chapter 1 to 4 business strategy

7/27/2019 chapter 1 to 4 Business strategy

1/15

MM 5012 Business Strategy and Enterprise MBA - ITB

SUFIAN (29112017) X 47 Page 1

CHAPTER 1

Strategic competitiveness is achieved when a firm successfully formulates and implements a

value-creating strategy. A strategy is an integrated and coordinated set of commitments andactions designed to exploit core competencies and gain a competitive advantage. When

choosing a strategy, firms make choices among competing alternatives as the pathway for

deciding how they will pursue strategic competitiveness.

A strategy has five elements, providing answers to five questions:

- Arenas: where will we be active?- Vehicles: how will we get there? - Differentiators: how will we win in the market place?- Staging: what will be our speed and sequence of moves?- Economic logic: how will we obtain our returns?

A hierarchy of company statement

Many companies do have-and all firms should have-statements of their ultimate

purpose and the ethical values under which they will operate. Vision is a picture of what the

firm wants to be and, in broad terms, what it wants to ultimately achieve. The mission

statement is the loftiest guiding light and least specific. A mission specifies the business or

businesses in which the firm intends to compete and the customers it intends to serve. As we

work our way down the hierarchy, the statement become more concrete, practical, and

ultimately unique. Values are what we believe in and how we will behave. No other company

will have the same strategy statement, which defines the competitive advantage, or

balanced scorecard, which tracks how we implement our particular strategy.

Firms use the strategic management process to achieve strategic competitiveness

and earn above-average returns. Strategic leaders are people located in different parts of the

firm using the strategic management process to help the firm reach its vision and mission.

Strategic competitiveness is achieved when a firm has developed and learned how to

implement a value-creating strategy. Above-average returns (in excess of what investors

expect to earn from other investments with similar levels of risk) provide the foundation a

firm needs to simultaneously satisfy all of its stakeholders.


2/15


SUFIAN (29112017) X 47 Page 2

Element of strategy statement

Three critical components of a good strategy statement are objective, scope and

advantage. These elements are a simple yet sufficient list for any strategy that addresses

competitive interaction over unbounded terrain. Defining the objective, scope and advantage

requires trade-offs, which Porter identified as fundamental to strategy. The strategic objective

should be specific, measurable and time bound. It should also be a single goal. A firms scope

encompasses three dimensions: customer or offering, geographic location, and vertical

integration. Advantage is the most critical aspect of a strategy statement.

Developing a strategy statement

The creative part of developing strategy is finding the sweet

spot that aligns the firms capabilities with customer needs in a way thatcompetitors cannot match given the changing external context-factors,

such as technology, industry demographics, and regulation.

What is strategy?

Strategy is the creation of a unique and valuable position, involving a different set of

activities. Strategic positions can be based on customers needs, customers accessibility, or

the variety of a companys products or services. Choosing a unique position, however, is not

enough to guarantee a sustainable advantage. A strategic position is not sustainable unless

there are trade-offs with other positions. Trade-offs occurs when activities are incompatible.

There are three types of fit, although they are not mutually exclusive. First-order fit is

simple consistency between each activity (function) and the overall strategy. Second-order fit

occurs when activities are re-inforcing; and the third-order fit goes beyond activity

reinforcement to what it called as optimization of effort. Strategic fit among many activities

is fundamental not only to competitive advantage but also to the sustainability of that

advantage.

Strategic Action at Lenovo

Using the Hambrick and Fredricksons innovative model of strategy, we have been

able to illustrate how Lenovos top management team must focus their business strategy to

remain a competitor in the PC marketplace.

Arenas: the growth of hand-held devices and IT services (non-PC related) isbecoming important to Lenovo in several ways. First, the PC industry is beginning to

feel the heat of growing foreign competition in China. Second, the Lenovos ability to


3/15


SUFIAN (29112017) X 47 Page 3

compete in the Greater China/ Asia-Pacific market will begin to face the prospect of

new, indigenous competitors in many of these markets.

Vehicles:Lenovo achieved its competency in PC distribution through joint ventureswith PC original equipment manufacturers like AST, Hewlett-Packard and IBM Corp.

Differentiators:the strongest distinguishing feature that Lenovo has is its ability tounderstand the Chinese market, its values, and preferences.

Staging:Lenovo created a leveraged IT consulting/services business from its coreproduct business. The final step in the sequence of evolution is Lenovos foray into

hand-held devices.

Economic logic:currently Lenovo allocates about 80% of its resources to makecorporate IT and consumers PCs. As it faces more competition from other vendors,

Lenovo will need to focus more resources on its fledgling IT services business.

The strategies and management initiatives that apply to Lenovo are clearly important models

for other Chinese firms as well. Though most PRC firms strive to make a profit, they are also

driven by longstanding government initiatives: providing jobs, producing at high volumes,

and protecting the existing status quo.

CHAPTER 2

External Environmental Analysishas four parts, as shown below:

Scanning Identifying early signals of environmental changes and trends

Monitoring Detecting meaning through ongoing observations of environmental changes

and trendsForecasting Developing projections and anticipated outcomes based on monitored

changes and trends

Assessing Determining the timing and importance of environmental changes and

trends for firms strategies and their management

Segments of the General environment

We will use the case study ofNintendos disruptive strategy: implications for the

video game industry to analyze general environment (external factors).


4/15


SUFIAN (29112017) X 47 Page 4

Political:

Video games have a tendency to play with the

emotions of people which in turn can threaten

peace and law, a country being multicultural.Therefore Government has the authority to

control the content of the video games frames.

Economics:

Places such as USA and Japan are largely

dominated by video game business; therefore

contributing towards the GDP of their countries.

Demographic:

Open a mass market/ beyond existing gamers or common people, such as first-time game

players, women and older consumers. Even to people who are not interested in games. Age:

outside the traditional range of 12-35 & family life cycle: married with children.

Sociocultural:

The social factors that influence the video game industry are population demographics,income distribution, lifestyle changes, social mobility, attributes to work, consumerism, level

of education and consumer behavior.

Technological:

Nintendos role from playing cards to toys to video games and then with each console

introduced, included many technological changes. The online capability of Nintendo Wii was

a major change in the technology of the video game industry.

Environment:

The video game industry uses a lot of plastic resources. Playing games on tv or computers

does consume a lot of power. On the other hand, Nintendo also facilitates the green

lifestyle by creating Super Mario Sunshine and Chibi-Robo; Park Patrol, which

challenges players to improve the environment around them.

Legal:


5/15


SUFIAN (29112017) X 47 Page 5

The legal issues faced by the video game industry include trademarks, copyrights, licensing,

online ownership, revenue recognition and demands of intellectual property. The other issues

that can be considered are product and health safety.

Industry Environment Analysis

Porters (1980) competitive force model is probably one of the most often used

business strategy tools and has proven its usefulness on numerous occasions. Using this

model, we can undertake a structural analysis of the petrochemical industry in Saudi Arabia.

1. Threat of New Entrants (Competitors)As is frequently the case with industries that require large investments, entry into the

petrochemical industry can be difficult. Cooperation with existing firms might thus be useful

for a new firm to enter an international petrochemical market.

Complexity and size can make petrochemical plants expensive to build and difficult to

operate efficiently. Technology also inhibits market entry. With a small number of large and

complex plants dominating many industry sectors, most of the petrochemical technology is

licensed and proprietary.

Since the industry is concentrated in relatively few hands and because petrochemical

investments are usually expensive to build, access to market is limited.

2. Bargaining Power of SuppliersThe suppliers in the petrochemical industry are dominated by a large number scattered

around the globe. SABIC enjoys further advantages of more strategic options as suppliers

from the global arena compete against each other to enter the Saudi market. Firms in Saudi

Arabia have a better bargain in terms of reasonable price and obtaining greater credit

facilities.

However, suppliers of some critical raw materials have a high bargaining power, as they are

vital for production and non-availability of these may lead to a shutdown in production.

3. Bargaining Power of Buyers (Customers)


6/15


SUFIAN (29112017) X 47 Page 6

Saudi petrochemical companies, in particular SABIC, have numerous customers from within

the nation as well as around the world, mainly the Gulf nations, Indian sub-continent, Far

East, Middle East, Africa, Europe and Japan.

The cause for concern is that some products, such as high pressure LDPE and LLDPE are

marketed heavily in China. Such a dependence on a single country gives more bargaining

power to customers, besides becoming vulnerable to the political and economic situation in

China. Focusing on a single nation as a customer will pose a threats to the Saudi

petrochemical industry.

4. Threat of Substitute ProductsAlthough the existing demand for petrochemical products is huge, with a number of products

ranging from industrial solvent to food packaging being made from petrochemicals,

environmental concerns may force a shift back to more widespread use of carbohydrates in

the coming decades. These products pose a major threat of substitute.

5. Intensity of Rivalry Among CompetitorsSaudi petrochemical organizations are facing a number of competitors, such as Exxon

Chemicals, Shell Chemicals, BASF Chemical Company, Dow Chemical, Mitsubishi, among

others. These competitors are about equal in size and market power, which makes the

competition too severe to survive. Since 1997 the industry growth slowed down due to the

Asian financial crisis.

Barriers to entry have several factors, which are:

- Economies of scale - Product Differentiation

- Capital Requirements - Switching Costs

- Access to Distribution Channels - Government Policy

- Cost Disadvantages Independent of Scale

With huge investments and complex operations, the industry is of such a nature that it makes

exit barriers too high. It is also too costly to switch to another industry because there are no

similar businesses. As a result of this, the intensity of rivalry among existing competitors is

extreme.


7/15


SUFIAN (29112017) X 47 Page 7

CHAPTER 3

Scanning and analyzing the external environment for opportunities and threats is not

enough to provide an organization a competitive advantage. Analysts must also look within

the corporation itself to identify internal strategic factors this internal scanning, often

referred to as organizational analysis, is concerned with identifying and developing an

organizations resources and competencies. People are an especially critical resource for

helping organizations learn how to continuously innovate as a means of achieving successful

growth.

In general, the sustainability of a competitive advantage is a function of three factors:

(1) the rate of core competence obsolescence because of environmental changes, (2) the

availability of substitutes for the core competence, and (3) the imitability of the core

competence. Matching what a firm can do (a function of its resources, capabilities, core

competencies, and competitive advantages) with what it might do (a function of opportunities

and threats in the external environment) allows the firm to develop vision, pursue its mission,

and select and implement its strategies.

Analyzing the Internal Organization

The figure below illustrates the relationships among resources, capabilities, and core

competencies and shows how firms use them to create strategic competitiveness.

Resources, Capabilities, and Core Competencies

Resources, capabilities, and core competencies are the foundation of competitive

advantage. Resources are bundled to create organizational capabilities. In turn, capabilities

are the source of a firms core competencies, which are the basis of competitive advantages.


8/15


SUFIAN (29112017) X 47 Page 8

Core competencies are a source of competitive advantage only when they allow the firm to

create value by exploiting opportunities in its external environment.

Grant Proposes a five-step, resource-based approach to strategy analysis:

1. Identify and classify the firms resources in terms of strengths and weaknesses2. Combine the firms strengths into specific capabilities and core competencies3. Appraise the profit potential of these capabilities and competencies in terms of their

potential for sustainable competitive advantage and the ability to harvest the profits

resulting from their use.

4. Select the strategy that best exploits the firms capabilities and competencies relativeto external opportunities

5. Identify resource gaps and invest in upgrading weaknesses

The Port of Singapore

The Port of Singapore has achieved a sustainable competitive advantage relative to

other locations by carefully building a set of resources that other Ports would find very

difficult to match. Some of these resources are natural (a superb shelteredharbor), some can

be replicated at a significant cost (infrastructure, well-educated and hardworking labor force),

and some are particularly valuable in Singapore, but less useful in other Ports (scheduling

systems for multiple cranes to handle the complexity of multi-tier stacking of containers).

Resource-based View (RBV) helps explain and interpret the contribution of

technology to the Port of Singapore (PSA). This view of competitive advantage is based on

the unique resources that a firm possesses. To the extent that a competitor cannot create or

substitute for these resources, they provide an advantage to the firm that owns them.

Analyzing PSAs strategy

PSA supplemented limited natural resources with man-

made resources, including operations and information

technology, to build one of the leading Ports in the world. These

man-made resources compensated for some of the countrys

natural limitations. Not all important resources are under the

control of an organization, so one must (1) identify external

resources that can be used to ones advantage and (2) build

internal resources capable of enhancing those external resources.


9/15


SUFIAN (29112017) X 47 Page 9

Value Chain Analysis

Value chain analysis is used to identify

and evaluate the competitive potential

of resources and capabilities. By

studying their skills relative to thoseassociated with primary and support

activities, firms can understand their

cost structure and identify the activities

through which they can create value.

Primary activities are involved

with a products physical creation, its

sale and distribution to buyers, and its service after the sale. Support activities provide the

assistance necessary for the primary activities to take place.


10/15


SUFIAN (29112017) X 47 Page 10

To be a source of competitive advantage, a resource or capability must allow the firm

(1) to perform an activity in a manner that provides value superior to that provided by

competitors, or (2) to perform a value-creating activity that competitors cannot perform.

Above is Henkel`s value chain activities. The primary activities are: (1) Research

&Development; (2) Product safety; (3) Raw Materials; (4) Production; (5) Logistics; (6) Use:

fostering sustainable consumption; (7) Usage: Industrial business; and (8) Packages &

disposal.

Outsourcing

When the firm cannot create value in either an internal primary or support activity,

outsourcing is considered. Outsourcing is needed when it relates to efficiency (priority & cost

effectively) and in order to the firm can only focus on core activities. In the case study of

Henkel Co., they can outsource their procurement, logistics and general supporting.

If we combine the resources and the capability of Henkel, the core competency of

Henkel located in both aspect:

1. Tangible = Organization:Henkel has large product portfolio. Although different

competitors existed in each market from its huge products, each competitor often only served

a special niche and sector. In addition, only few companies were active in as many segments

as Henkel did. Therefore this is the reason Henkel was almost triple the size of its next best

competitor. Furthermore, with its international expansion strategy, Henkel can rapidly grow

its brand image. Henkels diverse product range and strengths ranged from modern consumer

product for everyday use to complex chemical and technical system solution for industrial

customer.


11/15


SUFIAN (29112017) X 47 Page 11

2. Intangible

a. I nnovation:Henkel invest in R&D in big portion as shown in Exhibit 2, compare

to capital expenditure, R&D expenses is around 78.8% in 2006 and in 74.4% in2007. From

this data we can understandably why Henkel being the first self-acting laundry detergent

in1907.

b. Reputation: From reputation view, customer care of Henkel gives optimum support

product enhancement, technical advice, addressing complaint and warranty support. Thus it

makes Henkel receive positive image from their customer. Thus it fits to its tagline i.e. A

brand like a friend. Although Henkel brand is not really familiar to customer, as not all sub-

brand Henkel invested to that. However customer familiar to its sub-brand likes Pritt, Patex,

and Ponal. This is because their sub-brand strategy applied to product managers to develop

their own marketing strategy.

CHAPTER 4

Business-Level Strategy

Business-level strategy is an integrated and coordinated set of commitments and actions the

firm uses to gain a competitive advantage by exploiting core competencies in specific product

markets. However, every firm may not use all the strategiescorporate-level, merger and

acquisition, international, and cooperative.

Customers: Their Relationship with Business-Level Strategies

Customers are the foundation of successful business-level strategies. A firm simultaneously

examines three issues: who, what, and how. Increasing segmentation of markets throughout

the global economy creates opportunities for firms to identify more unique customer needs

they can serve with one of the business-level strategies. We will analyze the case study of

OASIS Hong Kong Air li nesto see their business-level strategy on the First Long Haul,

Low-Cost Airliner in Asia.

Who: a customer from Hong Kong that want to travel long-haul with low price. What: offering long-haul flight with low price using big airplane (Boeing 747-400)


12/15


SUFIAN (29112017) X 47 Page 12

How: using OASIS Airline Activity System that consist of high aircraft utilization,using Boeing 747-400, using secondary airports, standard service, low fare, long-haul,

using website sell ticket, low maintenance cost, and low-fare types.

The reach dimension of relationships with customers is concerned with the firms access and

connection to customers. Richness, the second dimension of firms relationships with

customers, is concerned with the depth and detail of the two-way flow of information

between the firm and the customer.Affiliation, the third dimension, is concerned with

facilitating useful interactions with customers.

The Purpose of a Business-Level Strategy is to create differences between the firms

position and those of its competitors. To position itself differently from competitors, a firm

must decide whether it intends to perform activities differently or to perform different

activities. Firms develop an activity map to show how they integrate the activities they

perform.

Oasis is positioning itself as the only long-haul, low-fare airline operating out of Hong Kong.

Oasis offered two classes of service, which are economy and business-class passengers. It

only sold one-way tickets which on the Hong Kong London route which sell for low as

HK$1.000 (US$128) for an economy class seat, and HK$6.600 (US$ 846) for a business

class seat, excluding axes and surcharges. The Oasis also had relatively simple, easily

understood fare structure, which the customer expected customers would find appealing.

Types of Business-Level Strategies

Firms choose from among five business-level strategies to establish and defend their

desired strategic position against competitors: cost leadership, differentiation, focused cost

leadership, focused differentiation, and integrated cost leadership/differentiation. Each


13/15


SUFIAN (29112017) X 47 Page 13

business-level strategy helps the firm to establish and exploit a particular competitive

advantage within a particular competitive scope. How firms integrate the activities they

perform within each different business-level strategy demonstrates how they differ from one

another.

Cost Leadership Strategy

The Oasis Hong Kong Airline using focused cost leadership business strategy to be

the only long-haul and low cost full service airlines. The cost leadership strategy is an

integrated set of actions taken to produce goods or services with features that are acceptable

to customers at the lowest cost, relative to that of competitors.As noted, cost leaders goods

and services must have competitive levels of differentiation that create value for customers.

Differentiation Strategy

The differentiation strategy is an integrated set of actions taken to produce goods or

services (at an acceptable cost) that customers perceive as being different in ways that are

important to them.Through the differentiation strategy, the firm produces non-standardized

(that is, unique) products for customers who value differentiated features more than they

value low cost. Because of their uniqueness, differentiated goods or services are sold at a

premium price.

Focus Strategies

The focus strategy is an integrated set of actions taken to produce goods or services

that serve the needs of a particular competitive segment. Oasis focused only for customers

who want to have long-haul travel using airplane, especially to Hong Kong London with

low price but full service. This strategy is supported by its competitive advantages which own

by the company, and the core competition is the operational activities.


14/15


SUFIAN (29112017) X 47 Page 14

Through the cost leadership and the differentiated focus strategies, firms serve the

needs of a narrow competitive segment. This strategy is successful when firms have the core

competencies required to provide value to a specialized market segment that exceeds the

value available from firms serving customers on an industry-wide basis.

Integrated Cost Leadership/Differentiation Strategy

The integrated cost leadership/ differentiation strategy involves engaging in primary

and support activities that allow a firm to simultaneously pursue low cost and differentiation.

Flexibility is required for the firm to learn how to use primary and support activities in ways

that allow them to produce differentiated products at relatively low costs. Firms that

successfully use the integrated cost leadership/differentiation strategy usually adapt quickly

to new technologies and rapid changes in their external environments.

Singapore Airlines Balancing Act

Its intriguing that SIA has combined the supposedly incompatible strategies of

differentiationwhich it pursues through service excellence and continuous innovation

and cost leadership. SIA executes Dual strategies successfully by managing:

Providing Service Excellence cost-

effectively

Innovating in both centralized and de-centralized

manner

Being a technology leader and a

follower

Achieving standardization and personalization in

its processes

SIA manages its two main assetsplanes and people.

SIA spends more than its rivals in key

areas:

And it spends less, partly as a consequences,

on:

Buying new aircraft Price per-aircraft

Depreciating aircraft Fuel maintenance and repair

Training Salaries

Labor costs on flights Sales and administration

Innovation Back office technologies

Fostering Both Centralized and Decentralized innovation

SIA has earned the reputation of being a serial innovator, bringing many firsts to the

civil aviation industry. It follows a 4-3-3 rule of spending: 40% on training, 30% on revising

processes and procedures, and 30% oncreating new products and services every year.

The Product Innovation Department (PID) follows a highly structured process that

includes opportunity identification, concept evaluation, design and development, and launch.


15/15


SUFIAN (29112017) X 47 Page 15

The company fosters the idea that employees must innovate if SIA is to stay ahead. Every

function is responsible for improving its services, and department heads must implement new

ideas out of their budgets.

Being both Technology leader and Follower

SIA is often the first to innovate in order to enhance the customer experience. But

unlike many market leaders that innovate in every aspect of their business, SIA engages in

only small improvements in functions that dont touch the customer.

SIA introduced technological breakthrough to save costs. However, SIA is a

pragmatic innovator, quickly stopping the use of technologies that cause problems or that

customers dont like.

In 2004, SIA outsourced many of its IT functionssuch as its data center and end-

user computing supportso it could focus on its core business.

Using Standardization for Personalization

The airline institutionalizes personalization by creating a service culture through

recruitment, training, and rewards. SIA personalizes the customer experience by relaying

information about birthdays and preferences from its CRM system to cabin crew members.

They address frequent flyers by name and know their favorite drinks and magazines. Usually,

though, personalization is spontaneous.

SIAs training programs such as Transforming Customer Service teach cabin crews

how to anticipatecustomer needs and enhance employees ability to delight customers. SIA

flights carry more crew members than competitors.

The How-To of Dual Strategies

- Harness the power of your people and culture- Make good use of technology- Utilize the power of business ecosystems- Make investment decisions strategically

chapter 1 to 4 business strategy

Documents