BIBM771 Strategic Management
The questions in this exam are based on a basic model of strategic management that contains three main parts: PART ONE: Strategic Analysis PART TWO: Strategic Choice PART THREE: Implementation.
All supporting examples you use will refer to your MikesBikes firm. Mission Porter’s 5 Forces SWOT PESTLE The resource-based view – looking inside for competitive advantage Intangible and tangible resources Competitive advantage Porter’s Value Chain Efficiency, quality, innovation, customer responsiveness TQM Porter’s generic business-level strategies Stakeholders, strategy and ethics, social responsibility Corporate level strategy – diversification and acquisition Global strategies, 4 strategies for entering the global market, entry modes into global markets Most useful MikesBikes reports Methods of strategic change
Mission statement: It defines the essence or purpose of a company – what it stands for or why do company exist? I.e. what broad products or services it intends to offer the customers. Mission statement shows the exact purpose of the organization. This statement is primary objective of the organization to show the plans, aims and programs of the company. A mission statement is bit different from the vision statement.
A good mission statement is like a born of success for the organization. It is very for the companies to find out the ways and also do the regular confirmation whether company or organization is on the right way or not.
A purpose of a clear mission statement to an organization to align the people as well as merge all the individual’s activities in to the group. It also tells to the organization employee whether they are doing work is important or worthwhile. A clear statement describes the importance of work to the organization. It can change the thinking for the improvement of the organization and give the ancillary customer services to their customers. Mission has the value that it gives the change in any organization from time to time.
Porter’s 5 Forces
Michael E. Porter, a Harvard professor known as a leader in competitive and strategic management, created a well-known model for determining the profitability of an industry. The framework is known as Porter's Five Forces and is based on the competitive forces that influence an industry the most. These five forces include:
1. Competitive rivalry
When rivalry is high, there are many competitors, and those competitors have a high cost associated with exiting the industry.
2. Threat of new entrants
The threat of new entrants is the force that tells us how easy or difficult it is for competitors to enter an industry. The goal of those who are already in the industry is to make it difficult to enter.
3. Bargaining power of suppliers
This is determined by how easy it is for your suppliers to increase their prices. The more you have to choose from, the easier it will be to switch to a cheaper alternative.
4. Bargaining power of customers
When you deal with only a few savvy customers, they have more power, but your power increases if you have many customers.
5. Threat of substitute products
This refers to the likelihood of your customers finding a different way of doing what you do. For example, if you supply a unique software product that automates an important process, people may substitute it by doing the process manually or by outsourcing it.
SWOT stands for: Strength, Weakness, Opportunity, Threat. A SWOT analysis guides you to identify your organization’s strengths and weaknesses (S-W), as well as broader opportunities and threats (O-T). Developing a fuller awareness of the situation helps with both strategic planning and decision-making.
A SWOT analysis can offer helpful perspectives at any stage of an effort. You might use it to:
SWOT also offers a simple way of communicating about your initiative or program and an excellent way to organize information you've gathered from studies or surveys.
The SWOT Matrix
S-O strategies pursue opportunities that are a strong fit for company’s strengths
W-O strategies overcome weaknesses to pursue opportunities
S-T strategies identify ways that the firm can use is strengths to reduce its vulnerabilities to external threats
W-T strategies establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats.
A PESTEL analysis is an acronym for a tool used to identify the macro forces facing an organisation. The letters stand for Political, Economic, Social, Technological, Environmental and Legal. Depending on the organisation, it can be reduced to PEST or some areas can be added i.e. International.
1. Political Factors:
These determine the extent to which government and government policy may impact on an organisation or a specific industry.
2. Economic Factors:
These factors impact on the economy and its performance, which in turn directly impacts on the organisation and its profitability.
3. Social Factors:
These factors focus on the social environment and identify emerging trends. Factors include changing family demographics, education levels, cultural trends, attitude changes and changes in lifestyles.
4. Technological Factors:
These factors consider the rate of technological innovation and development that could affect a market or industry. Factors could include changes in digital or mobile technology, automation, research and development.
5. Environmental Factors:
These factors relate to the influence of the surrounding environment and the impact of ecological aspects. Factors include climate, recycling procedures, carbon footprint, waste disposal and sustainability
6. Legal Factors:
An organisation must understand what is legal and allowed within the territories they operate in. Factors include employment legislation, consumer law, healthy and safety, international as well as trade regulation and restrictions.
The resource-based view – looking inside for competitive advantage
The resource-based view (RBV) is a model that sees resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain competitive advantage. The supporters of this view argue that organizations should look inside the company to find the sources of competitive advantage instead of looking at competitive environment for it.
In RBV model, resources are given the major role in helping companies to achieve higher organizational performance. There are two types of resources: tangible and intangible.
Tangible assets are physical things. Land, buildings, machinery, equipment and capital – all these assets are tangible. Physical resources can easily be bought in the market so they confer little advantage to the companies in the long run because rivals can soon acquire the identical assets.
Intangible assets are everything else that has no physical presence but can still be owned by the company. Brand reputation, trademarks, intellectual property are all intangible assets. Unlike physical resources, brand reputation is built over a long time and is something that other companies cannot buy from the market
The two critical assumptions of RBV are that resources must also be heterogeneous and immobile.
Heterogeneous. The first assumption is that skills, capabilities and other resources that organizations possess differ from one company to another. If organizations would have the same amount and mix of resources, they could not employ different strategies to outcompete each other.
Immobile. The second assumption of RBV is that resources are not mobile and do not move from company to company, at least in short-run. Intangible resources, such as brand equity, processes, knowledge or intellectual property are usually immobile.
Intangible and tangible resources
Tangible resources or assets are any company property that has a physical existence. A tangible resource is one that you can "reach out and touch." A business’ core operations are centered around its assets which is recorded on the balance sheet statement. Assets equal the sum of a company’s total liabilities and its shareholders’ equity. The main form of assets in most industries are tangible assets. Tangible fixed assets receive special treatment for accounting purposes since they have an anticipated useful life of more than one year. A company uses a process called depreciation to allocate part of the asset's expense to each year of its useful life, instead of allocating the entire expense to the year in which the asset is purchased.
Hard currency, equipment and real estate are all examples of tangible resources. By contrast, intangible assets are those which have no physical form. Copyrights, patents and reputation are examples of intangible assets. Tangible resources are also commonly called tangible assets or physical assets. Every business will comprise both tangible and intangible resources. Tangible resources are those which can be seen and touched. They include things that can be reproduced, such as plants and machinery, and things that cannot be reproduced, such as real estate and land. As tangible resources are comparatively easy to appraise, they are often used to determine a company’s value.
A competitive advantage is what makes an entity's goods or services superior to all of a customer's other choices. The term is commonly used for businesses. The strategies work for any organization, country, or individual in a competitive environment.
The main challenge for business strategy is to find a way of achieving a sustainable competitive advantage over the other competing products and firms in a market.
A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.
Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. The strategies relate to the extent to which the scope of a business' activities are narrow versus broad and the extent to which a business seeks to differentiate its products.
The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments.
By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry.
With this strategy, the objective is to become the lowest-cost producer in the industry. The traditional method to achieve this objective is to produce on a large scale which enables the business to exploit economies of scale.
In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers.
With differentiation leadership, the business targets much larger markets and aims to achieve competitive advantage across the whole of an industry.
This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer.
Porter’s Value Chain
Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on systems, and how inputs are changed into the outputs purchased by consumers.
Companies use these primary and support activities as "building blocks" to create a valuable product or service.
Efficiency, quality, innovation, customer responsiveness
The four functional-level strategies in any organization are the level of their operating divisions and departments; this strategic issues are closely linked to each other and to the businesses processes on the value chain, and are involved in the development and coordination of the company resources through which businesses unit level strategies can be executed effectively and efficiently.
To achieve superior responsiveness to customers often requires that the company achieve superior efficiency, quality, and innovation.
The efficiency can be increased through the following steps: exploiting economies of scale and learning effects, adopting flexible manufacturing technologies, reducing customer defection rates, implementing JIT-TQM systems, making R&D to design products that are easy to manufacture, upgrading the skills of employees through education, training, etc.
Superior quality can help a company to lower its costs, differentiate its product, and charge a premium price. Achieving superior quality demands an organization commitment to quality, and a clear focus on the customer.
To accomplish superior innovation, a company must build skills in basic and applied research; design good processes for managing development projects and achieve close integration between the different functions of the company, primarily through the adoption of cross-functional product development teams and partly paralleled development processes.
To achieve superior responsiveness to customers, a company needs to give and be one-step-ahead customers what they want when they want it. It must be ensured a strong customer focus, which can be attained by emphasizing customer focus through a truly leadership; training employees to think as customers; bringing customers into the company through superior market research
Total Quality Management (TQM) describes a management approach to long-term success through customer satisfaction. In a TQM effort, all members of an organization participate in improving processes, products, services, and the culture in which they work.
Here are the 8 principles of total quality management:
No matter what an organization does to foster quality improvement—training employees, integrating quality into the design process, upgrading computers or software, or buying new measuring tools—the customer determines whether the efforts were worthwhile.
2. Total employee involvement
Total employee commitment can only be obtained after fear has been driven from the workplace, when empowerment has occurred, and management has provided the proper environment.
A process is a series of steps that take inputs from suppliers (internal or external) and transforms them into outputs that are delivered to customers (again, either internal or external).
4. Integrated system
Although an organization may consist of many different functional specialties often organized into vertically structured departments, it is the horizontal processes interconnecting these functions that are the focus of TQM.
5. Strategic and systematic approach
A critical part of the management of quality is the strategic and systematic approach to achieving an organization’s vision, mission, and goals.
6. Continual improvement
Continual improvement drives an organization to be both analytical and creative in finding ways to become more competitive.
7. Fact-based decision making
TQM requires that an organization continually collect and analyze data in order to improve decision making accuracy, achieve consensus, and allow prediction based on past history.
During times of organizational change, as well as part of day-to-day operation, effective communications plays a large part in maintaining morale and in motivating employees at all levels.
Porter’s generic business-level strategies
A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation.
The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants, cost focus and differentiation focus.
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost advantage are varied and depend on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors.
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs.
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.
Stakeholders, strategy and ethics, social responsibility
A stakeholder is any individual or organisation that is affected by the activities of a business. They may have a direct or indirect interest in the business, and may be in contact with the business on a daily basis, or may just occasionally. Stakeholders have an interest in the company but do not own it (unless they are shareholders).
Often the aims and objectives of the stakeholders are not the same as shareholders and they come into conflict.
Social responsibility is the duty and obligation of a business to other stakeholders. Social responsibility for one group can conflict with other groups, especially between shareholders and stakeholders.
Ethics refers to the moral rights and wrongs of any decision a business makes. It is a value judgement that may differ in importance and meaning between different individuals. Businesses may adopt ethical policies because they believe in them or they believe that by showing they are ethical, they improve their sales.
Corporate level strategy – diversification and acquisition
Diversification is a form of growth strategy. Growth strategies involve a significant increase in performance objectives (usually sales or market share) beyond past levels of performance. Many organizations pursue one or more types of growth strategies. One of the primary reasons is the view held by many investors and executives that "bigger is better." Growth in sales is often used as a measure of performance. Even if profits remain stable or decline, an increase in sales satisfies many people. The assumption is often made that if sales increase, profits will eventually follow.
Diversification strategies can also be classified by the direction of the diversification. Vertical integration occurs when firms undertake operations at different stages of production. Involvement in the different stages of production can be developed inside the company (internal diversification) or by acquiring another firm (external diversification). Horizontal integration or diversification involves the firm moving into operations at the same stage of production. Vertical integration is usually related to existing operations and would be considered concentric diversification. Horizontal integration can be either a concentric or a conglomerate form of diversification.
Mergers and acquisitions another company can be a major step in carrying out a desired strategy. The acquired company may provide a much needed resource, give access to a new market, extend company operations back into earlier stages of production, provide a scale operations that will support improved technology, or improve company services and productivity. A merger or acquisition is a combination of two companies where one corporation is completely absorbed by another corporation. The less important company loses its identity and becomes part of the more important corporation, which retains its identity.
Global strategies, 4 strategies for entering the global market, entry modes into global markets
Exporting is a cross border sale of domestically grown or produced goods Cavusgil, 2004). There are three types of exporting: indirect exporting, direct exporting and cooperative exporting.
International licensing is a cross border agreement that permits organisations in the target country the rights to use the property of the licensor (Kotler & Armstrong, 2012).
Franchising is a foreign market entry strategy where a semi-independent business owner (the franchisee) pays fees and royalties to the franchiser to use a company’s trademark and sell its products and/or services (Kotler & Armstrong, 2012).
An organisation may choose a joint venture as their foreign market entry mode for a number of different reasons, for example: to divide the risk with other parties, to leverage of each other’s strengths etc.
A wholly owned subsidiaries is the process where by an organisation enters a foreign market with 100% ownership of the foreign entity (Yiu & Makino, 2002). The two ways that wholly owned subsidiaries come about is through either acquisition or greenfield operations.
Most useful MikesBikes reports
Mike's Bikes is a computer-based business simulation system that can be used as a tool1 to enhance the integration and learning of a variety of business-oriented subjects, interactively and in a realistic context. There are 13 essential reports:
The Year Ahead
Market Information report
Market Summary- All Product Details
Products-Sales, margin production
Multi-Firm Retailer Margins and Extra Support
Financial Management Overview
Pro Forma Cash Flow/ Funds Available
Cash flow Statement
Methods of strategic change
Lewin’s 3-Phase change management model
Kotter’s Change management process
There are four steps in managing strategic change:
Evaluation and Control
Types of strategic change:
Change can be categorized by the extent of the change required, and the speed with which the change is to be achieved. Characteristically, strategic development is incremental. It builds on prior strategy, it is adaptive in the way it occurs, with only occasional more transformational changes. Balogun and Hailey recognized four types of strategic change