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Class objectives
Introduction to strategy-related concepts
– Corporate & SBU levels
– Classical & most recent methods and tools
(external and internal analysis)
At the end of the course
– Improve analytical capabilities
– Incorporate lectures, group discussions,
individual and team assignments
2
Book:
– JOHNSON, Gery, SCHOLES Kevin and
WHITTINGTON, Richard,
Exploring Corporate Strategy,
Article:
– Burke A., van Stel A. and Thurik R. (2010),
“Blue Ocean vs. Five Forces”,
Harvard Business Review.
Grading system
Grades % in total
Team report
x pts /20 50%
FINAL EXAM (case study)y pts /20 50%
3
Outline of the sessions
Session Topic of the session
1-2 EXTERNAL DIAGNOSIS
2 INTERNAL DIAGNOSIS
3 BLUE OCEAN STRATEGY
4 BUSINESS LEVEL STRAT. (Generic strategy + Strategy clock)
5 CORPORATE LEVEL STRAT. (ANSOFF and vertical integration)
6 CORPORATE LEVEL STRAT. (BCG)
7 CORPORATE LEVEL STRAT. (M&A, alliances)
8 (or 9) STRATEGY EVALUATION
9 (or 10) REVIEW
4
class Deadline for final report
MCG C13 Jan 11 (last session Jan 4)
ASC C30 Dec 21 (last session Dec 14)
RH C23 Dec 21 (last session Dec 14)
ENT C02 Dec 08 (last session Dec 1)
CCA C33 Dec 08 (last session Dec 1)
List of companies for team report
• ACCORHOTELS
• Adidas
• AIRBUS GROUP
• Allianz
• ABinbev
• BIC
• BOLLORE
• BOUYGUES
• Boeing
• BMW
• BNP Paribas
• CAPGEMINI
• CASINO
• Coty
• Danone
• Decathlon
• EDENRED
• EDF
• ENGIE (EX GDF SUEZ)
• ESSILOR INTERNATIONAL
• Estee Lauder
• Ferrero
• FNAC
• HAVAS
• IPSOS
• JCDECAUX
• Lafarge
• LAGARDERE
• LEGRAND
• Loreal
• M6 METROPOLE TELEVISION
• Mckinsey
• NUMERICABLE SFR
• Nestle
• Procter & Gamble
• PERNOD RICARD
6
• PEUGEOT
• PUBLICIS
• Purina
• Pfizer
• REMY COINTREAU
• Ralph Lauren
• SAINT-GOBAIN
• SANOFI
• Samsung
• SCHNEIDER ELECTRIC
• SEB
• SOCIETE GENERALE
• SODEXO
• SUEZ ENVIRONNEMENT
• Tesla
• TF1
• TOTAL
• The Walt Disney
• Toy R Us
• UBISOFT
• Uniqlo
• VEOLIA ENVIRONNEMENT
• VINCI
• Vivendi Universal
• ZODIAC AEROSPACE
Points Expectations and Criteria Format, English, References
1 clear, concise, well structured, easy to follow; reliable data sources well referenced
Introduction and problematic
2
introduce the context/background information; define the scope and/or focus of the study; formulate the problematic clearly (identify a specific and current challenge/problem/difficulty if possible - this is highly encouraged, comparing to a generic problematic)
External analysis 2
choose appropriate external analysis tool(s) for the situation; Use the tool(s) correctly and in an insightful way (PESTEL - indicate clearly the impact as opportunity or threat (and explain why); 5Force- define boundary of the industry/market, and indicate clearly high or low for each force (and explain why); strategic group mapping is highly recommended - choose pertinent dimensions and describe different strategies according to the mapping
Internal Analysis 2provide detailed information and/or measurable indicators for resources and competences; apply VRIN table to identify distinctive resources and competences;
Strategic option 1: XXXX
3 For each strategic option: use the title to summarize the idea of the strategic option clearly and concisely; provide sufficient details about "how", be concrete and actionable, be different and provide something new (not repeating what the company is already doing; relate to strategic tools/concepts to explain what is the approach behind the idea(c.f. tips for final reports about the approaches).
Strategic option 2: XXXX
3
Strategic option 3: XXXX
3
Strategic evaluation and conclusion
4
Design evaluation table based on suitability/acceptability/feasibility (use an improved version of the table shown in class, and find pertinent criteria based on the context and problematic); Rank strategic options in order to provide a clear conclusion about your recommended strategy
Total 20
Page 8
TEAM REPORT
Choose a company and define a problematic depending on the situation of the company:
• How to sustain the competitive advantage?
• How to gain or restore a competitive advantage?
• How to tackle covid-19 challenge and/or develop post-covid strategy?
Establish a diagnosis (tip: look into MarketLine reports on extranet)
Identify 3 possible strategic options or alternatives (Be as specific as possible)
Choose the best alternative (compare with clear evaluation grid)
Rules and format:
• Select a firm from a list of pre-selected companies (list on extranet), exceptionally, if you likea different company, send me an email to ask for permission in advance (justify).
• 3-4 members/team
• send the pdf version at last session (or + 1week if evaluation is not covered)
• 10-15 pages (excl. title page, table of content, summary, references –APA style, appendix).
INTRODUCTION TO “STRATEGY”
What Is Strategy?
Observation:
desire to perform better than competitors/rivals is almost everywhere
Strategy is managers’ theories of how to compete
(or outcompete others)!
Nothing more practical than a good theory!11
Winners are generally those with a better strategy!
Who is the strategist?
Stratêgos: « chief of the army, general »
stratos « army » + agein « lead »
Strategy provides managers a roadmap to navigate.
12
.
What kind of soap company do you want to be?
19
Page 20
Page 21
What Is the essence of Strategy?
It is about...
being different from your rivals strategic position
deciding what to do, and what not to do! (trade-offs)
Fit: internal VS external; consistency; reinforcing;
optimized
how to Gain& Sustain Competitive Advantage
creating value while containing cost economic
contribution
long-term commitments
competition is not necessarily a zero-sum game
co-opetition
22
STRATEGY: DIFFERENT; TRADEOFFS
Quotes:
“It’s better to be the pirate than join the navy”
“I am as proud of what we don’t do as I am of what we do”
-- Steve Jobs
Ginni Rometty, IBM’s chief executive, called Tim Cook the “hallmark of a
modern-day CEO…it is all about clarity of vision and knowing what to do
and what not to do”.
The FIRM
• Goals
• Resources & Capabilities
• Structures & Systems
The ENVIRONMENT
• Immediate (MARKET)
• Intermediary (INDUSTRY)
• Broader aspects
(MACROECONOMICS)
Fit between Internal and External
24
STRATEGY
INTERNAL EXTERNAL
Defining strategy
Strategy is the direction and scope of an organization over
the long term, which achieves advantage in a changing
environment through its configuration of resources and
competences with the aim of fulfilling stakeholders
expectations.
Definition of the
« strategy »
APPLICATION TO DELL STRATEGY
Long term direction From B2B to B2C
Scope From PCs and laptops to Consumer electronics
Competitive advantage Lower margins than competitors
Coping with the environment Local adaptation (correct cost-expectation position)
Resources and
competences
Strong brand image
Stakeholders’ expectations Corporate social responsibility (CSR)25
What Is Competitive Advantage?
A firm’s superior performance relative to other competitors in the same industry
or the industry average
• relative
• greater value or lower cost
• over time sustained competitive advantage.
1-2626
Competitive
disadvantage
Competitive
advantage
Competitive
parity
Page 27
DEFINING THE COMPETITIVE ADVANTAGE
A firm has a competitive advantage when it is implementing a value creation strategy not simultaneously being implemented by any current or potential competitor (Barney, 1991)
Attributes that allow a firm to outperform its competitors. Attributes: access to natural resources, high skilled employees, geographic location etc. (Wikipedia, 2016)
A condition or circumstance that puts a company in a favourable or superior business position (Google, 2016)
Page 28
2- THE STRATEGIC MANAGEMENT PROCESS
Mission Objectives
External
Analysis
Internal
Analysis
Strategic
Choice
Strategy
Implementation
Competitive
Advantage
Business Level
Strategy
Corporate Level
StrategyHow to Position a
Business
in the Market?
Which Businesses
to Enter?
Strategic
Analysis
Page 29
2- THE STRATEGIC MANAGEMENT PROCESS
(J, S & W, 2005)
Strategy Across 3 Levels
1-3030
• Determine the overall scope of the organization
• Add value to the different business units
• Meet the stakeholders’ expectations
• How to compete successfully in specific markets
• How the operational parts of the organization
implement the strategy and deliver the outcomes
(products, services) expected by the stakeholders
Levels of strategy
31
Corporate level
Business-unit level
Operational level
Page 35
STRATEGIC MANAGEMENT PROCESS
Strategy
StatementsStrategic
Choices
Strategy
Implementation
Competitive
Advantage
Strategic
Position
Mission : purpose of the organization, what business are we in?
Vision : desired future state of the organization, what do we want to
achieve?
Objectives : precise and quantifiable statements (profitability, market
share, exam results): what do we have to achieve in the coming
period?
Scope: customers or clients, geographical location, extent of internal
activities
Advantage: how the organization will achieve the objectives it has set for
itself in its chosen domain?
GOAL
STRATEGIC DIAGNOSIS
EXTERNAL ANALYSIS
Page 37
THE STRATEGIC MANAGEMENT PROCESS
Mission Objectives
External
Analysis
Internal
Analysis
Strategic
Choice
Strategy
Implementation
Competitive
Advantage
Business Level
Strategy
Corporate Level
StrategyHow to Position a
Business
in the Market?
Which Businesses
to Enter?
Strategic
Diagnosis
Page 38
THE STRATEGIC MANAGEMENT PROCESS
(J, S & W, 2005)
Diagnosis of the
external environment
Page 39
THE STRATEGIC MANAGEMENT PROCESS
PEST(EL) model
Porter’s Diamond
Porter 5 Forces
Strategic
Groups
(J, S & W, 2014)
PESTEL Framework
Political•Gov’t pressures
•Subsidies & incentives
•Differences in countries, states, Countries & regions
Economic•Growth rates
•Interest rates
•Employment levels
•Currency exchange
Sociocultural•Norms, culture, values
•Demographics
•Lifestyle changes
Technological•Innovation
•Diffusion
•Research & development
Ecological•Global warming
•Sustainability
•Pollution
Legal•Court system
•Legislation
•Hiring laws
3-40
Analyzing with PESTEL
42
P
Political
E
Economic
S
Socio-cultural
T
Technology
E
Environment
L
Legal• Government
stability
• Taxation
policy
• Foreign
trade
regulations
• Social welfare policy
• Business
cycles
• GNP trends
• Interest rates
• Supply of
money
• Inflation
• Growth
• Unemployment
• Disposable
income level
• Demo-graphics
• Income
distribution
• Social mobility
• Lifestyle
• Work vs.
Leisure
• Education
• Innovation
• Technology
transfer
• Dynamics of
obsolescence
• R&D efforts
• Industry
spending on
R&D
• Government
spending on
R&D
• Energy
consumption
• Waste
• “Green”
aspects
• Competition
law
• Procurement
law
• Health policy
• Safety
regulation
• Labor market
related laws
THE PESTEL FRAMEWORK
• Key forces in the external environment
• Macro-level factors, Forces embedded in global environment
• Simple way to categorize external forces
• Go beyond, not a simple list:
• Identify relevant factors Does the factor represents an opportunity or a threat? (It
depends on your company’s strategy!)
• Group related factors (inter-dependent)
• Comparative, Today≠ Tomorrow, predictive or proactive
• Opportunities or threats? SWOT
• PESTEL is a good starting point, but not the whole picture!
3-43
Page 44
PESTEL: what to do and not to do
• Apply selectively –identify specific factors which impact on the industry, market and organisation in question.
• Identify factors which are important currently but also consider which will become more important in the next few years.
• Use data to support the points and analyse trends using up to date information
• Identify opportunities and threats – the main point of the exercise!
Crisis can also be shaped into opportunities
• Case exercise
How is the covid influencing French wine industry?
Page 46
National level ENVIRONMENT : DIAMOND
Why are some industries within a nation become more competitive than others ?
Porter M. (1990), The competitive advantage of Nations, New York: Free Press.
Demand
conditions
Firm
strategy, structure
& rivalry
Factor
conditions
Related &
Supporting
activities
Page 48
USES OF PESTEL & DIAMOND to identify drivers of changes
Forces likely to affect the structure of an industry, sector or market (i.e., technology)
Example: Drivers of globalization
• Market globalization
• Homogeneity (preferences & tastes)
• Cost globalization
• Economies of scale
• Sourcing efficiencies
• Government policies
• Trade policies
• Competition
• Interdependence
KEY DRIVERS OF CHANGE
Uses of PESTEL & Diamond
• Identify key drivers of change
• Establish scenarios
Page 49
USES OF PESTEL & DIAMOND to build scenarios
Detailed & plausible views of how the business environment of an organization might
develop in the future based on key environmental influences & drivers of change
Risks [market] myopia
Environment
• Uncertainty
• Complexity
• Instability
Examples
• Transition environments/economies
• Global [Financial] crisis
SCENARIO
Page 50
2. INDUSTRY ANALYSIS: PORTER 5 FORCES
Dealing w/ strategy involves dealing with COMPETITIVENESS
COMPETITIVENESS = [sustainable] competitive advantage
5 forces framework:
• Helps identify the sources of competition in an industry/sector
• Answers the question whether to enter an industry (& stay)
• Used at the SBU level industry level
Porter’s Five Forces Model
Source: Porter, M. E. (2008), “The five competitive forces that shape strategy,” Harvard Business Review 5 forces video- M. Porter
•One of the most widely used tools
•Industry average profitability
•Rule of thumb: strong forces low profit potential
52
Threat of Entry :
High if:
• Customer Switching Costs are Low
• Capital Needs are Low
• Retaliation is Not Expected
• Incumbents don’t have:
Proprietary technology
Established brands
Closed distribution channels
Power of Suppliers :
Power of suppliers High, if:
•Forward Integration is a credible threat
•No substitutes for supplier products
•Suppliers products are differentiated
•Incumbents face high switching costs
•Product is important input to buyer
Suppliers exert power in
the industry by:
•threatening to raise prices or
to reduce quality.
•Powerful suppliers can
squeeze industry profitability.
3-54
Forward
integration
Supplier you Buyer
Power of Buyers :
Power of buyers High, if
•A few large buyers
•Large buyers relative to a seller
•Products are standardized
•Buyers face few switching costs
•Backward Integration is credible
•Buyer has full information
Buyers compete with the
supplying industry by:
•Bargaining down prices
•Forcing higher quality
•Playing firms off of each other
3-55Backward
integration
Supplier you Buyer
Threat of Substitutes – HIGH IF:
Threat of substitutes high, if
• Substitute provides good price-performance
• Buyers switching costs is low
Products with similar
functions limit the prices
firms can charge
3-56
Page 57
INDUSTRIES: PORTER’S FIVE FORCES
Threat of Substitutes
Substitutes are products or services that offer a similar benefit to an industry’s products or services, but by a different process.
Customers will switch to alternatives (and thus the threat increases) if:
• The price/performance ratio of the substitute is inferior (e.g. aluminium maybe more expensive than steel but it is more cost efficient for some car parts).
• The substitute benefits from an innovation that improves customer satisfaction (e.g. high speed trains can be quicker than airlines from city centre to city centre).
Incumbent Rivalry:
Rivalry of incumbent high, if
• Many competitors in the industry
• Firms are equal size
• Industry growth is slow or shrinking
• Exit barriers are high (both economic and social)
• Product/service undifferentiated
3-58
EXHIBIT Determining Industry Attractiveness: 6th force
3-60
Airlines vs. Soft Drinks
which is more profitable (on average?)
• Airlines low profits for decades
• Entry threats – small airlines popping up
• Suppliers – few & large: aircraft, engines, unions
• Buyers – no switching costs, perfect info now
• Subs – drive for shorter flights
• Rivalry – intense and low profit
• “ZERO star” industry, each force is strong
• Yielding……inferior profits
3-61
Soft Drinks high profits for decades
Entry threats – strong brands (Coke &
Pepsi)
Suppliers – mostly commodities
Buyers – bottlers lock into long-term
contracts
Subs – other drinks (water, coffee, etc.)
Rivalry – advertizing-based
“FIVE star” industry, each force is weak
Yielding……
Page 62
PORTER 5 FORCES EXPLAINED BY PORTER
Michael Porter (2008)The Five Competitive Forces That Shape Strategy, Harvard Business Publishing.
Industry convergence
DEFINITION
Overlap of 2 previously separated
industries
Overlap in terms of…
– Activities
– Technologies
– Products
– Customers
examples
Wine + tourism
Medical + tourism
IT + Telecoms + Entertainment
Banking + Insurance
63
Page 64
THE STRATEGIC MANAGEMENT PROCESS
PEST(EL) model
Porter’s Diamond
Porter 5 Forces
Strategic
Groups
(J, S & W, 2014)
Page 65
STRATEGIC GROUPS
‘Organizations within an industry with similar strategic
characteristics, following similar strategies or
competing on similar basis’
Organizations are different in terms of
• Scope of activities
• Resource commitment
Identify most direct competitors
Inter-groups moves
Intra-group competitive dynamics
Page 67
COMPETITORS AND MARKETS
Characteristics for identifying strategic groups
EXHIBIT Strategic Groups and Mobility Barrier – U.S. Airlines
3-68
Barriers:
International routes,
Regulations: airport slots
Heavy investment
Plane types
hub-and-spoke
Page 69
COMPETITORS AND MARKETS
Uses of strategic group analysis
•Understanding competition - enables focus on direct competitors within a strategic group, rather than the whole industry. (e.g. Tesco will focus on Sainsburys and Asda)
• Analysis of strategic opportunities - helps identify attractive ‘strategic spaces’ within an industry.
•Analysis of ‘mobility barriers’ i.e. obstacles to movement from one strategic group to another. These barriers can be overcome to enter more attractive groups. Barriers can be built to defend an attractive position in a strategic group.
Example: mapping ecoles de commerces?
70
Can you identify
other potential
dimensions for the
strategic mapping?
What are other
factors that matter?
Page 72
COMPETITORS AND MARKETS
Strategic groups in the Indian pharmaceutical industrySource: Developed from R. Chittoor and S. Ray (2009).
•Mapping Groups
• Identify best dimensions (compare top performers with others)
• Choose two for map, not highly correlated!
• Locate firms on map
• Size of the bubble represents market chare
• Rivalry is strongest in SAME group
• Some groups more profitable
How to map Strategic Groups
•Mobility Barriers
•Firms would try to move to the profit spots BUT…
•Specific factors separate groups
3-73
Potential dimensions
Expenditure of R&D
Technology
Product features/range
Pricing
Market segments
Distribution channels
Service
Location
….
Page 75
Q1: apply PESTEL to analyze covid-19 impacts on
French wine industry (Klaxoon exercises)
https://app.klaxoon.com/join/AMYZNXX
Q2: apply at least one external analysis tool (pestel, 5
force, strategic group mapping) for your chosen
company for team report
HOMEWORK
