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Strategic Management Revision (Value Chain (Strategic Decisions in the…
Strategic Management Revision
Porter 's 5 Forces
Porter - Used to analyse the nature of competition with the industry
identified that there are 5 forces that determine the nature of competition with the industry
Threat of new Entrants
New entrants will gain market share, hence increasing competitive rivalry
Existing firms try to create barriers to entry
EoS - reduced unit costs for existing firms
Legal - Patented products
Access to distribution channels
High Initial Capital investment Cost
Power of Suppliers
High power
Sell products at higher price
Squeeze industry profits
Have a Powerful position when:
Few Large Suppliers (Collude)
Switching costs are high
Suppliers produce items important to buyers
Few substitute products
Power of Buyers
Drive down price and insist on increased quality - reducing profits
Have a powerful position when:
Few buyers yet many suppliers
switching costs are low
integrate into the production process, whereby the customer may start producing the products they are buying
Competitive Rivalry
Intense Rivalry vs Low Rivalry
Intense Rivalry will be high when:
little product differentiation
high fixed costs
high barriers to exit
slow growth
Intense Rivalry will encourage firms to engage in
price wars
Research & development
Promotions
Threat of Substitutes
a good that meets the same need - satisfies the same need for the customer but produced in a different industry
High Threat of Substitute power when:
Price is same or lower
Performance of good is same or better
No switching costs
Low customer loyalty
High Profit Industry
Weak Power of Suppliers, Weal Power of Buyers, High Entry barriers, Few Substitutes & Little Rivalry
Low Profit Industry
Strong Power of Suppliers, Strong Power of Buyers, Low Entry Barriers, Many Substitutes and Intense Rivalry
Mission & Mission Statements
Mission
Essential purpose of the business
Other Objectives/Missions:
Sales Maximisation
Profit Maximisation
Satisficing
it is presumed profit is main mission of any business, however this is a result of business operations, and therefore the mission is to provide an operation with the result of making profit -
Friedman
Why does the business exist?
Mission Statement
brief description of what's to be focused on and what's to be acheived
create confidence for potential investors/stakeholders
Example: "To inspire and nurture the human spirit - one person, one cup and one neighbourhood at a time" - Starbucks Coffee
Who ought to know about the mission statement?
Stakeholders
Any people who are directly or indirectly affected by the business operations
organisations have to manage stakeholders effectively due to their influence on organisations operations
Very difficult to change a mission statement e.g Body Shop
Value Chain
Elements of Value Chain
Support Activities
Support the primary functions
Procurement
HRM
Technological development
Infrastructure
Primary Activities
Relate directly to the physical creation , sale, maintenance and support of the product/service
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
What is the Value Chain?
Set of activities that an organisation carries out to create added value for its consumers
The way is which the primary and secondary activities are performed determines costs and affects profits, therefore assessing the sources of value for your organisation
Set yourself apart from competitors OR lower cost base
Using the Value Chain
Step 1:
Identify the primary activities
What creates the value?
Step 2:
Identify the support activities
What creates value within each primary activity?
Step 3:
Identify the links between Primary & Support
Step 4:
Look for opportunities to increase value
Look at links, primary and support activities, how can the added value be changed or maximised?
Strategic Decisions in the Value Chain
Location
Scope
Scale
Vertical Integration
Strategic Decisions take a business from determining their goals to the achievement of its goals via choices about how resources should be deployed to add value
Exploit Aspects
Core Competencies
Threshold Resources
Threshold Competences
Unique Resources
Core Competences
Competitive Advantage
Developing & Implementing Strategy
Developing Strategy
Porters Generic Strategies
Internally - follow 1 strategy to try and create a defendable position within the current industry
Ansoff's Matrix
Externally - look for a opportunity and follow a strategy to pursue this opportunity in a new industry
Development Methods
Internal Development e.g. Burger King
natural process for organisations to develop skills & knowledge over time
Joint Development e.g Body Shop
shared risk, cost & expertise
factors are shared with other firms as risk to big fro one firm to handle alone
Types
Franchise
License
Partnership
Acquisitions & Mergers
overcome barriers that enable you to enter and hence operate in that market
e.g. EE & BT
enable knowledge to be gained in that specific industry
Implementing Strategy
Involves change within the organisation
location
personnel
products
systems
processes
Problems Implementing Strategy
Resistance to change within the organisation
systems are geared to the past and not to future aims and objectives
inadequate information monitoring
Strategic Change
Impossible to change organisations who do not accept the dangers of the current working styles
Strategic Inertia
when organisations tend to do nothing, and resist change within the organisation
when no focus on external environment
major resistance to change
homogeneous organisation culture
worsening performance
Change & Crisis
will occur when there is no other choice
may be too late to change anything
firms need to implement change when they are being successful
Factors Affecting Change
Change Factors
Personal factors
Group Factors
Organisational Factors
Managing Change
education
communication
participation
social
technical
manipulation
inducement
coercion
persuasion
obligation
negotiation
Why pursue a Strategy?
Exploit a firms knowledge of the market
Maintain/Gain competitive advantage to enable the firm to keep ahead of its competitors
Few opportunities for current strategy, therefore a new strategy may being new opportunities
Insecure current market
Porter's Generic Strategies v Ansoff Matrix
Porter's Generic Strategies
Cost Leadership
cost leader for whole industry, therefore in-control of the industry
has flexibility to reduce cost to gain customers from other brands
exploit EoS, be a lean producer (JIT)
Cost Focus
narrow target and aiming at price conscious consumers
Differentiation Leadership
aims at a large market seeking to gain competitive advantage in the whole industry
charges a premium price - due to high production costs or added value (celebrity recommended)
achieve this by offering superior quality, branding, consistent promotional support
Focused Differentiation
differentiate within 1 or a few market segments
differentiate from suppliers who are aiming at a large market segment
niche market strategy
Ansoff matrix
Do Nothing, Withdrawal, Consolidation, Market Penetration
Do nothing - pursue current policies, change little or nothing
Withdrawal - sell up and move onto something new and different, cure for over diversification
Market Pen - sell more products to existing customers, produce more, EoS, lower unit costs, increased profit.
Consolidation - stay in the market & produce same products. Increase quality and productivity (add value)
Market Development
explore new market segments whereby the current product can be used in other industries
New locations, new packaging, new distribution channels, different pricing policies
Product Development
Introduce new products into existing market
Research & Development to gain/maintain a competitive advantage, whereby products minor modified or upgraded
Diversification, Related & Unrelated
New products in new markets
Increased risk as no experience in new market
balance risk and reward in terms of monetary returns
Related v Unrelated
Related
Unrelated