Ibm Week 5

To bring a business idea successfully to the market, a strategy must be developed. To reach the goals, a plan of action must be designed - mainly to succeed against (potential) competitors.

Strategy: how people decide to organize major resources toenhance performance of an enterprise

Strategist: hope that their work will enhance performance byclarifying and unifying purpose, reducing uncertainty, linking short-termactions to long-term goals and providing control

- Involves adapting the organization to its business environment

- affects the entire organization by providing direction

- Involves both strategy formation (content) and also strategy implementation (process)

- partially planned and partially unplanned

- done at several levels: overall corporate strategy, and individual business strategies

- involves both conceptual and analytical thought process

- fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses.

1. Planning view

2. Learning View

3. Political View

Lindblom, 1959

- Like the learning view, the political view drawson the concept of bounded rationality and satisficing behavior

- It is an iterative, incremental process,characterized by restricted analysis and bargaining between the players

- It is not a comprehensive, objective process buta limited comparison of options, restricted to those that are politicallyaccepted and possible to implement

- Strategy is the vision or the destination

- Planning is how you get there (not linear)

- Good businesses get distracted but great businesses are always focused on their strategy

- First find out where you want to go and then figure out how

The strategy at corporate level reflects theoverall direction of the organization

Options = (a) Directions + (b) Method of strategydevelopment

(a) Directions = TOWS + Ansoff Matrix + Porter

TOWS: SO-, WO-, ST- and WT- strategic options

Ansoff: Product or market development or diversification

Porter: cost leadership, differentiation and focus

(b) Methods = Internal growth, M&A or strategicalliance

After a SWOT-Analysis, the output can be used to develop and evaluate strategic alternatives, aiming to select those that make the most if internal strengths and external opportunities.

SO: Generate options that use strength to takeadvantage of opportunities

WO: Generate options that take advantage ofopportunities by overcoming weaknesses

ST: Generate options that use strength to avoidthreats

WT: Generate options that minimize weaknesses andavoid threats

The Ansoff matrix summarizes the possible directions of astrategic development in context of products and markets.

Strategy can aim for

Growth: expanding the number of products andentering new markets

Stability: Remaining within the same products inthe same market/customer segment

Renewal: Leaving some markets followed by entryinto others

Market penetration: increase the market share, easier in agrowing than in a mature market, could be achieved by reducing price (Ryanair),increasing advertising (GEOX) or improving distribution (Amazon)

Consolidation: to protect the company’s share in existingmarket, in growing market through improving efficiency (AMD) and/or service toretain customers (DHL), in declining markets by acquiring other companies(Microsoft-Nokia) or demerger (Daimler-Chrysler)

Withdrawal: if unable to match rivals’ abilities(IBM-LENOVO), pulling out of market

Product and Service Development allows a company to retain therelative security of its present markets while altering products or developingnew ones

In fashion industry, consumer electronics, financial services continuous change of products meet perceived changes in consumer preferences.

Products development is risky and costly

New segments: convincing new groups of customers, by age,income, and lifestyle

New territories: From local to national or international

New uses: e.g. lightweight material developed for use inspacecraft is also used in manufacture for golf clubs

With new capabilities: e.g. Internet shopping

Horizontal Integration: Developing related or complementaryactivities

Vertical Integration: Moving backwards or forwards intoactivities related to the organization’s products or services

Unrelated Diversification: Developing into new marketsoutside the present industry

- Acquisition or internal creation of a relatedbusiness

- Reasons: to expand internationally, increasecapacity, expand brand equity to new product lines, economies of scale andscope, increased market power

- E.g. Facebook buys WhatsApp, Google takes over YouTube

- Forward vertical integration: e.g. a mobilephone producer buys electronic stores, can often make more profit by sellingdirectly to consumers than to retailers and saves time (Apple Store, Samsung Store, etc.)

- Backward vertical integration: Burger restaurantowns potato farm and ensures constant supply of potatoes

1. Cost Leadership Strategy (e.g. Carrefour,Toyota)

- Company uses low price as main competitiveweapon

- Typically sell no-frills product and try tominimize cost

- Requires economy of scale (producing in largequantities reduces cost of each unit)

- Broad target

2. Differentiation Strategy (e.g. Miele, Harley)

- Company offers product/service that is perceivedas unique or distinctive on a basis other than price

- Broad target

3A. Cost Focus (e.g. Aldi)

3B. Differentiation Focus (e.g. Rolls Royce,Umbro)

- Company competes by targeting very specific segmentsof the market

- Narrow target

- Functional level is the level of the operating divisions and departments

- strategic issues at this level are related tobusiness processes and value chain

- R&D, Marketing, Manufacturing, H&R, Finance: Strategies involve the development and coordination of resourcesthrough which business unit level strategies can be executed efficiently andeffectively

Options = (a) Directions + (b) Method of strategy development

(a) Directions = TOWS + Ansoff Matrix + PorterTOWS: SO-, WO-, ST- and WT- strategic optionsAnsoff: Product or market development or diversificationPorter: cost leadership, differentiation and focus

(b) Methods = Internal growth, M&A or strategic alliance

Exploiting or redeploying relevant resources that thecompany has or can employ, especially when having outstanding products

Advantages:

- Distributing cost over long period

- Development of inimitable competences mainly inhigh technology, being unique in the market

- Retaining of traditional corporate culture

- Using synergies consequently

- Avoidance of political, intercultural problemsand incompatible expectations

Disadvantages:

- Risk of undesirable strategic development

- Long time to develop new products

- No external inputs

External Growth

Companies turn to partners to co-operate in developingproducts or services. Both of the parties gain advantages of such a collaboration(pool resources)

Motives:

- Cost reduction

- Improving customer offerings

- Co-Specialization

- Learning

Joint Venture (Cisalpino: SBB & Italian FS)

Networks(One World, Star Alliance)

Franchising (Coca Cola, McDonalds)

Licensing(Microsoft Software)

Subcontracting (ZHAW Cafeteria, Cleaning Companies,temporary employment companies (Adecco, Manpower)

Co-Production (Renault –Nissan / Fiat – Chrysler -> joinforces to produce something together, not Joint Venture!)

Sponsoring (FIFA,Olympics)

Advantages:

- Investment risk share with partner

- Combining of complementary resources andknow-how

- May be a governmental condition for market entry

Disadvantages:

- Difficulty of identifying appropriate partnerand agreeing on appropriate contractual terms

- Loss of competitive advantage through imitation

- Limited benefits from the locational advantagesof host nation

- Good interpersonal cooperation, compatibilitybetween the partners

- Bridging gap between the cultures

- Performance expectations/clear goals,organizational rules and structure of leadership

- Simple and flexible structures

- Senior management support (of partner company)(makes access to new network easier)

- Trustworthiness through character (integrity,openness, discretion, calculable, behavior, competent partnership)

- Mutual respect

Expanding own resources and competencies by acquiring, ormerging with another company

Advantages:

- Rapid entry into new product or market areas

- Fast development of market shares

- Keeping up with a changing environment

- Avoidance of high development costs

- Getting know-how from specialized companies

Disadvantages:

- Failure of mergers due to cultural gaps betweenthe involved companies

- Difficulties in integrating two differentcorporate cultures and problem solving

- Too high price (goodwill) for the company takenover

- Can be used for self-enrichment of top managers

The selected strategic option must be evaluated in regard to:

- Suitability within the context

- Acceptability of the expected outcome

- Feasibility due to existing resources

Suitability is concerned with wether the strategy addresses the circumstances in whichan organization is operating.

Does the strategy make sense? Would theorganization obtain economies of scale or scope?

- Fitwith future trends and changes

- Useof opportunities, minimize risk

- Exploitcapability

- Meetexpectations of stakeholders

Concerned with the expected performance outcomesof a strategy.

To what extent is the performance outcome of achosen strategy in line with the expectations of the stakeholders? Will theyembrace it?

- Return:benefits expected by stakeholders (fin and non fin), shareholders would expectincrease in wealth, employees improvement in careers, customers better valuefor money

- Risk:probability and consequences of failure of strategy (fin and non fin) -> what-if-analysis

- Stakeholderreactions: shareholders could oppose the issuing of new shares, employees andunions could oppose outsourcing for fear of losing job, customer could haveconcerns over a merger with regards to quality and support -> stakeholder mapping

Concerned whether an organization has theresources (funding, people, time, information) and competences to deliver astrategy.

Can a strategy be made to work in practice?

- Financialfeasibility (Cash Flow or break even analysis)

- Forecasting

- Resourcedeployment