm’s borrowing capacity
– Physical resources
• Modern plant and facilities
• Favorable manufacturing
locations
• State-of-the-art machinery and
equipment
 Types of Resources
Tangible Relatively easy to identify, and
Resources include physical and financial assets
used to create value for customers
– Technological resources
• Trade secrets
• Innovative production processes
• Patents, copyrights, trademarks
– Organizational resources
• Effective strategic planning
processes
• Excellent evaluation and control
systems
 Types of Resources
Tangible Difficult for competitors (and the firm
Resources itself) to account for or imitate,
typically embedded in unique routines
Intangible and practices that have evolved over
Resources time
– Human
• Experience and capabilities of
employees
• Trust
• Managerial skills
• Firm-specific practices and
procedures
 Types of Resources
Tangible Difficult for competitors (and the firm
Resources itself) to account for or imitate,
typically embedded in unique
Intangible routines and practices that have
Resources evolved over time
– Innovation and creativity
• Technical and scientific skills
• Innovation capacities
– Reputation
• Effective strategic planning processes
• Excellent evaluation and control
systems
 Types of Resources
Tangible Competencies or skills that a firm
Resources employs to transform inputs to
outputs, and capacity to combine
Intangible tangible and intangible resources to
Resources attain desired end
– Outstanding customer service
Organizational
– Excellent product development
Capabilities
capabilities
– Innovativeness of products and
services
– Ability to hire, motivate, and retain
human capital
How Resources and Capabilities
Lead to Advantages
 Firm Resources and Sustainable
Competitive Advantages
Is the resource or Implications
capability…
Valuable • Neutralize threats and exploit
opportunities
Rare • Not many firms possess
Difficult to imitate • Physically unique
• Path dependency
• Causal ambiguity
Difficult to substitute • Social complexity
• No equivalent strategic
resources or capabilities
 Analysis of the Company’s Present
Strategies
• SWOT Analysis

• Value Chain Analysis

• Benchmarking

• Ethical Conduct
 Critical Factors Considered
• (1) What factors influence the durability of
competitive advantage?

• (2)Why do successful companies often

lose their competitive advantage?

• (3) How can companies avoid competitive

failure and sustain their competitive
advantage over time?
 SWOT Analysis
SWOT is an ellipsis for the
internal Strengths and
Weaknesses of a business
and environmental
Opportunities and Threats
facing that business.
 Pattern of SWOT Analysis
• High opportunities and high strengths.
– Supports an aggressive strategy
• High opportunities and low strengths.
– Turnaround oriented strategy
• High threats and high strengths.
– Supports Diversification strategy
• High threats and low strengths.
– Supports a Defensive strategy.
 Objectives of SWOT Analysis
• To provide a framework to reflect the
organizational capability to avail
opportunities or to overcome threats
presented by the environment.

• It presents the information about external

and internal environment to structured form
whereby key external opportunities
 Meaning:
SWOT analysis is a systematic identification
of factors and the strategy that reflects the
best match between them.
It is based on the logic that an effective
strategy maximizes a business’s
strengths and opportunities and
minimizes its weaknesses and threats.
This simple assumption if accurately applied
has powerful implications for successfully
choosing and designing an effective study.
 Strengths
A strength is a resource, skill or other advantage
relative to the competitors and the needs of the
markets firm serves or anticipates serving.
A strength is a distinctive competence that gives firm
a comparative advantage in the marketplace.

E.g.
• - financial resources
• - image
• - market leadership
 Weaknesses
A weakness is a limitation or deficiency in
resources, skills, and capabilities that
seriously impedes effective performance.

Eg: Facilities, financial resources,

management capabilities, marketing skills,
and brand image could be sources of
weaknesses.
o Aids in narrowing the choice of alternatives
and selecting a strategy.

o Distinct competence and critical weakness

are identified in relation to key determinants
of success for market segment.
 Opportunities
An opportunity is a major favorable situation in
the firm’s environment.
E.g.
     - identification of a previously unlooked

market segment
     - changes in competitive or regulatory

circumstances
     - technological changes
 Threats
A threat is a major unfavorable situation in the firm’s
environment. It is a key obstacle to the firm’s current
and/ or desired future position.
E.g.
- entrance of a new competitor
- slow market growth
- increased bargaining power of key buyers and suppliers

Understanding the key opportunities and threats

facing a firm helps manager identify realistic options
from which to choose an appropriate strategy.
• Strength, weakness, opportunity and threat
– analysis should be undertaken in an
integrated way by combining organizational
capability profile (OCP) and
• Environmental Threat and Opportunity
Profile (ETOP).
 Plotting a Route to the Top
• Do a SWOT analysis for yourself
• Outline a strategy for yourself
– Unique
• Making yourself known is absolutely
essential
– Next to talent, the second most important factor
in career or entrepreneurial success is taking
the time and effort to develop visibility
• Get your name in print
• Give speeches
• Continually add names to your Rolodex
• Volunteer for industry association and
professional organization jobs
• Take time off for a stint in government
• Make your superiors look good
 Internal Analysis
• Identifying the strengths and weaknesses of
the company
• Managers must understand
– The role of resources, capabilities, and
distinctive competencies in the process by which
companies create value and profit
– The importance of superior efficiency, innovation,
quality, and responsiveness to customers
– The sources of their company’s competitive
advantage (strengths and weaknesses)
 Internal Analysis
The purpose of internal analysis is to pinpoint the
strengths and weaknesses of the organization.
Strengths lead to superior performance.
Weaknesses lead to inferior performance.
Internal Analysis includes an assessment of:
• Quantity and quality of a company’s resources and
capabilities
• Ways of building unique skills and company-specific or
distinctive competencies

Building and sustaining a competitive advantage

requires a company to achieve superior:
• Efficiency • Innovations
• Quality • Responsiveness to customers
 Internal Analysis:
Strengths and Weaknesses
Internal analysis - along with the external analysis of
the company’s environment - gives managers the
information to choose the strategies and business
model to attain a sustained competitive advantage.

Strengths Weaknesses
Of the enterprise Of the enterprise
are assets that are liabilities that
boost lead to lower
profitability profitability
Internal Analysis:
A Three-Step Process

1. Understand the process by which companies create

value for customers and profit for themselves.
 Resources
 Capabilities
 Distinctive competencies
2. Understand the importance of superiority in creating
value and generating high profitability.
 Efficiency  Innovation
 Quality  Responsiveness to Customers
3. Analyze the sources of the company’s competitive
advantage.
 Strengths – that are driving profitability
 Weaknesses – opportunities for improvement
 The Role of Resources
• Resources
– Capital or financial, physical, social or human,
technological, and organizational factor endowments
• Tangible and intangible
• A firm-specific and difficult to imitate resource is
likely to lead to distinctive competency
• A valuable resource that creates strong demand
for a firm’s products may lead to distinctive
competency
 The Role of Capabilities
• Capabilities
– A company’s skills at coordinating and using
its resources
• Capabilities are the product of
organizational structure, processes, and
control systems
 Strategic Resources and
Capabilities
• Intangible
• Tangible
– Brand names
– Land
– Reputation
– Buildings
– Patents
– Plant
– Technological or
– Equipment
marketing know-
how
 Distinctive Competencies
• Skills in effectively coordinating and
managing resources for productive use.
– Unique resources and capabilities, or
– Common resources and
unique capabilities.
 Distinctive Competences and
Competitive Advantage
• Distinctive competencies
– Firm-specific strengths that allow a company
to gain competitive advantage by
differentiating its products and/or achieving
lower costs than its rivals
– Arise from resources and capabilities
 A Critical Distinction
• If a firm has firm-specific and valuable
resources it must also have the capability
to use them effectively to create distinctive
competency
• A firm can create distinctive competency
without firm-specific and valuable
resources if it has unique capabilities. (RIL
– to invest 3 bilion$ in fertilizer Industry.)
 Competitive Advantage, Value
Creation, and Profitability
• Profitability factors
– Amount of value customers place on the
company’s products
– Price charged
– Costs of creating the value
 Strategy and Competitive
Advantage
• The relationship between strategies and
resources and capabilities:

FIGURE 4.8
 The Durability of Competitive
Advantage
• Barriers to imitation
– Speed of imitation by competitors in reducing
advantage
– Imitation by acquiring similar resources
– Imitation of capabilities (more difficult)
• Limits on competitors
– Prior strategic commitments
– Absorptive capacity for change
• Industry dynamism
– The rapid innovation
shortens product life cycles.
 Competitive Advantage

• Competitive Advantage
– A firm’s profitability is greater than the average
profitability for all firms in its industry.
• Sustained Competitive Advantage
– A firm maintains above average and superior
profitability and profit growth for a number of years.

The Primary Objective of Strategy

is to achieve a
Sustained Competitive Advantage
which in turn results in
Superior Profit and Profit Growth.
 Competitive Advantage: Value
Creation, Low Cost, and
Differentiation
• Competitive advantage is a firm’s ability to
outperform its competitors (earn higher
profits).
• The source of competitive advantage is
value creation for customers.
• Sustained competitive advantage comes
from maintaining higher profits than
competitors over long periods of time.
Profitability in the Computer Industry,
1998-2003
Dell has achieved a sustained competitive advantage over its rivals.

Data Source: Value Line Investment Survey

Distinctive Competencies and Role of
Resources and Capabilities
Resources
• Tangible (physical) and intangible (non-physical)
• Allow a company to create value for its customers
• Must have skills to take advantage of the resources
• Firm-specific and difficult-to-imitate resources
as well as valuable resources that create strong
demand for a company’s products lead to
distinctive competencies

Capabilities
• Coordinating resources & putting to productive use
• Skills reside in the organization’s rules, routines
and procedures
• Product of its organization, processes & controls
• Firm-specific capabilities to manage its resources
lead to distinctive competencies
Competitive Advantage, Value Creation, and
Profitability
How profitable a company becomes depends on
three basic factors:
1. VALUE or UTILITY the customer gets from owning
the product
2. PRICE that a company charges for its products
3. COSTS of creating those products
 Consumer surplus is the “excess” utility a consumer
captures beyond the price paid.
Basic Principle: the more utility that consumers
get from a company’s products or services, the
more pricing options the company has.
Profitability in the U.S. Retailing
Industry, 1996-2001
 Strategy, Resources,
Capabilities, and Competencies
Value Creation per Unit
Value Creation and Pricing
Options
Comparing Toyota and General
Motors
 Differentiation and Cost
Structure: Roots of Competitive
Advantage
The Generic Building Blocks of
Competitive Advantage
 Efficiency
• The quantity of inputs it takes to produce a
given output
• Productivity leads to greater efficiency and
lower costs
– Employee productivity
– Capital productivity
 The Impact of Efficiency, Quality, Innovation, and
Customer Responsiveness on Unit Costs and Prices

FIGURE 4.5
 Quality
• Superior quality = customer perception of
greater value in a specific product’s
attributes
– Form, features, performance, durability,
reliability, style, design
• Quality products = goods and services that
are reliable and that are differentiated by
attributes that customers perceive to have
higher value
 Quality (cont’d)
• The impact of quality on competitive
advantage
– High-quality products increase the value of
(differentiate) the products in customers’ eyes
– Greater efficiency and lower unit costs are
associated with reliable products
 The Impact of Quality on Profits

FIGURE 4.4
A Quality Map for Automobiles
 Innovation
• The act of creating new products or
processes
– Product innovation
• Creates products that customers perceive as more
valuable, increasing the company’s pricing options
– Process innovation
• Creates value by lowering production costs
• Perhaps the most important building block
of competitive advantage
 Responsiveness to Customers
• Doing a better job than competitors of
identifying and satisfying customers’
needs
– Superior quality and innovation are integral to
superior responsiveness to customers
– Customizing goods and services to the unique
demands of individual customers or customer
groups
 Responsiveness to Customers
(cont’d)
• Sources of enhanced customer
responsiveness
– Customer response time, design, service,
after-sales service and support
• Differentiates a company/its products;
leads to brand loyalty and premium pricing
 Distinctive Competencies,
Resources, and Capabilities
• The roots of competitive advantage:

FIGURE 4.7
 The Durability of Competitive Advantage
The DURABILITY of a company’s competitive advantage over
its competitors depends on:
1. Barriers to Imitation
Making it difficult to copy a company’s distinctive competencies
 Imitating Resources
 Imitating Capabilities
2.Capability of Competitors
 Strategic commitment
Commitment to a particular way of doing business
 Absorptive capacity
Ability to identify, value, assimilate, and use knowledge

3.Industry Dynamism
Ability of an industry to change rapidly

Competitors are also seeking to develop distinctive

competencies that will give them a competitive edge.
 Analyzing Competitive
Advantage and Profitability
• Benchmarking company performance
against that of competitors and the
company’s own historic performance
• Return on invested capital

ROIC  Net profit

Invested capital

• Net profit = Total revenues – Total costs

 Analyzing Competitive
Advantage and Profitability
 Competitive Advantage
• When a companies profitability is greater than the average of all
other companies in the same industry that compete for the same
customers
 Benchmarking
• Comparing company performance against that of competitors and
the company’s historic performance

 Measures of Profitability
• Return On Invested Capital (ROIC)
• Net profit Net income after tax
ROIC = = Capital invested
Equity + Debt to creditors
• Net Profit
Net Profit = Total revenues – Total costs
Definitions of Basic Accounting
Terms
Drivers of Profitability (ROIC)
 Ways to Increase ROIC
• Increase the company’s return on sales
– Reduce cost of goods sold
– Reduce spending on sales force, marketing,
general, and administrative expenses
– Reduce R&D spending
– Increase sales revenue more than costs
• Increase sales revenues from invested
capital
– Reduce the amount of working capital
– Reduce amount of fixed capital
 The Durability of Competitive
Advantage
• Barriers to Imitation
– Imitating Resources
– Imitating Capabilities
• Capability of Competitors
– Strategic commitment
– Absorptive capacity
• Industry Dynamism
 Why Do Companies Fail?
• What went wrong? • Avoiding failure and
– Inertia sustaining competitive
advantage:
– Prior strategic
– Focus on the building
commitments blocks of competitive
– The Icarus paradox advantage.
– Institute continuous
improvement and
learning.
– Track best industrial
practice and use
benchmarking.
– Overcome inertia.
Avoiding Failure and Sustaining
Competitive Advantage
• Focus on the building blocks of
competitive advantage
• Institute continuous improvement in
learning
• Track best industrial practice in use
benchmarking
• Overcome inertia
• Luck
 Return on Capital Employed for
Selected U.S. Department Stores,
1989-1998

FIGURE 4.1

Source: Data from Value Line Investment Survey

 The Value Chain
• A company is a chain of activities for
transforming inputs into outputs that
customers value
• The transformation process is composed
of primary and support activities that add
value to the product
 Value Chain Analysis
• The value chain, also known as value
chain analysis, is a concept from business
management that was first described and
popularized by Michael Porter in his 1985
best-seller, Competitive Advantage: Creating
and Sustaining Superior Performance.

• A value chain is a chain of activities.

• The value chain categorizes the generic value-
adding activities of an organization.

• The "primary activities" include: inbound logistics,

operations (production), outbound logistics,
marketing and sales, and services (maintenance).

• The "support activities" include: administrative

infrastructure management, human resource
management, R&D, and procurement.
• The concept has been extended beyond individual
organizations. It can apply to whole supply chains
and distribution networks.

• Porter terms this larger interconnected system of

value chains the "value system.“

• Michel Porter’s - A useful tool for analyzing a firm’s

strengths and weaknesses and understanding how
they might translate into competitive advantage or
disadvantage.
• The value chain is a business system concept,
which was originally developed by McKinsey
and Company and further developed and
clarified by Porter.

• This concept captures the idea that a firm is a

series of functions (e.g. R&D, manufacturing,
marketing, distribution etc.) and that each of
these can be analyzed to determine ones own
and the competitors’ strengths and weaknesses
 Main aspects of Value Chain Analysis

• Value chain analysis is a powerful tool for managers

to identify the key activities within the firm which
form the value chain for that organization, and have
the potential of a sustainable competitive advantage
for a company.

• Therein, competitive advantage of an organization

lies in its ability to perform crucial activities along
the value chain better than its competitors.
 General administration

Human resource management

Technology development

Procurement

Inbound Outbound Marketing

Operations logistics Service
logistics and sales
In order to conduct the value chain analysis, the company is split into
primary and support activities
 The Value Chain

FIGURE 4.6
The Value Chain: Primary and
Support Activities
 Primary value chain activities
Primary ActivityDescription
• Inbound logistics: All those activities concerned with
receiving and storing externally sourced materials
• Operations: The manufacture of products and
services - the way in which resource inputs (e.g.
materials) are converted to outputs (e.g. products)
• Outbound logistics: All those activities associated
with getting finished goods and services to buyers
• Marketing and sales Essentially: an information
activity - informing buyers and consumers about
products and services (benefits, use, price etc.)
• Service: All those activities associated with
maintaining product performance after the product
has been sold
 Support activities include
Secondary ActivityDescription
• Procurement This concerns how resources are
acquired for a business (e.g. sourcing and
negotiating with materials suppliers)
• Human Resource Management: Those activities
concerned with recruiting, developing, motivating
and rewarding the workforce of a business
• Technology Development: Activities concerned
with managing information processing and the
development and protection of "knowledge" in a
business
• Infrastructure Concerned with a wide range of
support systems and functions such as finance,
planning, quality control and general senior
management
Linkages within the Value Chain
• Although value activities are the building
blocks of competitive advantage, the value
chain is not a collection of independent
activities but a system of interdependent
activities.
• Value activities are related by linkages
within the value chain.
Linkages within the Value Chain
• Linkages are relationships between the way
one value activity is performed and the
cost of performance of another.
• Linkages often reflect tradeoffs among
activities to achieve the same overall result.
• For example a more costly product design,
more stringent materials specifications, or
greater in-process inspection may reduce
service costs.
Linkages within the Value Chain
• Linkages may also reflect the need to
coordinate activities. On-time delivery,
• for example, may require coordination of
activities in operations and service.
• The ability to coordinate linkages often
reduces costs or enhances differentiation.
• Better coordination, for example can reduce
the need for inventory throughout the firm.
 Steps in Value Chain Analysis
Value chain analysis can be broken down into a three
sequential steps:
• Break down a market/organization: into its key
activities under each of the major headings in the
model.
• Assess the potential for adding value via cost
advantage or differentiation, or identify current
activities where a business appears to be at a
competitive disadvantage.
• Determine strategies built around focusing on
activities where competitive advantage can be
sustained.
 MERITS
• Value Chain Analysis provides a generic framework
to analyze both the behavior of costs as well as the
existing and potential sources of differentiation.

• Porter emphasized the importance of regrouping

functions into activities to produce, market, deliver
and support products, to think about relationships
between activities and to link the value chain to the
understanding of an organization's competitive
position.
• The value chain made clear that an
organization is multifaceted and that its
underlying activities need to be analyzed to
understand its overall competitive position.

• The Value Chain model was intended as a

quantitative analysis. It can also be used as a
quick scan to describe the strengths and
weaknesses of an organization in qualitative
terms.
• With the Value Chain Analysis, Porter tried to overcome the
limitations of portfolio planning in multidivisional organizations.

• The concept of Strategic Business Units stated that

businesses within a conglomerate should act independently
while headquarters should be responsible only for budgetary
decisions to be based on a business unit's position in the
overall portfolio

• Porter used his Value Chain Analysis to identify synergies or

shared activities between Strategic Business Units and to
provide a tool to focus on the whole rather than on the parts.
 DEMERITS
• The quantitative analysis is time consuming since it
often requires recalibrating the accounting system
to allocate costs to individual activities.

• . Porter provided qualitative guidance for a

quantitative exercise. His analysis began with
identifying the relevant activities that lead to
competitive differences and are significant enough
to influence the organization’s overall cost base.
• The Value Chain Analysis should be
accompanied with a customer
segmentation analysis to mix the internal
and external view.
• A feature or product provides the firm with
a differentiating competitive advantage
only if customers are willing to pay for it.
• Customer value chains need to be
analyzed to determine where value is
created.
• The Value Chain is used to analyze a firm's position
in relation to its direct competitors with the
assumption that rivalry drives profitability. This
excludes other assumptions such as customer
bonding in Alexander Hax's delta model.

• The Value Chain Analysis was developed to analyze

physical assets in product environments. Other
authors amended the model to accommodate
intangible assets and service organizations
 Limitations of Value Chain
Analysis

• One of the limitations of the value chain

model is that it describes an industrial
organization which essentially buys raw
materials and transforms these into physical
products.

• The limitations of the model include the fact

that ‘value’ for the final customer is the value
only in its theoretical context and not practical
terms.
• The real value of the product is assessed
when the product reaches the final
customer, and any assessment of that
value before that moment is only
something that is true in theory.
• Despite this limitation, analysts can
effectively use the value chain model to
determine the value to the final customers
in a theoretical way.
According to Porter, competitive advantage,
and thus higher profits will result either from:

• Differentiation of products and selling

them at a premium price, OR

• Producing products at a lower price than

competitors
• The two basic types of competitive advantage combined with the
scope of activities for which the firm seeks to achieve these
advantages results in three different types of strategy - cost
leadership, differentiation and focus.
 Benchmarking Costs of
Key Value Chain Activities
• Focuses on cross-company comparisons of
how certain activities are performed and costs
associated with these activities
 Purchase of materials
 Payment of suppliers
 Management of inventories
 Getting new products to market
 Performance of quality control
 Filling and shipping of customer orders
 Training of employees
 Processing of payrolls
 Five step approach to competitor
analysis

• Identify the competitors

• Identify what they want

• Identify their strategy

• Identify their strengths & weaknesses/relative

capabilities
• Predict what they will do.
 Developing Data to Measure a Company’s
Cost Competitiveness
• After identifying key value chain activities, the next step
involves breaking down departmental cost accounting
data into costs of performing specific activities
• Appropriate degree of disaggregation depends on
– Economics of activities
– Value of comparing narrowly defined versus broadly defined
activities
• Guideline – Develop separate cost estimates for
activities
– Having different economics
– Representing a significant or growing proportion of costs
 Activity-Based Costing:
A Key Tool in Analyzing Costs

• Determining whether a company’s costs are in line with

those of rivals requires
Measuring how a company’s costs compare with those of
rivals activity-by-activity
• Requires having accounting data to measure cost
of each value chain activity
• Activity-based costing entails
Defining expense categories according to specific activities
performed and
Assigning costs to the activity responsible for creating the
cost
Integrating Intuition and
Analysis

The strategic management process

attempts to organize quantitative and
qualitative information under conditions of
uncertainty.
Integrating Intuition and
Analysis

Intuition is based on:

– Past experiences
– Judgment
– Feelings

Intuition is Useful for decision making

– Conditions of great uncertainty
– Conditions with little precedent
Integrating Intuition & Analysis

Analytical Thinking

Intuitive Thinking
 Figure 1.4 

 

Main
Components of 
the Strategy-
Making Process

Prime Task of
Strategic Management

Peter Drucker: -- think through the

overall mission of a business. Ask
the key question: “What is our
Business?”
Vision Statement –
What do we want to become?

Mission Statement –
What is our business?
 The Mission
The mission is a statement of a company’s
raison d’etre, its reason for existence today.

• What is it that the company does?

• What is the companies business?
– Who is being satisfied (what customer groups)?
– What is being satisfied (what customer needs)?
– How customer needs are being satisfied (by what
skills, knowledge, or distinctive competencies)?

A company’s mission is best approached from

a customer-oriented business definition.
 The Mission
Customer-Oriented Examples

The mission of Kodak is to provide “customers

with the solutions they need to capture, store,
process, output, and communicate images –
anywhere, anytime.”

Ford Motor Company describes itself as a

company that is “passionately committed to
providing personal mobility for people around
the world….We anticipate consumer need and
deliver outstanding produces and services that
improve people’s lives.”
 The Vision
What would the company like to achieve?
A good vision is meant to stretch a company by
articulating an ambitious but attainable future state.

The vision of Ford is “to become the world’s

leading consumer company for automotive
products and services.”

Nokia is the world’s largest manufacturer of

mobile phones and operates with a simple but
powerful vision: “If it can go mobile, it will!”
Vision

“The last thing IBM needs right now is

a vision.” (July 1993)

What IBM needs most right now is a

vision.” (March 1996)

-- Louis V. Gerstner, Jr., CEO, IBM Corporation

Vision

Agreement on the basic vision for which

the firm strives to achieve in the long run is
critically important to the firm’s success.

“What do we want to become?”

Vision

Clear Business
Vision

Comprehensive
Mission Statement
Vision & Mission

Shared Vision --
• Creates commonality of interests
• Reduce daily monotony
• Provides opportunity & challenge
Vision Statement Examples

To make available, reliable and quality

power in increasingly large quantities

-- NTPC
Vision Statement Examples

A world class innovative, competitive and

profitable engineering enterprise providing
total business solutions

-- BHEL
Vision Statement Examples

To be the company of first choice in oral

and personal hygiene by continously caring
for consumers & partners

-- Colgate - Palmolive
Mission Statement

“What is our business?”

Mission Statements

“What is our business?”

• Enduring statement of purpose

• Distinguishes one firm from another
• Declares the firm’s reason for being
Mission Statements
“What is our business?”

Essential for effectively establishing

objectives and formulating strategies.
Vision & Mission

Profit & vision are necessary to effectively

motivate a workforce
Vision & Mission

Shared vision creates a community of

interests
Mission Statement Examples

The Bellevue Hospital, with respect, compassion,

integrity, and courage, honors the individuality and
confidentiality of our patients, employees, and
community, and is progressive in anticipating and
providing future health care services.

-- The Bellevue Hospital

Mission Statement Examples

John Deere has grown and prospered through a

long-standing partnership with the world’s most
productive farmers. Today, John Deere is a global
company with several equipment operations and
complementary service businesses. These
businesses are closely interrelated, providing the
company with significant growth opportunities and
other synergistic benefits.

-- John Deere, Inc.

Mission Statement Examples

To achieve and maintain a leading position as

suppliers of quality equipment, systems & service
to serve the national and international market in
the field of energy. The areas of interest would be
the conversion, transmission, utilisation and
conservation of energy for applications in the
power, industrial and transportation fields, to strive
for technological excellence and market leadership
in these areas.

-- BHEL
Mission Statement Examples

To attain leadership position in the confectionary

market and achieve a strong national presence in
the food drinks sector

-- Cadbury India
Vision & Mission

Research results are mixed, however, firms with

formal mission statements --

• 2x average return on shareholder’s equity

• Positive relationship to company performance
• 30% high return on certain financial measures
 Products
Services Markets
Customers

Technology

Mission
Employees
Elements

Survival
Growth
Profit
Public
Image
Self-Concept Philosophy
 PepsiCo Mission
PepsiCo’s mission is to increase the value of our
shareholders’ investment. We do this through sales
growth, cost controls, and wise investment resources.
We believe our commercial success depends upon
offering quality and value to our consumers and
customers; providing products that are safe, wholesome,
economically efficient and environmentally sound; and
providing a fair return to our investors while adhering to
the highest standards of integrity.
 Ben & Jerry’s Mission
Ben & Jerry’s mission is to make, distribute and sell the
finest quality all-natural ice cream and related products
in a wide variety of innovative flavors made from
Vermont dairy products. To operate the Company on a
sound financial basis of profitable growth, increasing
value for our shareholders, and creating career
opportunities and financial rewards for our employees.
To operate the Company in a way that actively
recognizes the central role that business plays in the
structure of society by initiating innovative ways to
improve the quality of life of a broad community—local,
national and international.
 Mission Statement Evaluation Matrix

COMPONENTS          
Concern
for
Survival,
Products Growth,
Organization Customers Services Markets Profitability Technology

           

PepsiCo Yes No No Yes No

Ben & Jerry's No Yes Yes Yes No

           
 Mission Statement Evaluation
Matrix
COMPONENTS          

Self- Concern for Concern for

Organization Philosophy Concept Public Image Employees

         

PepsiCo Yes No No No

Ben & Jerry's No Yes Yes Yes

         
 Planned, Deliberate, Emergent and
Realized Strategies
Figure 1.6

Source: Adapted from H. Mintzberg and

A. McGugh, Administrative Science
Quarterly, Vol. 30. No. 2, June 1985.
Intended and Emergent Strategies

Successful products – 3M/ Honda

• Scotchguard from fluorocarbons (a/c equipment)

• Paste-it (weak adhesive)

• Introduction of low powered bikes by Honda in USA

Loss of opportunity

• Western Union (Telegraph Company) turning down the offer to

purchase the right to invention (telephone) made by Graham
Bell
 Intended and Emergent Strategies
• Intended or Planned Strategies
– Strategies an organization plans to put into action
– Typically the result of a formal planning process
– Unrealized strategies are the result of unprecedented changes
and unplanned events after the formal planning is completed

• Emergent Strategies
– Unplanned responses to unforeseen circumstances
– Serendipitous discoveries and events may emerge that can
open up new unplanned opportunities
– Must assess whether the emergent strategy fits the company’s
needs and capabilities

• Realized Strategies
– The product of whatever intended strategies are actually put
into action and of any emergent strategies that evolve
 Strategic Planning in Practice
Recent studies suggest that formal planning does have a
positive impact on company performance – and should
include the current and future competitive environments.

• Scenario Planning
– Recognizes that the future is inherently unpredictable
– Develops strategies for possible future scenarios

• Decentralized Planning
– Involves the functional managers
– Avoids the ivory tower approach
– Perceives procedural justice in the decision making

• Strategic Intent
– Avoids the strategic fit model, which focuses too much on
the current state
– Sets ambitious vision and goals that stretch a company and
then finds ways to build to attain those goals
 Strategic Decision Making
In spite of systematic planning, companies may adopt poor
strategies if groupthink or individual cognitive biases are
allowed to intrude into the decision-making process:
• Cognitive biases:
Rules of thumb or heuristics resulting in systematic errors
– Prior hypothesis bias
– Escalating commitment
– Reasoning by analogy
– Representativeness
– Illusion of control
• Groupthink:
Decisionmakers embark on a course of action without
questioning the underlying assumptions
– Group coalesces around a person or policy
– Decisions based on an emotional rather than an objective assessment
of the correct course of action
 Processes for Improving
Decision Making
Figure 1.7

To bring out all the Reveals problems with

reasons that might definitions, assumptions,
make the proposal & recommended courses
unacceptable of action

Karan Thapar
 Strategic Leadership
Good leaders of the strategy-making process
have a number of key attributes:
 Vision, eloquence, and consistency (Dhirubhai-Reliance)
 Commitment (Infy – Narayanamurthy)
 Being well informed (Tata Steel – Rusi Modi)
 Willingness to delegate and empower
 The astute use of power (build consensus)
 Emotional intelligence
– Self-awareness
– Self-regulation
– Motivation
– Empathy
– Social skills
 Examples: Strategies Based
on Distinctive Capabilities
• Sophisticated distribution systems – Wal-Mart
• Product innovation capabilities – 3M Corporation
• Complex technological process – Michelin
• Defect-free manufacturing – Toyota and Honda
• Specialized marketing and merchandising know-how – Coca-Cola
• Global sales and distribution capability – Black & Decker
• Superior e-commerce capabilities – Dell Computer
• Personalized customer service – Ritz Carlton hotels
Internal Factor evaluation (IFE)
 IFE– Gateway Computers (2003)
Wtd
Key Internal Factors Weight Rating
Score

Strengths
1. Several new senior executive with world-
0.05 4 0.40
class skills and leadership experience
2. Continuous decline in operating costs
0.05 3 0.15
and cost of goods sold
3. Well-known brand name 0.05 3 0.15
4. Consumer Reports (Sept 2002)
0.10 4 0.40
recommended Gateway 500X as #1
5. As a direct seller, Gateway holds high
0.05 3 0.15
brand recognition
 IFE– Gateway Computers (2003)
Wtd
Key Internal Factors Weight Rating
Score

Strengths (cont’d)
6. Gateway is diversifying into non-PC
0.10 3 0.30
products
7. Good relationship with its suppliers. 0.05 4 0.20
8. Economies of scale, the 6th largest PC
0.05 4 0.20
maker I the world
9. Gateway retails stores excellent 0.05 3 0.15
 IFE– Gateway Computers (2003)
Wtd
Key Internal Factors Weight Rating
Score

Weaknesses
1. High operating expense (22% of revenue
0.05 3 0.15
vs. 10% for Dell)
2. Almost no budget for R&D vs. Dell’s 18%
0.10 1 0.05
of revenue
3. Low return on assets ratio 0.025 1 0.10

4. No niche market 0.025 2 0.05

 IFE– Gateway Computers (2003)
Wtd
Key Internal Factors Weight Rating
Score

Weaknesses (cont’d)
5. Shortage of cash due to successive
0.10 2 0.20
losses
6. Limited number Gateway stores 0.05 2 0.10

7. Weak performance in overseas market 0.10 2 0.20

TOTAL 1.00 2.85

“The essence of strategy lies in
creating tomorrow’s competitive
advantage faster than
competitors mimic the ones you
possess today.”
- Gary Hamel &
C. K. Prahalad