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A Strategic Management Process

Strategy Analysis

Strategy Formulation

Strategy Implementation

Basic Elements of the Strategic Management Process

Environmenta l scanning

Strategy Formulation

Strategy Implementati on

Evaluation and Control

Environmenta l Scanning : Gathering Information


External :
Opportunities and Threats Natural Environmental: Resources and Climate Societal Environmental : General forces Task Environment: Industy Analysis

Strategic Formulation : Developing Long-range Plans


Mission Reason for existence Objectives What results in accomplish by when

Strategic Implementation : Putting Strategy into Action

Evaluation and Control: Maintaining Performanc e

Strategies
Plan to achieve the mission & objectives Policies Bread guidelines for decision making

Programs
Activities needed to accompolish a plan

Internal: Strengths and Weakness


Structure: Chain of command Culture : Beliefs, Expectations, Values Resources: Assets, skills, competencies knowledge

Budgets Cost of the programs

Procedures

Sequence of steps needed to do the job

Performance Actual Results

The Organization and its External Environment

The General Environment

Political

Economic The Competitive Environment Potential Entrants

Power of Buyers

The Power of Organization Supplies


Competitive Rivalry

Substitute Social

Products/Services
Technological

Porters Five Forces Framework of Industry Competition


Potential Entrants Threats of New entrants

Suppliers

Bargaining power of suppliers Industry Competitors Rivalry among existing firm

Buyers Bargaining power of buyers

Threats of substitute Product or services

Substitutes

The Value Chain


FIRM INFRASTRUCTURE
SUPPORT ACTIVITIES

HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT


INBOUND OUTBOUND MARKETING OPERATIONS LOGISTICS LOGISTICS & SALES

SERVICE

PRIMARY ACTIVITIES

Michael E. Porter (1985)

Corporations Value Chain

Prentice Hall, Inc. 2006


5-8

Henry: Understanding Strategic Management


Chapter 5: The Internal Environment: Resource-Based View

The Internal Environment Resource-Based View


The resource-based view of strategy emphasises the internal capabilities of the organization in formulating strategy to achieve a sustainable competitive advantage in its markets and industries (inside-out approach to strategy)

The Internal Environment Resource-Based View


Key contributors include:
Early contribution attributed to Edith Penrose in 1959 More commonly associated with: Prahalad and Hamel (1990) Rumelt (1991) Barney (1991) Grant (1991) Peteraf (1993) Kay (1993)

The Internal Environment Resource-Based View


Relative firm performance, and therefore profitability, is determined by an organizations resources and competencies It is often seen as an alternative perspective to Porters five forces framework which starts with the industry structure (outside-in approach to strategy)

The Internal Environment Resource-Based View


Resources Inputs that enable an organization to carry out its activities Resources can be categorized as tangible and intangible

Tangible resources
-physical resources, financial resources, and human resources

Intangible resources
- intellectual/technological resources and reputation

The Internal Environment Resource-Based View


An organizations internal capabilities determine the strategic choices it makes in competing in its external environment An organizations capabilities may allow it to create new markets and add value for the consumer Examples include, Apples i-Pod and Toyotas hybrid cars

The Internal Environment Resource-Based View


Competencies It is the efficient configuration of resources that provides an organisation with competencies A competence is the attributes that firms require in order to be able to compete in the marketplace

All firms possess competencies


It is a prerequisite for competing within an industry

The Internal Environment Resource-Based View


Prahalad and Hamel (1990) provide three tests for core competencies: 1. A core competence should provide access to a wide variety of markets. For example, Honda compete in markets such as cars, lawnmowers and powerboats 2. A core competence should make a significant contribution to the perceived customer benefits of the end products 3. A core competence should be difficult for competitors to imitate

The Internal Environment Resource-Based View


Core competencies - Prahalad and Hamel (1990) argue: The critical task of management is to create an organization capable of creating products that customers need but have not yet even imagined Management must operate across organizational boundaries rather than focus on discrete, individual strategic business units (SBUs) Core competencies derive from the collective learning of individual members within an organization and their ability to work across organizational boundaries Example, the Japanese motor manufacturer Toyota has achieved a core competence in the production of petrol-and-electric hybrid cars

The Internal Environment Resource-Based View


Distinctive capabilities derive from: Architecture
- the system of relational contracts that exist inside and outside the organization

Reputation
- important in those markets where consumers can only ascertain the quality of a product from their long term experience

Innovation
- an organization may develop innovative processes which are imbedded within the routines of the organization and therefore difficult for competitors to copy

The Internal Environment Resource-Based View


Distinctive capabilities Kay (1993) argues it is the distinctive capabilities of an organizations resources which provide it with competitive advantage Capabilities are only distinctive when they emanate from a characteristic which other firms do not have

Possessing a distinctive characteristic is a necessary but not sufficient criteria for success
It must also be sustainable and appropriable - For a distinctive capability to be sustainable it needs to persist over time - For a distinctive capability to be appropriable it needs to benefit the organization

The Internal Environment Resource-Based View


Grant (1991) proposes a framework for strategy formulation that comprises five stages:

1. 2. 3. 4.
5.

Identify and classify the organizations resources Identify the organizations capabilities Appraise the rent generating potential of resources and capabilities Select a strategy which best exploits the organizations resources and capabilities Identify whether any resource gaps exist

A Resource-based View of Strategy Analisis Grant (1991)


4 3 2 1
Strategy Competitive Advantage

5
Capabilities

Resources

Figure 5.1

The Internal Environment Resource-Based View


Criticisms of the Resource-Based View It says very little on the important issues of how resources can develop and change over time The dynamic role played by individuals within organizations is often assumed to be self-evident and seldom addressed The resource-based view of strategy lacks detail and is therefore difficult for organizations to implement No formal recognition of emergent strategies and the role these might play.

The Internal Environment Resource-Based View


Four attributes of a resource for sustainable competitive advantage Barney (1991): 1. it must be valuable 2. it must be rare 3. it must be difficult to imitate 4. there should be no strategic substitute for this resource

Competitive Advantage
Embedding Knowledge in Fundamental Processes

Royal Dutch Shell scenario planning, BP-Amoco Project management Toyota TQM, production management, Sophisticated production system Unileverproduct development and brand management General Electric operational planning Xeroxworkplace design Buckman Laboratories new product development World Bank story telling Wal-Mart Strive to be the industrys low-cost provider Johnson & Johnson Reliability in baby products Harley Davidson King of the road styling

Cavaleri & Stewart with Lee - Knowledge Leadership (2005)

Competitive Advantage
Embedding Knowledge in Fundamental Processes

Rolex Top of the line prestige Mercedes Benz Engineering design and performance Amazon.com Wide selection and convenience Jiffy Lube International Quick oil changes McAfee Virus protection auctions Starbucks Premium coffees and coffee drinks FedEx Next day delivery of small packages Walt Disney Theme park management and family

entertainment Ritz-Carlton Personalized customer service Perusahaan Anda .................................?

PORTERS COMPETITIVE STRATEGIES


Competitive strategy concerns the specifics of managements game plan for competing successfully and securing a competitive advantage over rivals Competitive strategy raises the following question: Should we compete on the basic of lower cost (and thus price), or should we differentiate our products or services on some basis other than cost, such as quality or service? Should we compete head to head with our major competitors for the biggest but most sought-after share of the market.

Business Strategy

BUSINESS STRATEGY --It is a plan of action to use the firms resources/capabilities and distinctive competencies to gain competitive advantage --Focuses on improving competitive position of companys products or services within the specific industry or market segment
Prentice Hall, Inc. 2006 6-27

Business Strategy

Focuses on improving competitive position of companys products or services within the specific industry or market segment A Resource-based strategy uses a companys valuable and rare resources and competitive capabilities to deliver value to customers in ways rivals find it difficult to match A competence is an activity that a company performs well A core competence is a competitively important activity that a company performs better than other internal activities A distictive competence is a competitively important activity that a company performs better than its rivals therefore offering the pottential for competitive advantage
6-28

Abells View on Business Strategies

The basic dimensions associated with the choice of Business-level strategy comes from the process of deciding what products to offer, what market to serve, and what distinctive-competency to pursue In other words managers must answer questions to determine their competencies:
WHAT is being satisfied ? The customer needs (Product Differentiation) WHO is being satisfied ? The customer group (Market Segmentation) HOW customers needs are being satisfied ? The competitive actions (Distinctive Competencies)
Prentice Hall, Inc. 2006 6-29

Hierarchy of Strategy
Corporate Strategy : Overall Direction of Company and Management of Its Businesses Business Strategy:
Competitive and Cooperative Strategies
Functional Strategy:

Maximize Resource Productivity

Resource-Based Approach to Organizational Analysis

Resources: Assets, process, knowledge, or competency controlled by corporation


Tangible: Land & Plant Intangible: Human Capital & Reputation

Capabilities: Integrated Resources / Skills in effectively coordinating and managing resources for productive use
Normally Intangible (i.e. Customer Service Capability & R&D Capability)

Core competency: Are unique resources and capabilities (STRENGTHS) combined into specific activities a firm can perform extremely well Distinctive competency: These are Core Competencies that are superior of those of competitors. What you do better then your competitors?
Prentice Hall, Inc. 2006 5-31

Review of Important Concepts


Core competency:
Something that a corporation can do exceedingly well a key strength Can be a core capability
Includes a number of constituent skills

Distinctive competencies:
When core competencies or core capabilities are superior to those of the competition.
Prentice Hall, Inc. 2006 8-32

Review of Important Concepts


Distinctive competencies must meet 3 tests:
Customer value Uniqueness / Hard to imitate Extendibility / sustainability

Firm can gain access to distinctive competencies in 4 ways:


Asset endowment Acquisition Shared with another business unit Built and accumulated
8-33

Prentice Hall, Inc. 2006

Business Strategies

Distinctive Competencies. Management must decide how to organize and combine its distinctive competencies to satisfy the customer needs of its customer group in order to gain competitive advantage. Basically there are 4 ways to obtain competitive advantage: superior efficiency, quality, innovation, and customer responsiveness.
Prentice Hall, Inc. 2006 6-34

The Roots of Competitive Advantage

Prentice Hall, Inc. 2006

5-35

Menemukan Competitve Advantage Melalui VRIO Analysis Melakukan Analisa ( VRIO Analysis)

VRIO ANALYSIS
V = VALUABLE
R = RARE I = Difficult to IMITATE
O= Supported by ORGANIZATION

The Internal Environment Resource-Based View


Four attributes of a resource for sustainable competitive advantage Barney (1991): 1. it must be valuable 2. it must be rare 3. it must be difficult to imitate 4. there should be no strategic substitute for this resource

VRIO Implication Analysis


Difficult to Imitate? ... Supported by Organization Competitive Implications Competitive Disadvantage Competitive Parity Temporary Competitive Advantage

Valuable? No

Rare? ...

Performance Below Normal Normal

Yes

No

...

Yes

Yes

No

Above Normal

Yes

Yes

Yes

Yes

Sustained Competitive Advantage

Above Normal

Process

From Lean Production to the Lean Enterprise


Womack, J. P. & D. T. Jones (1994). Harvard Business Review. March-April.

Lean production is an assemblyline methodology developed originally for Toyota and the manufacturing of automobiles. It is also known as the Toyota Production System or just-in-time production.

Engineer Taiichi Ohno is credited with developing the principles of lean production after World War II. His philosophy, which focused on eliminating waste and empowering workers, reduced inventory and improved productivity. Instead of maintaining resources in anticipation of what might be required for future manufacturing, as Henry Ford did with his production line, the management team at Toyota built partnerships with suppliers. In effect, under the direction of Engineer Ohno, Toyota automobiles became made-toorder. By maximizing the use of multi-skilled employees, the company was able to flatten their management structure and focus resources in a flexible manner. Because the company was able make changes quickly, they were often able to respond faster to market demands than their competitors could.

Many industries, including software development, have adopted the principles of lean production. The ten rules of lean production can be summarized: 1. Eliminate waste 2. Minimize inventory 3. Maximize flow 4. Pull production from customer demand 5. Meet customer requirements 6. Do it right the first time 7. Empower workers 8. Design for rapid changeover 9. Partner with suppliers 10. Create a culture of continuous improvement (Kaizen)

an organizational model that strategically applies the key ideas behind lean production. A lean enterprise is viewed as a group of separate individuals, functions, or organizations that operate as one entity. The goal is to apply lean techniques that create individual breakthroughs in companies and to link these up and down the supply chain to form a continuous value stream to raise the whole chain to a higher level.

Predictive Biosciences
(HBS Case #9-811-015)

A small cancer diagnostics start-up is deciding whether to acquire a laboratory to make and sell its bladder cancer test or build its own manufacturing and sales team.

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