CHAPTER THREE-EXTERNAL & CUSTOMER ANALYSISEExternal Analysis: Analysis should be motivated throughout by a desire to affect strategy, to generate or evaluate strategic options – in can impact strategy directly by suggesting strategy decision alternatives or influencing a choice among them; more specifically, it should contribute to the investment decision and the development of a strategic option that includes the value proposition, assets, and competencies, and functional strategies and programs. External analysis can contribute to strategy indirectly by identifying: 1. significant trends and future events; 2. threats and opportunities; 3. strategic uncertainties that could affect strategy outcomesStrategic uncertainties focus on specific unknown elements that will affect the outcome of strategic decisions – most strategic decisions will be driven by a set of these uncertainties. One common strategic uncertainty is what the future demand for a product will be. Three ways of handling uncertainty: 1. a strategic decision can be precipitated because the logic for a decision is compelling and/or because a delay would be costly or risky 2. it may be worthwhile to attempt to reduce the uncertainty by information acquisition and analysis of an information-need area 3. the uncertainty could be modeled by a scenario analysis.One approach to defining the market is to specify the business scope – the scope can be identified in terms of the product market and in terms of the competitors – the future product market and competitors are also relevant. There is always a trade-off to be made – a narrow scope will inhibit a business from identifying trends and opportunities that could lead to some attractive options and directions – on the other hand, depth of analysis might be sacrificed when the scope is excessively broadThe Scope of Customer Analysis: because customers have such a direct relationship to a firm’s operation they are usually a rich source of relevant operational opportunities, threats, and uncertainties. Customer analysis can be usefully partitioned into: 1. an understanding of how the market segments 2. an analysis of customer motivations 3. an exploration of unmet need. A segmentation strategy couples the identified segments with a program to deliver an offering to those segments – should be judged on three dimensions: 1. can a competitive offering be developed and implemented that will be appealing to the target segment? 2. Can the appeal of the offering and the subsequent relationship with the target segment be maintained over time despite competitive responses? 3. Is the resulting business from the target segment worthwhile, given the investment required to develop and market an offering tailored to it? 2 main approaches to defining segments: customer characteristics (geographic, type of organization, size of firm, lifestyle, sex, age, occupation); product-related approaches (user type, usage, benefits sought, price sensitivity, competitor, application, brand loyalty) Other approaches: benefits sought (ie calorie conscious); price sensitivity, loyalty, applications. Multiple segments vs a focus strategy: focus on a single segment which can be much smaller than the market as a whoe, or involve multiple segmentsConsumer motivation analysis: 1. starts with the task of identifying motivations for a given segment – although a group of managers can identify motivations, a more valid list is usually obtained by getting customers to discuss the product or service in a systematic way 2. the number of motivations can be in the hundreds, so the next task is to cluster them into groups and subgroups 3. another task of customer motivation analysis is to determine the relative importance of the motivations 4. a fourth task is to identify the motivations that will play a role in defining the strategy of the business. Customers are increasingly becoming active partners in the buying process, rather than passive targets of product development and advertising – to harness this change, managers should: encourage active dialogue; mobilize customer communities; manage customer diversity; co-creating personalized experiences.Unmet Needs: an unmet need is a customer need that is not being met by the existing product offerings – the key is to stretch the technology or apply new technologies in order to expose unmet needs. Lead users provide a particularly fertile ground for discovering unmet needs and new product concepts; are users who: face needs that will be general in the marketplace, but face them months or years before the bulk of the marketplace; are positioned to benefit significantly by obtaining a solution to those needs. The creative thinking process is based on three principles: 1. separate ideation from evaluation 2. approach the problem from different mental and physical perspectives 3. have a mechanism to take the most promising ideas and improve them until they turn into potential winners worth trying

CHAPTER FOUR- COMPETITOR ANALYSIS

Competitor analysis is the second phase of external analysis – the goal should be insights that will influence the product-market investment decision or the effort to obtain or maintain an SCA (sustainable competitive advantage). The analysis should focus on the identification of threats, opportunities, or strategic uncertainties created by emerging or potential competitor moves, weaknesses, or strengths. There are two very different ways of identifying current competitors: the first examines the perspective of the customer who must make choices among competitors –groups competitors according to the degree they compete for a buyer’s choice; the second approach attempts to place competitors in strategic groups on the basis of their competitive strategy.

Identifying Competitors – Customer-Based Approaches: the competitive analysis in nearly all cases will benefit from extending the perspective beyond the obvious direct competitors; both direct and indirect competitors can be further categorized in terms of how relevant they are, as determined by similar positioning. because an analysis will be needed at all levels at which strategies are developed

(business unit, the firm, or some other aggregation of business), multiple analyses might ultimately be necessary

the concept of alternatives from which customers choose and the concept of appropriateness to a use context can be powerful tools in helping to understand the competitive environment

Identifying Competitors – Strategic Groups: a strategic group is a group of firms that: over time pursue similar competitive strategies (distribution channels, communication strategies, or the same price/quality position); have similar characteristics (size, aggressiveness, etc); have similar assets and competencies (brand associations, logistics capability, global presence, or research and development). Each strategic group has mobility barriers that inhibit or prevent businesses from moving from one strategic group to another – can have exit as well as entry barriers. One strategic objective is to invest in attractive strategic groups in which assets and competencies can be employed to create strategic advantage. With deregulated industries studies show that successful firms will move toward one of three strategic groups: national distribution company with full line of differentiated products and emphasis on attractive service/price trade-offs; low-cost producer – often a new entrant following deregulation; speciality firm with strong customer loyalty and specialized service targeted toward an attractive customer group.

Potential Competitors: Such as firms that might engage in: market expansion; product expansion; backward integration; forward integration; the export of assets or competencies; retaliatory or defensive strategies.

Competitor Analysis – Understanding Competitors: Competitor actions are influence by eight elements: size, growth, profitability: the level and growth of sales and market share provide indicators of the vitality of a business strategy; to provide a crude sales estimate for businesses that are buried in a large company, take the number of employees and multiply it by the average sales per employee in the industry. Image and positioning: it is useful to move beyond class-related product attributes to intangibles that span product class, such as innovation, sensitivity to the environment, or brand personality. Objectives and commitment: Knowledge of competitor objectives provides the potential to predict whether or not a competitor’s present performance is satisfactory or strategic changes are likely. Current and past strategies: past strategies that have failed should be noted, because such experiences can inhibit the competitor from trying similar strategies again; also, knowledge of a competitor’s pattern of new product or new market moves can help anticipate its future growth directions. Organization and culture: knowledge about the background and experience of the competitor’s top management can provide insight into future actions; an organization’s culture, supported by its structure, systems, and people, often has a pervasive influence on strategy. Cost structure: the goal should be to obtain a feel for both direct costs and fixed costs, which will determine breakeven levels; the following information can usually be obtained: number of employees and a rough breakdown of direct labour (variable labour cost) and overhead (part of fixed cost); relative costs of raw materials and purchased components; investment in inventory, plant, and equipment; sales levels and number of plants. Exit barriers: indicators of commitment; they include: specialized assets; fixed costs; relationships to other business units; government and social barriers; managerial pride or an emotional attachment. Strengths and weaknesses: one approach is to attempt to exploit a competitor’s weakness in an area where the firm has an existing or developing strength; the assessment of a competitor’s strengths and weaknesses starts with an identification of relevant assets and competencies for the industry and then evaluates the competitor on the basis of those assets and competencies

Competitor Strengths and Weaknesses: five sets of questions to identify the assets and competencies that are relevant to the industry: why are successful businesses successful? why are unsuccessful businesses unsuccessful? what are the key

customer motivations? what are the large cost components? what are the industry mobility barriers? which components of the value chain can create competitive advantage? The components of the value chain are defined as follows: Primary value activities: inbound logistics – material handling and warehousing; operations – transforming inputs into the final product; outbound logistics – order processing and distribution; marketing and sales – communication, pricing, and channel management; service – installation, repair, and parts; Secondary value activities: procurement – procedures and information systems; technology development – improving the product and processes/systems; human resource management – hiring, training, and compensation; firm infrastructure – general management, finance, accounting, government relations, and quality management. Overview checklist of areas in which competitors can have strengths and weaknesses: innovation; manufacturing; finance – access to capital; management; marketing; customer base. With the relevant assets and competencies identified, the next step is to scale your own firm and the major competitors or strategic groups of competitors on those assets and competencies – the result is termed a competitive strength grid and serves to summarize the position of the competitors with respect to assets and competencies. A sustainable competitive advantage is almost always based on having a position superior to that of the target competitors in one or more asset or competence area that is relevant both to the industry and to the strategy employed.

CHAPTER FIVE- MARKET/SUB ANALYSIS

3) Market/ Emerging submarkets : - The evolution of submarkets is a key market dynamic. Even a strong business can become irrelevant if it is not attached to the merging submarkets. Size- A basis characteristic: size. Look for the markets potential, that is, the additional sales that could be obtained if new users were attracted.- Identify attractive ones, adjust offering. Influence submarket so that competitors become less relevant Growth

- growth trend, product life cycle stage of industry and sub markets. Always recognize growth contexts even if its not useful.

Market profitability- PORTERS 5

Cost structures, Distribution Channels, Market TrendsKey Success Factors- any competitive asset or competence that is needed to win in the marketplace, whether it is a SCA or merely a point of parity w/ the competitors.

CHAPTER SIX- ENVIRONMENTAL ANALYSIS/ STRAT UNCERTAINTYEnvironmental analysis can be divided usefully into five areas: technological; governmental; economic; cultural; demographic. Impact analysis and scenario analysis are tools that help to evolve uncertainty into strategy. Impact analysis: the assessment of the relative importance of strategic uncertainties; Scenario analysis: ways of creating and using future scenarios to help generate and evaluate strategies. Technology: guidelines for separating technology winners from losers: use technology to create an immediate, tangible benefit for the consumer; make the technology easy to use; execution matters: prototype, test, and refine; recognize that customer response to technology varies. Sustaining innovations are those that help incumbent companies sell better products for more money to their best customers – the pursuit of which is considered a reliable route to profitable growth; Disruptive innovations, in contrast, appeal to customers who are unattractive to incumbents, usually because they are not in the high-volume, high-margin “sweet spot” of the market – take one of two routes to the marketplace; First, look toward potential customers who are not currently buying the product because it is too complex or expensive; Enter the market at the low end, focusing on customers who are “overserved”; The sales of old technology continue for a substantial period after a dramatic new technology is introduced; It is relatively difficult to predict the outcome of a new technology. Government: the addition or removal of legislative or regulatory constraints can pose major strategic threats and opportunities; in an increasingly global economy with interdependencies in markets and in the sourcing of products and services, possible political hot spots need to be understood and tracked. Economics: evaluation of some strategies will be affected by judgments about the economy, particularly about inflation and general economic health as measured by unemployment and economic growth. Culture: cultural trends can present both threats and opportunities for a wide variety of firms – some current trends: cocooning; fantasy adventure; pleasure revenge; small

indulgences; down-aging; being alive; 99 lives. Demographics: can be a powerful underlying force in a market and can be predictable – among the influential demographic variables are age, income, education, and geographic location; to be manageable, strategic uncertainties need to be grouped into logical clusters or themes – it is then useful to assess the importance of each cluster in order to set priorities with respect to information gathering and analysis; the extent to which a strategic uncertainty should be monitored and analyzed depends on its impact and immediacy: the impact of a strategic uncertainty is related to: the extent to which it involves trends or events that will impact existing or potential businesses, the importance of the involved businesses, the number of involved businesses; the immediacy of a strategic uncertainty is related to: the probability that the involved trends or events will occur; the time frame of the trends or events; the reaction time likely to be available, compared with the time required to develop and implement appropriate strategy.Scenario analysis basically accepts the uncertainty as given and uses it to drive a description of two or more future scenarios. Two types of scenario analyses: strategy-developing scenarios: the object is to provide insights into future competitive contexts, then use these insights to evaluate existing business strategies and stimulate the creation of new ones – can help create contingency plans to guard against disasters – can also suggest investment strategies that enable the organization to capitalize on future opportunities caused by customer trends or technological breakthroughs; decision-driven scenarios: a strategy is proposed and tested against several scenarios that are developed – the goal is to challenge the strategies, thereby helping to make the go/no-go decision and suggesting way to make the strategy more robust in withstanding competitive forces. In either case, a scenario analysis will involve three general steps: 1. creation of scenarios: two or three scenarios are the ideal number with which to work; any more, and the process becomes unwieldy and any value is largely lost; 2. relating those scenarios to existing or potential strategies; any strategy that is optimal for a given scenario should become a viable option 3. Assessing the probability of the scenarios: the task is actually one of environmental forecasting, except that the total scenario may be a rich combination of several variables.

CHAPTER SEVEN- INTERNAL ANALYSISIn addition to external threats and opportunities, strategy development must be based on the objectives, strengths, and capabilities of a business. The internal analysis is based on specific, current information on sales, profits, costs, organizational structure, management style and other factors. Internal analysis can also be conducted at each of these levels – the common goal is to identify organizational strengths, weaknesses, constraints, and ultimately, to develop responsive strategies.Financial performance – sales and profitability: changes in either can signal a change in the market viability of a product line and the ability to produce competitively; a sensitive measure of how customers regard a product or service can be sales or market share (if the relative value to a customer changes, sales and share should be affected, although there may be an occasional delay caused by market and customer inertia; a problem with using sales as a measure is that it can be affected by short-term actions, such as promotions by a brand its competitors). The ultimate measure of a firm’s ability to prosper and survive is its profitability. A host of measures and ratios reflect profitability, including margins, costs, and profits; return on assets can be considered as having two causal factors: the first is the profit margin, which depends on the selling price and cost structure; the second is the asset turnover, which depends on inventory control and asset utilization.Some of the routes to increasing shareholder value are: earn more profit by reducing costs or increasing revenue without using more capital; invest in high-return products; reduce the cost of capital by increasing the debt-to-equity ratio or by buying back stock to reduce the cost of equity; use less capital.To apply shareholder value concepts successfully, companies should: give priority to shareholder value over other goals, particularly growth goals; provide intensive training throughout the organization regarding shareholder value and make it a practical tool for business managers at all levels; be disciplined in identifying the drivers of shareholder value; reduce overhead by adapting to current accounting systems and integrating shareholder value analysis with strategic planning.Performance measurement – beyond profitability: one of the difficulties in strategic market management is developing performance indicators that convincingly represent long-term prospects; the focus should be on the assets and competencies that underlie the current and future strategies and their SCAs; performance areas a business should examine include: Customer satisfaction/brand loyalty: problems and causes of dissatisfaction that may motivate customers to change brands or firms should be identified; often the

most sensitive and insightful information comes from those who have decided to leave a brand or firm; big difference between a brand or firm being liked and the absence of dissatisfaction; measures should be tracked over time and compared with those of competitors. Product/service quality: a product and its components should be critically and objectively compared both with the competition and with customer expectations and needs; usually based on several critical dimensions that can be identified and measured over time. Brand/firm associations: perceived quality can be based on experience with past products or services and on quality cues such as retailer types, pricing strategies, packaging, advertising, and typical customers; associations can be monitored by regularly asking customers in focus groups to describe their use experiences and to tell what a brand or firm means to them. Relative cost: a careful cost analysis of a product (or service) and its components, which can be critical when a strategy is dependent on achieving a cost advantage or cost parity, involves tearing down competitors’ products and analyzing their systems in detail. New product activity: one measure of new product innovation is the number of patents awarded; time-to-market is another measure of successful innovations. Manager/employee capability and performance: key to a firm’s long-term prospects are the people who must implement strategies; an organization should be evaluated not only on how well it obtains human resources but also on how well it nurtures them – a healthy organization will consist of individuals who are motivated, challenged, fulfilled, and growing in their professions.Determinants of strategic options: past and current strategies: sometimes a strategy has evolved into something very different from what was assumed; strategic problems: differs from a weakness or liability in that they need to addressed aggressively and corrected even if the fix is difficult and expensive; organizational capabilities/constraints: the internal organization of a company, it’s structure, systems, people, and culture, can be an important source of both strengths and weaknesses; financial resources and constraints: judgments need to be made about whether or not to invest in a business or withdraw cash from it – a financial analysis to determine probable, actual, and potential sources and uses of funds can help provide an estimate of this ability; a division or subsidiary may need to consider how much support and involvement it can expect from a parent organization; organizational strengths and weaknesses: identify the strengths and weaknesses of an organization that are based on its assets and competencies; in internal analysis, organizational strengths and weaknesses need to be not only identified, but also related to competitors and the market.The core of any strategic decision should be based on three types of assessments: the first concerns organizational strengths and weaknesses; the second evaluates competitor strengths, weaknesses, and strategies; the third assesses the competitive context, the customers and their needs, the market, and the market environment. Business portfolio analysis provides a structured way to evaluate business units on two key dimensions: the attractiveness of the market involved and the strength of the firm’s position in that market – helps force the issue of which businesses should receive the available cash. In structuring strategies, the following are among the logical alternatives: invest to hold; invest to penetrate; invest to rebuild; selective investment; low investment; divestiture.

BCG Matrix: ROI = market-share dimension ratio of share to that of the largest competitor, growth market strength. Growth eventually declines, due to PLC, replaced with new markets. Assumes that as market share increases, ROI increases due to economies of scale and learning

curves. - Take money from cash cow and reinvest in R&D

CHAPTER EIGHT- SYNERGY& CREATING ADVANTAGES A sustainable competitive advantage (SCA) is an element (or combination of

elements) of the business strategy that provides a meaningful advantage over both existing and future competitors, also a SCA needs to be meaningful and sustainable.

an effective SCA will involve all of the business strategy – assets and competencies, the value proposition, the selection of the product market, and functional strategies and programs

the assets and competencies of an organization represent the most sustainable element of a business strategy, because they are usually difficult to copy or counter

an effective SCA should be visible to customers and provide or enhance a value position – the key is to link an SCA with the positioning of a business

a well-defined strategy supported by assets and competencies can fail because it does not work in the marketplace – one way to create marketplace value is to be relevant to customers

a KSF is an asset or competence needed to compete – an SCA is an asset or competence that is the basis for a continuing advantage

in the branding area, Keller talks about points of parity (POPs) and points of differentiation (PODs), which provide additional insight into this distinction

(1) PODs are strong, favourable, and unique brand associations based on some attribute or benefit associations, (2) POP, in contrast, are an association that is not necessarily unique to the brand the average number of SCAs per business is 4.58, suggesting that it is

usually not sufficient to base a strategy on a single SCA a strategic option is a particular value proposition for a product market with

supporting assets and competencies and functional area strategies and programs – the value proposition can involve social, emotional, and self-expressive benefits, as well as functional benefits – strategic options include:

quality, product attribute, product design, product line breadth, corporate social responsibility, brand familiarity, customer intimacy, value, focus, innovation, being global

synergy between business units can provide an SCA that is truly sustainable because it is based on the characteristics of a firm that are probably unique

synergy means that the whole is more than the sum of its parts - two businesses operating together will be superior to the same two businesses operating independently

as a result of synergy, the combined businesses will have one or more of the following: (1) increased customer value and thus increased sales, (2) lower operating costs, (3) reduced investments

Generally the synergy will be caused by exploiting some commonality in the two operations, such as:

(1) customers and sometimes customer applications, (2) a sales force or channel of distribution, (3) a brand name and its image, (4) facilities used for manufacturing, (5) offices, or warehousing, (6) R&D efforts, (7) staff and operating systems, (8) marketing and marketing research a firm’s asset or competency that is capable of being the competitive basis of

many of its business is termed a core asset or competency and can be a synergistic advantage

capabilities-based competition suggests that the key building blocks of business strategy are not products and markets but, rather, competencies in business processes therefore, strategy development must identify the most important processes within the organization, specify how they should be measured, identify target performance levels, relate performance to achieving superior customer value and competitive advantage, and assign cross-functional teams to implement them

strategic vision takes a long-term perspective – strategic opportunism emphasizes strategies that make sense today

To manage a strategic vision successfully, a firm should have four characteristics:(1) a clear future strategy with a driving idea and a specification of the competitive arena, functional area strategies, value proposition, and competitive advantage that will define the business, (2) buy-in throughout the organization – a belief in the correctness of the strategy, an acceptance that the vision is achievable and worthwhile, and a real commitment to making that vision happen, (3) assets, competencies, and resources to implement the strategy should be in place, or a plan to obtain them should be under way, (4) patience – there should be a willingness to stick out the strategy in the face of competitive threats or enticing opportunities that would divert resources from the vision strategic vision requires an information systems and analysis effort to

understand the likely future environment – the organization needs to be capable of building assets that may not have immediate payoff – a top-down, centralized structure with a reward system that supports the vision is helpful, as is a strong, charismatic leader who can sell the vision to relevant constituencies inside and outside the organization

three pitfalls that could prevent a strategic vision from being realized and turn it into strategic stubbornness:

(1) implementation barriers, (2) faulty assumption of the future, (3) a paradigm shift organizational stubbornness has several causes:(1) success should tend to provide resources that can be used to create a new-paradigm business – however, success instead tends to reinforce the old vision and efforts to refine it by reducing costs and improving service(2) the new paradigm will probably require a different organization, and, in particular, a different culture – it is not easy to change a culture, especially when an organization has successfully developed and nurtured that culture to suit the old vision(3)any new-paradigm success will often directly cannibalize the old-vision business

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strategic opportunism is driven by a focus on the present – the premise is that the environment is so dynamic and uncertain that it is not feasible to aim at a future target – provides several advantages:

(1)the risk of missing emerging business opportunities is reduced(2)generates a vitality and energy that can be healthy, especially when a business has decentralized R&D and marketing units that generate a stream of new products(3)results in economies of scope, with assets and competencies supported by multiple product lines to support strategic opportunism, companies must monitor customers,

competitors, and the trade to learn of trends, opportunities, and threats as they appear – information gathering should be both sensitive and online – the organization should be quick to understand and act on changing fundamentals – the organization must be adaptive, with the ability to adjust its systems, structure, people, and culture to accommodate new ventures

three phenomena can turn strategic opportunism into strategic drift : (1)a short-lived, transitory force may be mistaken for one with enough staying power to make a strategic move worthwhile(2)opportunities to create immediate profits may be rationalized as strategic, when, in fact, they are not(3)expected synergies across existing and new business areas may fail to materialize owing to implementation problems, perhaps because of culture clashes or because the synergies were only illusions in the first place strategic drift not only creates a business without needed assets and

competencies, but it can also result in a failure to support a core business that does have a good vision

an attractive strategy is to have a dynamic vision that can change in anticipation of emerging paradigm shifts – this is a difficult goal, and few managers and firms have been able to pull it off

strategic intent couples strategic vision with a sustained obsession with winning at all levels of the organization(1) it should recognize the essence of winning(2) involves stretching an organization with a continuing effort to identify and

develop new SCAs or to improve those that exist(3) often requires real innovation, a willingness to do things very differently(4) provides a long-term drive for advantage that can be essential to

success – it provides a model that helps break the mold, moving a firm away from simply doing the same things a bit better and working a bit harder than the year before

strategic flexibility is the ability to adjust or develop strategies to respond to external or internal changes – it can be achieved in a variety of ways, including:(1) participating in multiple product-markets and technologies(2) having resource slack(3) creating an organizational system and culture that supports change

CHAPTER ELEVEN- GLOBAL STRATEGIESa global strategy represents a worldwide perspective in which the

interrelationships between country markets are drawn on to create synergies, economies of scale, strategic flexibility, and opportunities to leverage insights, programs, and production economies

Motivations for global strategies:(1) Obtain scale economies- can occur from standardization of marketing, operations, and manufacturing programs, (2) create global brand associations- global presence automatically symbolizes strength, staying power, and the ability to generate competitive products, (3) access low-cost labour/materials- can be an SCA, especially when it is accompanied by the skill and flexibility to change when one supply is threatened or a more attractive alternative emerges, (4) access national incentives-countries use incentives to achieve economic objectives for target industries or depressed areas, (5) cross-subsidizetwo strategic considerations: to influence an existing or potential foreign competitor, it is useful to maintain a presence in its country, a home market may be vulnerable even if a firm apparently controls it with a large market share (6) dodge trade barriers- strategic location of component and assembly plants can help gain access to markets by penetrating trade barriers and fostering goodwill, (7) access strategic markets- some markets are strategically important because of their market size or potential or because of their raw material supply, labour cost structure, or technology, sometimes a country is important because it is the locus of new trends and developments in an industryIndicators that strategies should be global:(1) Major competitors in important markets are not domestic and have a presence in several countries, (2) standardization of some elements of the product or marketing strategy provides opportunities for scale economies, (3)

costs can be reduced and effectiveness increased by locating value added activities in different countries, (4) there is a potential to use the volume and profits from one market to subsidize gaining a position in another, (5) trade barriers inhibit access to worthwhile markets, (6)a global name can be an advantage and the name is available worldwide, (7) a brand position and its supporting advertising will work across countries and has not been pre-empted, (8) local markets do not require products or service for which a local operation would have an advantageA strategy of entering countries sequentially has several advantages – it reduces

the initial commitment, allows the product and marketing program to be improved based on experience in preceding countries, and provides for the gradual creation of a regional presence

- Arguments that global expansion should be done on as wide a front as possible include the fact that economies of scale will be more quickly realized, the ability of competitors to copy products and brand positions will be inhibited, and standardization is more feasible

Three reasons that a global brand may not work:(1) economies of scale and scope may not actually exist, (2) the brand team may not be able to find a strategy to support a global brand, even assuming one exists, (3) a standardized brand simply may not be optimal or feasible when there are fundamental differences across markets.Context where a global brand would make little sense:(1) different market share positions, (2) different brand images, (3) pre-empted positions, (4) different customer motivations, (5) names and symbols may not be available or appropriate everywhereEffective global brand management requires (1) Global brand communication system- shares insights, methods, and best practices is the most basic and non-threatening element of global brand management(2) Global brand planning system- every country manager needs to use the same vocabulary and planning template when developing strategies(3) Organizational entity to create cross-country synergy- the people involved in this need to have(4) In-depth knowledge of the local markets, including trends, competitor dynamics, segmentation, and customer motivations- understanding of the product or service, its underlying technology, and how the offering might be extended(5) real authority and resources, as well as the ability to participate in the development of country-specific business strategies

CHAPTER 13- GROWTH STRATEGIESGrowth not only provides the potential for enhanced profitability, but it also introduces vitality to an organization by providing challenges and rewards. Achieving profitable growth involves some fundamentals of sound strategic management, such as the following: excel at the base business; withdraw resources from areas that lack future growth prospects, or do not fit strategically with the firm; develop skills in strategic analysis; develop options for future offerings; develop and leverage core assets and competencies. Growth in existing product markets: an established firm has a base on which to build and momentum that can be exploited – furthermore, the firm may have experience, knowledge, and resources already in place; growth can be achieved by: increasing market share - can generate a more permanent share gain by delivering solid value and thereby creating customer satisfaction and loyalty; expensive and risky approach is to pursue increased market share by focusing on competitors and their customers. increasing product usage - provide reminder communications; position for frequent use; position for regular use; make use easier; provide incentives; reduce undesirable consequences; revitalize the brand; find new application for current users.Product developing for the existing market: line extensions - right feature can dramatically change the competitive dynamics; adding product features involves almost total commonality of marketing, operations, and management – because additional features represent such visible growth opportunities and are accomplished relatively easily, they can be very enticing – they still absorb resources, however, and should be resisted if the prospective ROI is unsatisfactory. Developing new-generation products: while the outsider has nothing to lose and much to gain from pursuing an innovation that will disrupt the marketplace, the established market participant faces the “incumbent’s curse”, two forces that inhibit innovation; even if the new technology is successful, often the best result is that a significant investment will be required to maintain the same level of sales and profits; the existing market participants need to focus on improving costs, quality, and service for the existing offering, which leaves little time and effort to explore a totally new technology. Expand the product scope: existing customers might be served further by broadening the use context; dominant companies in slow-growing businesses in particular should redefine their markets, looking for broader scope that will have more opportunities; identify and serve the customer needs that emanate from the use of existing products. New products for existing markets: classic growth pattern is to exploit a marketing or distribution strength by adding compatible products that share customers with but are different from existing products – synergy is usually obtained at least in part by the commonality in

distribution, marketing, and brand-name recognition and identity; will be based on many factors Market development using existing products: logical avenue of growth is to develop new markets by duplicating the business operation, perhaps with minor adaptive changes. Expanding geographically: may involve changing from a regional operation to a national operation, moving into another region, or expanding to another country. Expanding into new market segments: variety of ways to define target segments and therefore growth directions – usage, distribution channel, age, attribute preference, application-defined market. Evaluating market expansion alternatives: is the market attractive? do the resources and will exist to make the necessary commitment in the face of uncertainties? can the business be adapted to the new market? can the assets and competencies that are at the heart of business success be transferred into the new business environment?Vertical integration strategies: forward integration occurs when a firm moves downstream with respect to product flow – backward integration is moving upstream. vertical integration potentially provides: access to supply or demand, control of the quality of the product or service, entry into an attractive business area. Disadvantages: the risks of managing a very different business; a reduction in strategy flexibility. Four different downstream business models can be considered: comprehensive services (suites of services are packaged along with the product); distributor/retailer (get rid of); embedded services (building external services into the product); integrated solutions (combine products and services). Vertical integration involves adding an operation whose required organizational assets and competences may differ markedly from those of the firm’s other business areas. The increased commitment to a business and its market reflected by vertical integration reduces strategic flexibility – integration also raises exit barriers. Several alternatives to integration exist, such as long-term contracts, exclusive dealing agreements, asset ownership, joint ventures, strategic alliances, technology licenses, and franchising. Most of these alternatives involve difficulties, especially as circumstances and power relationships change over time, but they also provide many of the advantages of integration with fewer disadvantagesThe big idea: although incremental growth strategies can and should be the foundation for growth, some significant growth initiatives and big ideas ought to be on the table as well – if no big ideas are considered, there is virtually no chance to create breakthrough strategy.

CHAPETER 14 : DIVERSIFICATION -Diversification is the strategy of entering product markets different from those in which a firm is currently engaged. Can involve both new products and new markets and can be implemented by either an acquisition/merger or new business venture.Unrelated diversification doesn’t usually work because there is no fit. Why?: manage and allocated cash flow, obtain high ROI-move into business areas w/ high growth prospects, good bargain, refocus a firm, reduce risk by operating in multiple product markets, tax benefits- initialize losses to reduce taxes, liquid assets- low DE ratio that provides the pot to support debt financingVertical integration- gaining access to supply or demand, controlling quality, and gaining entry into attractive business areas, Defend against a takeover, provide executive interest. Risks w/ unrelated diversification:(1) Attention may be diverted from the core business, (2) Managing the new business may be difficult; (3) The new business may be overvalued. Different core A& C, culture from core business.Related diversification:- involves the potential to attain synergies by exporting or exchanging assets or competences. exchange or share assets or competencies, thereby exploiting a brand name, marketing skills, sales and distribution capacity, manufacturing skills, R&D of new product capability, economies of scale.Entry Strategies are governed by associated risk and degree of control and involvement. Optimal Entry Strategies Chart

Basis: as the level of familiarity on these two dimensions declines, the commitment level should be reduced.Educational acquisition- small firm acquired as a window into tech knowledge, experience to grow.Licensing: provides a fast way to overcome one entry barrier, but makes it diff to gain control of that same tech in the future.Lowest involvement option: Licensing, or venture capital investor. Risks of High Growth markets: overcrowding, superior competitive entry, changing KSFs, new technology, slow growth, price instability, resources constraints and distribution is unavailable

CHAPTER 15: STRATEGIES IN DECLINING MARKETS & HOSTILE MARKET STRATEGIES

- Declining markets as well as mature markets can represent real opportunities for a business following the right strategy, in part because they are not as attractive to competitors. Involves a fall in demand b/c of external forces.

- Hostile mrkts are those w/ overcapacity, low margins, intense comp and management in turmoil. (1) decline in demand, (2) competitive expansion

Routes to revitalizing stagnant markets

Milk- the firm has better uses for the funds, gen cash flow by reducing investment and operating expensesHold- growth motivated investment is avoided, but an adequate level of investment is employed to maintain product quality. Appropriate when the industry is declining in an orderly way, pockets of demand exist, low price pressure, exploitable A&C. Preferred over invest strategy when industry lacks growth and increasing shares would cause competitor retaliation.

Differentiation might be easier in a declining market. PLC/Diffusion. Innovators Early Majority Majority Followers. Innovators are not price sensitive. Mass market looks for value and price. D becomes C because of impact of technological capacity. Early market leaders : Price at mass market levels, managerial persistence in R&D, financial commitment and the ability to invest, relentless innovation, asset leveraging so they hold a dominant position in a related category, follower strategy advantages. 4 kinds of change:(1) progressive change (build on established capabilities), (2) creative change (develop new assets), (3) intermediary change (core assets aren’t threatened, like internet), (4) radical change (notion of replacement, like overnight delivery). Organizational Structure: - Map It?, Creating Superior Customer Capabilities People – how many people, with what experience, depth, skills, selection and diversity. Culture - shared values, norms of behaviour, symbols and symbolic action. Structure – centralized vs. decentralized (skunk works, task force) , lines of authority and communication, task forces? Systems – how are budgets set, nature of the planning system, key measures to evaluate performance, what gets measured gets done.

Stagnant markets bring intensified competition for market share: true if head-to-head, # entrants, if exit barriers are high

Market segmentation produces diminishing returns – smaller markets, create new usages, new market space, art of scale

CHAPTER 16- ORGANIZATIONAL ISSUESThe assessment of any strategy should include a careful analysis of organizational risks and a judgment about the nature of any required organizational changes and their associated costs and feasibility; Framework for analyzing organizations – set of four key constructs that describe the organization: structure; systems; people; culture. Organizational structure defines lines of authority and communication and specifies the mechanism by which organizational tasks and programs are accomplished. Decentralized: managers are closer to the market and can therefore understand customer needs; also means they are intimate with the product technology and thus can chart the direction of product offerings; empowered to act quickly; fosters incredible energy and vitality; one challenge is creating cross-business synergy; second challenge is to respond strategically at the firm level to market dynamics – what is optimal for a business unit may not be the best for the firm as a whole. Centralized: create business strategy from a firm-wide perspective; can make sure that synergy opportunities are detected and exploited; needs to have credible knowledge of the products and the markets, the necessary resources, and the authority and stature to get things done; can influence decentralized business units by playing the role of a service provider, consultant, or facilitator. Matrix organization allows a person to have two or more reporting links. Virtual corporation is a team of people and organizations specifically designed for a particular client or job. Several management systems are strategically relevant – among them are the budgeting/accounting, information, measurement and reward, and planning systems. If a strategy requires capabilities not already available in the business it will be necessary to obtain them – three approaches: making, buying, or converting.An organizational culture involves three elements: 1. a set of shared values or dominant beliefs that define an organization’s priorities – can involve: a key asset or competency that is the essence of a firm’s competitive advantage; an operational focus; an organizational output; an emphasis on a functional area; a management style; a belief in the importance of people as individuals; a general objective, such as a belief in being the best or comparable to the best. 2. A set of norms of behaviour: informal rules that influence decisions and actions throughout an organization by suggesting what is appropriate and what is not. 3. Symbols and symbolic activities used to develop and

nurture those shared values and norms: the founder and original mission; modern role models; activities; questions asked; rituals.The concept of organizational congruence suggests that interactions between organizational components should be considered such as: do the systems fit the structure? do the people fit the structure? does the structure fit the culture? Organizational culture provides the key to strategy implementation because it is such a powerful force for providing focus, motivation, and norms.A hit industry is one in which the goal is to obtain, produce, and exploit a product that will have a relatively short life cycle – three organizational types: drillers; pumpers, distributors.Several approaches are being used to successfully promote change and foster innovation in organizations: decentralization; task forces; skunk works (smaller, autonomous groups of people representing all the important functions join together to create a product or a business and nurse it through the early stages of life, often in an off-site location); kaizen (ongoing improvement involving everyone from top management on down); reengineering.

A DYNAMIC VIEW OF STRATEGYHostile/Declining Markets-who what how- exploiting strategic position. Blue Ocean Proactively establishing distinctive strategic positions The environment is constantly changing then you should be changing your strategy or else a competitor will come and do it, there is risk involved because of first movers advantage they are known and established with customers. The only way to take their business you have to be an innovator. Specialization is important to gain a customer base. Companies address their threats too late, complexity in technology, influence change not just analyze environment. Who will you target-What products or services should you offer-How can you do this efficiently. Need to choose a distinct, compelling strategic position. Strategic innovators emerge with new markets they create (proactive). Dominant competitor establish unique strategic position, traditional competitors imitate their predecessors. Submarkets- existing niche expand, old ones die, new niches appear, mass markets fragment into new segments or old niches merge to form larger markets, stable Option 1: Become the innovator requires organizational and management skills to compete in a mature market (cost, efficient, innovation) and develop new products/services (innovation, speed, flexibility) Option 2: Exploit some else’s innovation lack core competency, late adopters and abandon innovation, core rigidities not flexible, poor organization transition means opportunity TO DO: monitor strategic environment, prevent cultural/structural inertia to welcome change, develop processes that allow to experiment with new ideas, be prepared with required competencies, manage the transition (adopt new position and have new and old work harmoniously).

UNBUNDLING THE CORPORATIONRPast & Future, (says vertical is ok, Positioning) Transaction costs for interaction are going down its easier to focus on 1 type of business. What type of business are we really in-Scope- Customer Relationship Management (retain customers, attract new ones and learn as much as possible so you can satisfy their needs better, you can sell them more products), Speed- Product Innovation (early market entry, first mover advantage), Scale- Infrastructure (big company, economies of scale, efficiency)..Building all 3 into a single corporation inevitably forces mgt to compromise performance of each process because they are divergent positions Hard to do all 3 at the same time. Question and challenge the way business is done, outsourcing core process to lower transaction costs. Achieve Horizontal integration(seek to build scope or scale within own industry then leverage their capabilities across related ones) when rebundling an unbundled corporation, Anti-vertical integration. Companies are merging to broaden their customer baseStrategy is about choices and tradeoffs, just as important to state with who you WONT compete along with as who you do compete with.

CREATING SUPERIOR CUSTOMER RELATING CAPABILITY Map IT- CRM tools are a necessity but creating a superior customer relating capability is a function of how a business builds an manages its organization. If you focus on customers you will be more successful. If you start with IT you are not going to be successful. 3 organizational components: Orientation (makes customers a priority) customer retention and satisfaction everyone in the company should strive towards this, it is hard b/c different departments have their own interests. Configuration: structure of organization-metrics and measures for personalizing product or service offerings and incentives for building relationship, measuring customer satisfaction. Information: everyone in company should share info about customers. Hard because different departments don’t want to share info. TO DO: Treat each segment as a profit centre, Invest in customer understanding (segmentation), Change the

configuration (lack of incentives and metrics and absence of customer-facing organization)WHAT IS STRATEGY - PORTERUnbundling/Dynamic View, Strategy and the Internet (Diversification/ Differentiation/ Segmentation/ Value Proposition (Fit)/ Synergy Contrast focus) Too many managers think operational effectiveness is strategy. When comparing competition on strength grid, focus on best attribute, identify competitor gap and ramp that up. The essence of a company strategy is to find a position in the industry where it can best cope with the competitive forces and can influence them in their favour. Positioning (strong knowledge of customers):(1) Variety based- how many products the company offers niche-jiffy lube is focused. (2) Needs based- segments(3)Access- segments have similar needs but are reached in different ways. Tradeoffs- you cant have competitive advantage if you try to do everything at once. Fit-drive competitive advantage and sustainability (assets and comp) Segmentation-(bases, profiles)-Targeting (attractiveness, pick target)-Positioning (4 p’s) Perform different activities from rivals, or similar activities differently Don’t fail to choose (trade offs), growth crazy (need to make choices): deepen position instead of broadening it and compromising it, forge fit through leadership. Organizational Effectiveness is performing similar activities better than rivals so them. Strategic positioning is performing different activities from rival or performing similar activities in different ways.

CREATING A NEW MARKET SPACE (Growth strategy, big idea, tradeoffs) Hard to compete, 6 ways to do it: (1) Look across substitute industries (groups are ranked by price and performance. What factors determine buyers’ decisions to trade up or down from one group to another. (Ralph Lauren ready-to-wear, Lexus)(2) complementary products and services (define the total solution buyers seek when they choose a product or service. (Babysitting and parking at movie theatres), (3) look across chain of buyers (purchases, users, influencers all value different things. Question who should be the target customer.), (4) look across complementary product and service offerings, (5) Look across functional or emotional appeal to buyers (look for “more of the same for less” (Starbucks makes coffee emotional), (6) look across time (Actively shape and participate in forward looking trends (decisive, irreversible and a clear trajectory) Value Chain- Array of benefits, easy to use-speed accuracy-flexibility-price. Eliminate (acct jargon), Create (easy to use), Reduce (price), Add. If feature is not used, it is not beneficial to them its hard to figure out the key element

SHEDDING THE COMMODITY MIND SET

What is Strategy?(Commodity Scale, Positioning) Companies thought that price is the only factor they thought of when buying, when it really depends on other factors. Sales people always said they have to lower price to compete b/c it’s the easiest way to make a sale. Wait- customers really cared about quality and service instead of just price. Research into what customers really want, made them pick between 2 factors and which one they would rather have. Service oriented 20%, product oriented 35% price sensitive 45%. Option 1: Look at assets and comp Option 2: Select customers Option 3: Deliver. TO DO: needs-based segmentation focus on best customers or those who buy from other suppliers, improve service attributes to appeal to a few larger segments who you don’t serve at present. CONJOINT ANALYSIS!

THE ART OF SCALE

Growth, Trade-offs, Dynamic View of StrategyOpen the firm to outside innovation to sustain growth, need mass market appeal.Exploit pioneering efforts of others contrasts First Mover Advantage TO DO: Develop network of feeder firms and serve as venture capitalists to them. Focus on price/performance trade-off. The technical features create a market niche for early adopters, but then consolidators can steal market away by stressing attributes like quality and price to make it more attractive to mass market. Many new generation products have too many new features, so consolidators can make an inferior product with ‘good enough’ features to mass market. Bandwagon: alliance strategies (licensing designs may limit to ST profits but accelerate adoption rate), engineering a merger with a major rival and retire competing design, use marketing to create the illusion that a design has already become dominant (limit supply) Reduce Customer Risk in Adopting New Products: develop customer trust through the brand -communication,

credibility Build Distribution that can Reach Masses: look for new avenues, competency, trained sales force. Need to willingly invest financial/managerial resources to set up distribution, alliances will work. Support Growth of Complementary Goods: open platform encourages product/services to enter the market, provide financial support to makers of corresponding products, develop complementary products, sponsor industry wide standards, use alliances to control points of the value chain

HALF TRUTH OF FIRST MOVER ADVANTAGE (Assets and Competencies and brand equity) 3 ways to create an advantage is: (1) to have technological edge; have more time than later entrants to master technical knowledge. (2) Preempting later arrivals’ access to scarce resources, (3) build an early base of customer would find it inconvenient to switch. The faster or more disruptive the technology the greater the challenge for any one company to control it. In order to succeed you need deep pockets and the assets and competencies. Example: Intel retires their products by continually innovating

WHEN YOUR COMPETITOR DELIVERS MORE FOR LESS(value proposition, positioning) What is Strategy/ Create New Market Space There is no easy answer to this challenge, but its helpful to recognize that value players tend to price frequently purchased, easy to compare products and services aggressively and to make up for lost margins by charging more for higher end offerings. Value-driven players are catching up on quality, service, and convenience. Still some barriers are present: limited resources (real estate, natural resources), lack of information (harder to communicate value proposition), regulations (competitor entry), and customers (they transform attitudes about trade-offs). TO DO: Manage price perceptions, differentiation and execution. Need rapid experimentation, innovation, development of superior customer insights, effective pricing and promotions, frontline efficiencies. Think creatively about partnerships and alliances to acquire the needed talent. Differentiation convenience, overhaul in-store layout requires experimentation Execution promotional initiatives to make sure they are sustainable, continuous improvement (Contrasts Bottom Feeder)

STRATEGY AND THE INTERNETStrategy & the Internet: How Competitive force shape strategy/ unbundling (positioning, competitors) Complements affect industry profitability through their influence of 5 forces. If a complement raises switching costs for the combined product offering, it can raise profitability. But if a complement works to standardize the industry’s product offering, it will increase rivalry and depress profitability. (Counters: Market leader has the most to gain) Network effects: when products become more valuable the more they are used. If people start thinking rationally not emotionally products begin to move towards commodities and it’s harder to market them. The internet is not strategy. Internet can be a compliment to strategy (catalogue companies) their process didn’t really change b/c they already had ways to get the product to customers. Interest is bad- Lowers barriers to entry, price becomes a determining factor therefore lower prices decrease margins, buyer power goes up, switching costs decrease, search costs decrease, more difficult to build brands. - Internet is good b/c its global and have the potential to reach more people, watch point of parity, operational effectiveness-activities, do same activities different or we do different activities. Ex. Southwest, West Jet vs full service airline. EBay is the most successful company on the internet because its easy to use, network effects- ex first fax had no value, 2nd has some value, 3rd exponential value, internet worked the same way and more and more use it increases its value. 6 principles of strategic positioning: (1) Goal (superior LT ROI), (2) value proposition (set of benefits different from competitors), (3) value chain (distinct activities), tradeoffs (to be unique), (4) fit of strategy (make choices throughout the value chain that are interdependent and mutually enforcing), (5) continuity (define a distinctive VP that it will stand for, even if that means foregoing opportunities). First mover advantage-with the internet it is not

always sustainable, crazy-distortion, shouldn’t be a separate strategy but that is aligned with strategy.

RESPONSE TO DISRUPTIVE STRATEGIC INNOVATION Art of Scale (Environmental, Big Ida, Sustaining vs Strategic, Trade offsStrategic innovations that are disruptive are targeting different segments, strategy is in conflict ex. The airlines Southwest vs full service, they are in conflict b/c full service cannot copy their strategy. What can you do? Ignore it- disruptive innovation is targeting different customers, its nto your business it is too divergent Focus on original business-recognize it’s a big market but focus on what you do better, make traditional way of competing more attractive and competitive improve its competitive offering (counters #3 product threatened by leader, needs to protect itself) Disrupt the Disruption- build success by emphasizing new, non traditional product or serbice attributes that ceome attractive to new customers Adopt the Innovation- cost benefit analysis required, established a new unit, new name with a new CEO or divison manager. Issue of managing conflict between traditional and new ways- need synergy and decision-making autonomy Embrace the Innovation Completely- scale it up Art of Scale. Industry structure is not fixed but rather is shared to a considerable degree by the choices made by competitors

MANAGING THE TOTAL CUSTOMER EXPERIENCEWhat is Strategy (Big Idea, Disruptive Strategy, Create new market space) Companies must gain an understanding of the customer’s journey, from the expectations they have before the experience occurs to the assessments they are likely to make when its over. The experience has value (ex Starbucks), Starbucks VP “creates” experience. The coffee itself- offer the highest quality beans in the world. To achieve this control as much of the supply chain possible. The service-(customer intimacy) create a good experience every time a customer walks in the door. The atmosphere-the ambience makes people want to stay 1. recognize the clues it is sending to customers actual functioning of goods, emotions of good/environment 2.Build customer experience:Experience audit interviews, observations Experience motif few words of what they want the customer to feel Experience-management system implementation Value = Product/Service + Experience – [financial burdens + non-financial burdens] Technology does not need to be segmented because it is not embedded in people’s culture.

BLUE OCEAN STRATEGYBlue Ocean Strategy: (contrasts Porter, says you can be low cost and differentiate at the same time) There are new markets that haven’t been discovered yet. They are most profitable creating a new industry is how you will get a profit. If you compete in an overcrowded market, your product will be seen as a commodity. Blue oceans aren’t just about technology innovations, there is no tradeoff for differentiation and low cost, can do both, can turn a red ocean into a blue ocean by entering a new market or segment. Using some of existing assets to enter in a new market. Ie- Cirque de Soliel changed their customer focus and made it more sophisticated. Added new themes so that people would go a couple times a year. They had a look of array of benefits. The 4 benefits are: create new attribute, add stuff to one, remove an attribute, reduce product attribute. Blue oceans are not far away from the company. Assets and comp are very similar and don’t need to be changed. Not only about new technology, can be disruptive without technology. Unmet needs can make a lot of money by adding attributes to gain new market share (Blue ocean and array of benefits)

THE VALUE OF BRAND EQUITYShedding the commodity, (SCA, intangible asset) Too many managers focus on short term tactics(coupons, promotions) to increase revenues at the expense of brand equity which offers greater benefits for the firm.2. Brand equity has value for both the firm (ex loyal customers, increase efficiency and effectiveness of marketing programs, brand loyalty, price and margins, brand extensions, trade

leverages, increase switching costs and competitive advantage) and the customer (ex. Lower search costs, confidence, comfort) 3. Patience and commitment are required to build strong brands. Perception plays a role in influencing the value of brand equity. Brand equity is related to: brand loyalty, brand awareness, perceived quality, brand associations, proprietary brand assets

TARGETING A COMPANIES REAL CORE COMPETENCIESWhat is Strategy, Value Chain, Unbundling (core competencies, VP) If you define your core competencies then you can better use your assets. If its not part of the value chain then outsource it. R&D is not an activity, it is a core competency because it is too broad, you would need to focus on excellent r&d is a result of other activities. Competitive advantage and superior profitability are a system of activities defined in the LT. An activity can be so critical that they can be described as a core competency. In failing to associate specific, underlying activities with these claimed competencies, managers are unable to focus on preserving and strengthening the building blocks that create quality products in the first place. Real core competencies are tangible value-added activities performed more effectively and a lower costs that that of the competition. Once managers develop strategic intent to identify, nurture, and organize around activities that can be made unique and enduring, a few rules must be followed to transform the commitment into success (1) avoid laundry lists: (a) core competency should contribute a lot to the value of the end product (b) represent a unique capability that provides enduing competitive advantage (c)have potential to support multiple end products (2) achieve senior management consensus on core competencies (what business are you really in unbundling corporation) (a) activity-based benchmarking (b)employee and asset distribution (c)‘what if’ scenario development (3) leverage core competencies inside the organization (a) project coordination, interdepartmental communication (b) link core competencies to technology, processes, employees to maximize learning (4) share core competencies outside the corporation as well (a) find ways of building competence in each area of competitive advantage (b) alliance activity forces one to think of key activities that can be shared. A&C- VP outcome- activities R&DPortfolio- SBU’s on investments and product markets, diversification is the main issue, its about resource allocation Nirvana- desired state, ROI= performance is a function of market growth and market share. Market share is important b/c there are more profits based on economies of scale b/c you get down the learning curve quicker-focus on price therefore making it a commodity(internal competencies) Market growth is important b/c you can get down learning curve faster (external) GE model-ROI is a function of external-market attractiveness and internal – ability to compete. Assets and competencies=tradeoffs=co mpetitive advantage (strategic necessity, strategic advantage) POP POD, Growth rate is a function of how well you satisfy segment, # of marketed brands goes up then declines. Compare to competitors, average attribute, weight attributes to what is most important, take composites by weighting and end up with 20 numbers and see difference between competitors.

COMMODITY SCALECommodity Scale-Shedding Commodity- as consumers knowledge increases, power of buyers increase. In commodity setting, buyers have the power. In differentiation, supplier has power. Need to increase area of value chain to differentiate-improve consistency, convenience, customize it to the operation at hand (quality, reliability. Packaging, value from convenient services, value from product customization (premium wheat sells at premium)

RANDOM FINANCIAL RATIOS I should know but don’tLiquidityCurrent ratio = [current assets] / [current liabilities]Turnover[Annual credit sales] / ARAverage collection period = AR / [ann credit sls/365]Inventory turnover = COGS / avg inventoryLeverageDebt ratio = [total debt] / [total assets]D/E ratioInterest coverage = EBIT / [interest charges]EPS= profit after tax- preferred dividend/ outstanding # sharesProfitabilityGross profit margin = [sales-COGS] / salesNet profit margin= profits after tax/ sales ROA, ROE, ROI= net income/ investmentCustomer Retention

1- 1/x ie: 1-1/2= 50%

WHAT THE COLOURS MEANBlack = straight theoryBlue = class discussion articlesGreen = chapter notesRed= Random Stuff