Strategic Management Flashcards
(126 cards)
1
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Strategy is born out of the need…
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of companies to adapt to changes to survive and prosper in complex and changing environments, and they are fundamental for its success. Strategies create value for the organization and its stakeholders and gain a competitive advantage in the market.
2
Q
Main stages on strategic management
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- Strategic analysis
- Strategic formulation
- Strategic implementation
3
Q
Concept strategy
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Strategy is the means by which individuals or organizations achieve their objectives. The determination of the long-run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals (Chandler, 1962).
4
Q
Characteristics of strategic decisions (6)
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· Complex nature: there are a lot of elements that need to be taken into account
· High uncertainty: the environment is unpredictable
· Affects all the decisions of the company
· Holistic approach: we need to take into account all the decision-making levels (to see the hole picture)
· Not easily reversible: they are expensive (commitment of resources) and big-scale decisions
· Tend to require changes in the organization
5
Q
Levels of strategy and strategic decisions
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· Corporate strategy
· Competitive strategy
· Functional strategies
6
Q
Corporate strategy
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Where to compete. They set the general orientation of the firm by defining the scope of the firm (which business are we going to operate, in which industry and where geographically). Definition of the mission, vision, the objectives and decisions on how to grow/develop in the future
7
Q
Competitive strategy
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How to compete. How to achieve and sustain a competitive advantage and also improve and exploit the resources and capabilities (R&C) of the firm.
8
Q
Functional strategies
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How to use and apply resources and capabilities within each functional area of the firm (marketing, HR, operations, accounting…)
9
Q
Strategic Business Unit
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Set of activities that are sufficiently self-contained to formulate a separate competitive strategy. In diversified companies, because competing in the pharmaceutical industry is different to competing in the marketing industry for instance. It is an independently managed division of a large organisation with its own vision, mission and objectives.
10
Q
Strategic analysis
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We first set the long-term goals, the mission of the company, this guides the rest. Then we have external analysis (outside the firm) we identify the threats and opportunities, and the internal analysis (strengths and weaknesses of the company) (SWOT MATRIX, combination of both internal and external). Is a process that involves researching an organization’s business environment analysis within which it operates, it is essential to formulate strategic planning for decision making and smooth working of that organization.
11
Q
Strategic formulation
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Design of strategic options. Corporate (where to compete) and competitive strategy (how to compete). The process of using available knowledge to document the intended direction of a business and the actionable steps to reach its goals. It allows the firm to plan its capital budgeting, and strategically allocate the capital funds where they will be most effective.
12
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Strategic implementation
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Evaluate and select strategies, evaluate them to see if they meet these criteria; suitability, feasibility, acceptability. Once we implement the one that meets those, adapt the organizational structure, company culture, planning and the functional strategies.
13
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Strategic control
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review of the strategic decision making process, keep track and verify whether the goals are being met.
14
Q
Rationality in the decision-making decisions
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The rational process presented is, in reality and “ideal process”, there are certain
limitations to these strict rationality, there are some not so rational aspects that also play a role. The rational process takes place under conditions of uncertainty, complexity and conflict.
15
Q
Limitations of the rational process of strategic decision making: (4)
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· Decision-maker’s bounded rationality: we cannot have complete information about all the potential outcomes/scenarios. Top managers might take decisions satisfying what they want but might not be the optimal one
· Learning in the process: we learn from experience, previous mistakes. That learning can be valuable.
· Political aspects of the process. Conflicts of interest considering the stakeholders and their goals in the organizations
· Chance: intuition, the need to take a choice given a rapid change in the environment
16
Q
Strategic fit
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refers to the necessary consistency between the context of the strategy and the strategy selected (needs to be appropriate to take advantage of the opportunities in the environment and the strength of the company while minimizing the threats and the weaknesses in order to achieve firm’s goals
17
Q
Organizational fit
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means that the strategy selected has to be consistent with the characteristics of the organization.
18
Q
Mission
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Statement of organization purpose, the overall purpose. It tends to be stable for cohesive reason, but interpreted in a dynamic way, since it could be reformulated if there are changes in the environment or it is consider non effective. Is a definition of the company’s business, who it serves, what it does, its objectives, and its approach to reaching those objectives
Reflects the identity and personality of the firm; why it exists.
What is the essence of the business and what do we want it to be?
19
Q
3 variables of the mission
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· Scope, the number of different economic activities a firm is engaged in.
· Resources and Capabilities (R&C), are the sources of competitive advantage and the primary source of profitability for any firm. It empowers a company to drive the business and face competition with their products & offerings for the need of costumers.
· Values, the culture of the company. What we want to defense
20
Q
Vision
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Future perceptions, how we see ourselves in a bigger picture. What we would like to see ourselves in the long-term.
It should be formulated in ambitious terms, and should include a profound idea of success (The ultimate goal of a firm)
Stable, we are considering the key concepts that guide the future of the the firm
We require the commitment of the everyone within the organization. AMBITIOUS but REALISTIC.
21
Q
Strategic Objectives
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Help overcome the gap between the future the firm pursues and its present reality
How will we become what we want to be ?
Measurable specific, consistent, successive, realistic, challenging, set within a time frame.
22
Q
External analysis
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Detect threats and opportunities from the environment. It refers to the analysis of the environment, the main objective is to identify threats and opportunities.
23
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Environment
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The environment refers to all factors outside the company that cannot be controlled, and that affect the results and success of its strategies
24
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Levels of environment
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· General environment, the social economic system in which the company operates, from the political, sociocultural, legal, ecological technological context (MACRO).
· Specific/competitive environment, refers to the industry in which a firm operates
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Analysis of the general environment
Identify what factors from the socio-economic system affect firm’s operations and performance.
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PESTLE analysis
To define the limits of the environment (geographics), if it is county level. It is used as a tool by companies to track the environment they’re operating in or are planning to launch a new project/product/service.
Identify the key variables to be considered within each critical dimension of the environment. We can consider the threats and the opportunities of the firm.
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How it affects the change in the environment
Similar characteristics of the environment may have different effects in different industries.
The impact the general environment has varies also even among companies from the same industry
Not all the variables in the general environment have a significant impact on a specific firm/industry
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Industrial districts
Group of similar firms and institutions, connected by the same economic activity, located in a specific geographic environment. Group of firms that share the same economic activity located in the same geographic era. Also known as a cluster.
In a cluster sometimes we can see coordination between competitors.
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The location in an industrial district can improve firm competitiveness for the following reasons:
· Increase in productivity, due to a better access to resources to help them to be more productive. More resources, specialize employees.
· Innovation, know the trends.
· New start-ups develop, in the cluster there are more favorable conditions to get a venture.
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Objective of the analysis of the specific environment
Examine industry attractiveness ( a factor that conditions the profitability of the firm). Whether the industry is attractive or not, if it is worth it to invest in it.
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Steps of the analysis of the specific analysis
Who are our main competitors? We define the industry, Industry concept. Group of companies that offer products or services that are close substitutes for each other.
From a strategic P.O.V, what matters is to define the competitive environment of the firm -> it includes competitors, customers and suppliers.
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Porter’s five forces model
· Intensity of rivarly among the established firms
· Threat of new entrants
· Threat of new substitute goods
· Bargaining Power of suppliers
· Bargaining Power of customers
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Objectives of the internal analysis
To identify a firm’s strengths and weaknesses. That looks at basic
characteristics of the firms, such as the size, age, the scope of the firm… In order to have an overall idea, which provides basic information.
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Value chain defenition
The value chain separates the activities of the firm into key operations necessary to sell a product or deliver a service.
Primary activities are related to selling. Whereas the support activities they will support the primary activities, and will help increase the effectiveness of primary activities.
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Primary activities value chain
· Inbound logistics - Include the receiving, warehousing, and inventory control of a company’s raw material, it also covers all relationships with suppliers.
· Operations - Line of the production. The process of converting raw materials into a finished product or service.
· Outbound logistics - Distribution, once we have the final product to the consumers.
· Sales Marketing - Promotion, let the client know about the product. All types of strategies to enhance visibility and target appropriate customers.
· After-Sales services - Customer service and support.
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Objective of the value chain
Identify sources of competitive advantage, that can come from:
· Specific activities of the value chain
· Interrelations of activities within the value chain (horizontal links)
· Interrelations between the value chain and the value system (vertical links)
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Analysis of resources and capabilities
To identify the firm’s potential for obtaining competitive advantages through the identification and strategic evaluation of the resources and capabilities it has or to which it may have access.
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VRIO anlaysis
Is an analytical technique brilliant for the evaluation of the company’s resources and thus the competitive advantage.
· Valuable
· Rareness
· Imitable
· Organization
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SWOT analysis
Strengths, weaknesses, Opportunities and threats, analysis is a framework used to evaluate a company’s competitive position and to develop strategic planning. This technique assess the performance, competition, risk and potential of a business.
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How to do a SWOT analysis
1- Determine Your Objective
The objective of a SWOT analysis may focus only on whether to perform a new product, with this analysis it could help the firm guidance on how to act and what should we do.
2. Gather resources
Data it is needed in order to analyze the SWOT.
3- Compile ideas
Create a listing of ideas in each category to know the weakness, the strengths, the opportunities and the threats of the firm
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How to define a CA
any characteristic of a firm that puts it in a superior position to compete and achieve a higher level of profits than other firms in the industry. Not all characteristics imply a CA.
Any feature of the firm that distinguishes it from other rivals, placing the company in a relatively better position for competing and obtaining higher profitability.
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Characteristics that are related to the key success factors in the industry(C.A)
_ Those characteristics have to be substantial (to make a difference in relation to others).
_ Has to be also sustainable (overtime).
- Everything at the end has not generated a higher level of profitability.
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Competitive advantage
Any feature of the firm that distinguishes it from other rivals, placing the company in a relatively better position for competing and obtaining higher profitability. They are all the factors that allow a company to produce goods or services better or more cheaply than their rivals, this generates an entity of the product and could lead to more sales or superior margins.
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Margin
Price - Cost. To increase it we can either increase prices or lower cost
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Cost leadership
gain a competitive advantage by being the lowest-cost producer
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Differntaition strategy
The company will charge a higher price for a product. But, at the same time the customers will be perceived as more unique and they will be willing to pay more.
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External factors (for creating competitive advantage)
Related to how a company identifies changes and opportunities in the environment, responds to them and takes advantage of them before other competitors.
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Internal factors (for creating competitive advantage)
they are mainly related to the resources and capabilities of the firm that can help the company increase its sufficiency, improve the quality of the products, promote innovation (developing new products and services) or even improve customer satisfaction in a way they satisfy their needs.
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Factors for sustaining a competitive advantage(3)
- Imitation barriers. The existence of imitation barriers: obstacles that would prevent other competitors from copying or imitating that CA. If a company has a valuable technology a patent would be a CA.
- Competitors’ imitation capability. Ability of other rivals to copy/imitate the CA or even to introduce innovations in a way that my CA would disappear.
- Industry dynamism. When an industry is very dynamic it means that there are a lot of changes. The sustainability of the CA in a dynamic industry will be difficult to sustain.
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Cost competitive advantage
The firm is able to offer similar products or services than its competitors but at a lower cost.We have two companies that are offering similar products. The difference is that the company with the higher competitive advantage can produce the product at a lower cost, and as a result, the margin is higher, so the company is able to achieve a competitive advantage based on cost.
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How can we obtain cost advantage (9)
- Learning effect. The time to produce a unit of product decreases when the number of units produced increases. The more we produce, the less time we need to produce a unit or product.
- Experience effect. Generalization of the learning effect applied to other operating costs. When we are gaining knowledge, experience… we may be able to reduce other types of costs, for example, we may redesign the product.
- Other factors: Economies of scale, Economies of learning, Production techniques, Input cost advantages, firm location, Cooperation agreements, bargaining power…
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How do retail stores obtain a cost competitive advantage (6)
· Important economies of scale
· Use of standardized marketing technology
· Lower labor costs due to the reduction in the number of jobs
· High bargaining power with suppliers
· Cooperation agreements with some manufacturers
· Located on the outskirt of major cities
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Barriers to imitate the cost advantages
· Difficulty to get access to certain cost factors (unique location, agreements with suppliers…) If it is difficult to get access at reaching the same bargaining power, it will be more difficult to get access to certain cost factors.
· Impossibility of imitating the sources of cost advantages. the sources of cost advantage: It is more difficult to imitate when the cost advantage is based on interrelations of different factors.
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Risk on having a cost comeptitive advantage (7)
· It requires investments in new equipment: implementing new technology
· Constant attention to the production process: Keeping a control of the costs and being very focused on the manufacturing product to try to reduce costs.
· Quick changes in products, processes, or markets may annul the learning acquired: If there are quick changes, markets can erode the learning that we have acquired.
· Quick learning or imitation by competitors
·Failure to detect changes in the environment given an excessive focus on costs
·Some clients may prefer differentiated products
· Substitute products
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Differentiation competitive advantage
A firm offers a product or service that has certain attributes that make customers perceive it as unique -> they will pay a higher price for it, since the usuaries add a value to it.
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Differntiation through product characteristics
Observable characteristics of a given product. They can condition differentiation. Differentiation may be made by looking at the different characteristics of a given product (size, reliability, durability, consistency, accessories, services offered…).
- Physical: Size, shape, technology
- Product performance
- Complements: after sale services..
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Differntiation through market characteristics
We analyze how the firm is able to adapt to different customer needs or variety in customer tastes. Very important component that is intangible, that is how customers perceive the experience when they acquire a given product.
- Variety of consumer tastes and needs
- Product valuation by customers
- Intangibles: social, aesthetic
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Differentiation through firm characteristics
Customers may decide to buy products of a firm or not due to their values, their reputation, the corporate culture that they support…
- Way of interacting with customers
- Ethic, values, corporate culture
- Firm reputation
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Barriers to imitiation of the differentiation competitive advantage (3)
· High level of creativity
· Complex interrelation of resources and capabilities
· Unique location
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Risk on applying the differntiation competitive advantage (4)
· The price difference between competitors may be too high for customers
· Customers may not feel the need for differentiation
· Imitation by competitors
· Competitors with a segmentation strategy may achieve higher differentiation for the market segments they target.
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Strategic clock
Customers buy a product or a service in one firm or another according to two criteria:
Price (price differences between competitors)
Perceived added value (customers’ appreciation)
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4 strategic groups of the strategic clock
· Strategies focused on low prices
· Strategies focused on differntiation
· Hybrid Strategies
· Strategies destined to fail
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Strategies Focused On Low Prices
· Option1: ‘No frills’: firms offering here offer products with very low prices and quite low value perceived. Firms competing here can still make profit thanks to large volume sales. The customers are very price sensitive.
·Option2: Low price: close to cost leadership strategy. Companies will offer low prices but maintain a certain level of quality (low medium perceived added value).They target customers that are price sensitive.
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Strategies Focused on Differentiation
· Option4: Differentiation - They offer high price and high perceived added value.
· Option5: Focused differentiation – Companies will offer customers products with very high perceived added value at significantly higher prices. This can be achieved only in specific segments in which customers tend to have higher purchasing power (luxury segments). This wouldn’t be compatible with a high market share because customers would lose the sense of the exclusivity they have when acquiring this product.
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Hybrid strategies
· Option3: Quality-price ratio - Provide products with medium or high perceived added value while maintaining relatively low or medium prices. The problem with these strategies is that this is difficult to achieve. You are running the risk of getting stuck in the middle. This is because of dual skills. Porters says that this is very hard to achieve but that it is possible under this framework.
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Strategies destined to fail
They have high prices but low perceived added value. Customers won’t buy products of that group, because they won’t be very interested. However, it may be the case of monopolies
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Life cycle
To adapt competitive strategies to different types of industries depending on their level of maturity. Emerging, growth, mature and declining. We should study in which cycle the firm is in order to adapt the strategy according to each stage.
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New or emerging industries
New products, new opportunities emerged and new innovations to exploit, new innovations… This industry is attractive because the potential demand exploits a new opportunity and it has potential. Characteristics:
· High initial Costs, due to low volumes of production. Early stages are still costly.
· Slow growth in the demand. Customers first need to be aware of us. The target may not know about our existence at the beginning.
· High risk due to uncertainty and instability. Because of the uncertainty , meaning technological innovation is not consolidated, and instability it may be difficult to access financial resources and funding. The lack of experience and customer loyalty.
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Mature industries
Low growth in demand, and sales stagnate, so fewer changes to grow and operate in this industry.
· Overcapacity installed. Capacity to produce more than we want, and the demand.
· Appearance of new competitors
· Difficulties to innovate
·Customers’ bargaining power
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Strategies of mature industries
· Try to gain substantial competitive advantage: cost leadership, product differentiation
·Redefining business scope: It’s a corporate strategy, not a comitive. To redify the scope. It affects the scope. This affects the activities in which they operate. They can diversified,
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Declining industries
Products that have become obsolete. And a constant decrease in demand.
Characteristics:
· Large manufacturing overcapacity
· Aggressive price competition
· Absence of technological changes
· High average age of resources
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Strategies declining industries
Industry leadership
· Segmentation. Move in other segments in the industry with a smaller decline. Identify segments in which the decline is not intense
· Harvest. Maximizes cash flows and takes advantage, without investing more.
· Quick divestment. If a decline exists, or to sell.
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Types of innovation
According to OBJECT.
· Product innovation - creating a new product
· Process innovation - new process of manufacturing
According to INTENSITY.
· Radical innovation - Type of innovation that has a new market and a new product. (ex. the first computer)
· Incremental innovation - Improvements from an already existing product
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Why we innovate?
They want to differentiate and gain a CA. We need to adapt with the market dynamics. To innovate first we have to create new knowledge, first we must foster creativity. Companies create new knowledge through knowledge management policy, importance on fostering the creation of something new or combining different knowledge which can bring together different perspectives into creating something new. All could lead to a discovery and an invention which will become something innovative. New knowledge isn’t an innovation, first it has to be created. It has a lot of uncertainty and it is risky, very complex.
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Corporate strategies
Unique plan or framework that is long-term in nature, designed with an objective to gain a competitive advantage over other market participants while delivering both on customer/client and stakeholder promises. It will establish the overall value of a business, set strategic goals and motivate employees to achieve them.
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Defining the scope of the firm
· Product (diversification). Focus on offering a single product, or maybe expand the product scope and diversify.
· Geographical (Multinational)
· Vertical (Vertical integration). Firm is vertically integrated when you gain control over activities in the VC. You perform everything in-house.
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Development strategies
Changing the scope of the firm over time.
- Consolidation
- Expansion
- Diversification
- Vertical integration
- Restructuring
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Directions of development
Use the definition of the scope of the firm and consider the following alternatives:
- Whether or not there is a change in the scope of the firm
- Whether there is growth or not
- Whether or not the company offers the same product and serves the same markets.
- Whether or not the new products and markets are related to traditional ones.
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Expansion strategies (Directions of development)
To analyze them we have to take into account if there is growth and change in the scope. The objectives of directions of development: to CREATE value.
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Consolidation (Expansion strategies)
Current markets with current products. No growth. We do not have growth. This strategy is for the cases where the industry is mature or in decline. Firms try to consolidate their position.
The company will offer the same product and service in already existing markets. We have no growth in this case. There is also no change in the scope, we keep the same service/product.
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Market penetration (Expansion strategies)
Current markets, current products. Growth (EXPANSION). We offer the same existing products in existing markets. We do not have a change in scope. However, we have the intention to grow. No change in scope, yes growth.
We keep offering current products, within the same markets but now we have the intention to grow. Still no change in the scope.
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Product development (Expansion strategies)
New products, existing markets (EXPANSION). Introduce a new product but in the same existing markets. Yes change in scope, yes growth.
Introduce a new product in an already existing market. Ex, the diet coke, it is the same market but introducing a new product or a new innovation in the market. There is a change in the scope, since we change the product scope. There is growth, we introduce something new and we have a new scope.
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Market development (Expansion strategies)
Existing products, new markets (EXPANSION). We offer the same product in new markets. It can be new segments or new geographical markets, with the intention to grow. Yes change in scope, yes growth.
Offering the same products but in a new market, to target a new segment or new distribution channels, different geographical areas. But the same traditional product, we notice a change in the scope, since we have a new market scope.
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Diversification (Expansion strategies)
New products, new markets Yes change in scope and yes growth.
Here the scope changes and it has growth.
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Vertical Integration (Expansion strategies)
Activities related to the whole product cycle. It performs within the firm all the activities in the manufacturing, production cycle of the product. Yes change in scope, yes growth.
The company controls different activities of the value chain, and the whole production cycle of a given product. It changes the scope, it becomes broader. It grows as well.
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Restructuring (Expansion strategies)
Withdrawal (divestment) from present activities.
Divest or eliminate one of the activities, it may be caused by a loss of profit or loss of attractiveness.There is a change in the scope, because we divest one of the activities, there is no growth, we may even reduce.
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Diversification (Expansion strategies)
Diversification is defined as a strategy that takes an organization away from both its existing markets and its existing products. -> New products + new markets = Change in the scope of the firm.
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Reasons why firms decide to diversify their organization (4)
· Risk reduction
· Saturation of the traditional market. Industry that is going mature will be difficult to grow. So, you can invest in other industries that are starting or in a growing state.
· Excess of resources and capabilities.. If we have excess production facilities, resources and technologies. We can take advantage of that excess of the resources and apply them to other given activities. With this sharing we generate economies of scope.
· Investment opportunities
· Generation of synergies
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Related diversification
Relatedness has to do with the potential for sharing and transferring resources and capabilities between businesses (distribution channels, technologies…). In related diversification there is some degree of relationship with current activities. When we can share part of the manufacturing facilities or distribution channels. There is related diversification when there is the possibility for sharing and/or transferring resources.
- Reasons for related diversification. Generation of synergies, sharing assets or the knowledge acquired across businesses. Competitive advantage.
- Risks of related diversification. Coordination costs, synergies do not exist, inflexibility (exit barriers)
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Unrelated diversification
Moving into new product and new market activities that have no direct link with current activities, There is a clear break with the previous situation
- Reasons for unrelated diversification: Reduce firm risk, achieve greater earning, better allocation of financial resources, manager’s objectives.
- Risk of unrelated diversification: Absence of synergies across businesses, difficulty to obtain specific skills and competences, managerial problems, overcome barriers to entry in new industries. The higher the barriers to entry the most attractive the firm
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Vertical integration
Vertical integration refers to a firm’s ownership of vertically related activities. The greater a firm’s ownership extends over successive stages of the value chain for its product, the greater its degree of vertical integration. All firms have a certain degree of vertical integration. But it may be more or less. We have to know what is the appropriate level of vertical integration. Companies totally vertically integrated are not very common. Many companies tend to specialize in the activities that are excellent but the other activities do not have a CA.
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Reasons for Vertical integration (C.A) - 2(5)(5)
Cost advantages
-Economies of scope
-Simplification of the production/distribution process
-Costs reduction
-Elimination of transaction costs
-Less intermediaries
Based on the competitive position
-Access to inputs
-Possibility to reinforce differentiation
-Ability to affect prices
-Market power increase
-Creation of barriers to entry (difficult to -overcome by non-integrated competitors)
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Risk of vertical integration(6)
· Firm risk may increase
·Higher exit barriers
·Lack of flexibility
·Less ability to develop autonomous innovation
·Profit margins not achieved
·Organizational complexity increase
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Cooperation
Agreement between two or more firms that, remaining independent organizations, share some resources and/or capabilities to pursue a strategy and reinforce their competitive advantage. Basic characteristics:
- No subordinate relationship between firms that cooperate
- Coordination to undertake future actions
- Certain loss of organizational autonomy in decisions making
- Interdependence between partners to achieve success
- Partners pursue a common goal (difficult to achieve without the agreement)
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Advantages of the cooperation agreements (4)
· Obtain resources required
· Greater balance between efficiency and flexibility
· Limit some risks
· Learning from partners
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Disadvantages of cooperation agreements (5)
· Undermine a firm’s competitive position
· Loss of autonomy
·Costs (time, organizational complexity)
· Divergent interest
· Lack of trust and commitment among partners
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Contractual agreements
Contracts between companies that do not involve ownership, the exchange of shares, or capital investments in a new business. Types: long term contracts, franchise, license, subcontracting, consortia.
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Shareholder agreements
Involves acquisitions of shares. Types: Joining ventures, share swap, minority shareholder.
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Interorganization networks
Plurality of cooperation agreements between firms (all types analyzed before), multiple partners and complex relationships.
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Multinational
Firm that operates in two or more countries in order to maximize profits from a global perspective
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Internal factors that count as reasons on why firms may decide to internationalize(5)
· Cost reduction
· Search for resources
· Minimum efficient size
·Reduce risk
· Exploit resources and capabilities in other countries
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External factors that count as reasons on why firms may decide to internationalize
Industry life cycle
· External demand
· Follow the customer
· Industry globalization
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Definition Multidomestic industry
- Competition in each country is independent of competition in other countries. Competition is going to be based on a country-to-country bases
- It is present in multiple country
- National industries compete autonomously competitive advantages are country specific
- Portfolio of domestic strategies
- Small minimum efficient size, to be efficient you can operate in a smaller size.
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Definition Global industry
- The firm’s competitive position in one country is closely related to its competitive position in other countries.
- Linked industries, worldwide basis
- Homogeneous demand
- Global competitive advantage
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International strategies
The international competitive strategies, how to compete in international countries. Multinationals, there are 3 different types of competitive strategies.
- Global strategy
-Multidomestic strategy
-Transnational strategy
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Multidomestic strategy (International strategies)
The pressures for local adaptation are high. And also it is going to be more costly, we will adapt the product to the country we want to operate. If we didn’t adapt the product we wouldn’t succeed. The demand is heterogeneous. Satisfy the local demand
Differentiate, adapt products to local needs (customized products to meet local…). It is going to be more costly. Location is more dispersed.
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Transnational strategy (International strategies)
Is in between the global and the multidomestic. If it is transnational we are going to try to reduce costs but for certain aspects we will try to adapt.
Think global, act local
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Advantages on exporting
Abilitity to know new location and scale based economies
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Disavantages on exporting (3)
Trade barriers: tariffs, transportation costs…
More difficult to take advantage of the -benefits of the foreign market
Difficult to respond to customers’ needs.
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Contractual agreements
- Licensing
- Franchsing
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Licensing
Arrangement in which the owner of intellectual property (IP) grant another firm the right to use the property for specified period of time in exchange for royalties or other compensation
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Franchising
Arrangement in which the firm allows another the right to use an entire business system in exchange for fees, royalties or other forms of compensation.
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3 key success criteria that can be used to assess the viability of strategic options:
- Suitability
- Feasibility
- Acceptability
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Suitability
Assess whether an strategic option adapts to the mission, the objectives, and the key strategic issues underlined by the strategic analysis. Related to strategic fit. Each strategic option needs to adapt to the mission and obectives and also the internal and external analysis.
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Feasibility
Refers to the real possibility of implementation, which is also related to the concept of organizational fit.
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Acceptability
Measures the consequences of adopting a specific strategy; whether or not its expected outcomes are acceptable to the various stakeholders.
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Organizational structure
little firms that offer a single product: there is a functional structure. Based on functional areas: marketing, sales, HR. Over time, many firms grow and diversify their operations. Therefore entering new markets with new products. The structure they adopt is called the divisional structure. Different divisions that can be established because of different criteria (product you are offering, type of customers, geographical areas)
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Managers
Make strategic decisions based on the authority they have
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Leaders
Can encourage others without the necessity of authority
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Organizational culture
The philosophy, the values, the beliefs of the firm. It is an organizational resource that is intangible.
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Strategic planning
It is a decision-making process that is useful to determine how the strategy will be pursued in the future: the nature of the tasks to be performed, when they will be undertaken and by whom, the activities to be allocated to each program…
It has elements such as the mission, goals and objective statement, environment and organizational analysis, proposed strategy and all the resources
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Advantages of Strategic planning (6)
· We specially think about the future and long-run actions.
· Formal and systematic process. In an agreed document and it is activity repeated overtime (every 3 years usually)
· Provides a reference framework that allows optimum allocation of resources. This guides the future of the company and how to allocate the resources. All the goals, resources…
·Long-term focus.
·Defines the implications for managers
·Forces to think about the main issues affecting strategic formulation and implementation
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Disadvantages of Strategic planning (5)
· Excessive bureaucracy. It is time consuming.
· Difficulty in making predictions. The environment is not stable. The predictions are not truthful.we do not know what is going to happen in the future and it is needed to adapt to new circumstances.
· Distance between those designing the strategic plan and those implementing the strategy, the managers, who are involved in the implementation of the strategy everybody, we should communicate to everybody in the firm. Communication is key when deciding how to pursue a strategy.
· Possibility of designing incremental plans arising from possible changes.
·Costly.
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Strategic control
Supervise, monitor a certain activity, But this is strategic control. It is a special kind of organizational control that monitors and evaluates the strategic management process, in order to check it is functioning properly. It is not the end of the process since all the strategies are made to reach the goal, at the end we need to control, to go through all the steps to study if the strategy has worked. We will monitor and evaluate the strategic management process. When controlling, some information is needed to compare the results, to do so we need constant feedback to all the strategic processes -> It provides the necessary feedback for verifying that all the steps in the strategic management process are appropriately undertaken.
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Types of control
- After the event
- Control before the event
- Presen control
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Balance scoreboard
Instrument for the strategic implementation and the control of the outcomes. Kaplan & Norton create it.
Through this model we are going to translate the vision and the strategy of the firm into objectives, measures, targets and initiatives in what Kaplan and Norton consider that are the most important parts in a company. Holistic view to evaluate the performance of the firm and proposes for the future.
