Professional Documents
Culture Documents
Strategic
Management (6 ed.)
Robert M. Grant
1
Quotes
Strategy is the great work of the organization. In situations of life or death, it is
the Tao of survival or extinction. Its study cannot be neglected
- Sun Tzu, The Art of War
Diversification is like sex; its attractions are obvious, often irresistible. Yet, the
experience is often disappointing.
- Robert Grant
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Definitions
The term strategy derives from the Greek word strategia, meaning
‘generalship’
Strategy is not detailed plan or program of instructions; it is underlying theme
that gives coherence and direction to the actions and decisions of an
individual or an organization
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Index
The Concept of Strategy Industry Evolution and Strategic
Goals, Values and Performance Change
Industry Analysis: The Technology-based Industries and
Fundamentals Management of Innovation
Further Topics in Industry and Competitive Advantage in Mature
Competitive Analysis Industries
Analyzing Resources and Vertical Integration and the Scope
Capabilities of the Firm
Organizational Structure and Global Strategies and
Management Systems Multinational Corporation
The Nature and Sources of Diversification Strategy
Competitive Advantage Managing Multi-business
Cost Advantage Corporation
Differentiation Advantage Current Trends in Strategic
Management
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The Concept of Strategy (1/…)
Characteristics of a strategy Strategic fit
Simple, consistent and long term Link between firm and external
goals environment
Profound understanding of Problem with SWOT analysis (too
competitive environment
simplistic a classification)
Objective appraisal of resources
Commonality between strategy in
Effective implementation
military and business
Internal environment Are important
Goals and values Involve a significant commitment
Resources and capabilities of resources
Structure and systems Not easily revisable
External environment
Customer, competitors and
suppliers
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The Concept of Strategy (2/…)
1950s- 60s (Financial Budgeting) 1970s= 80s (Quest for Competitive
DCF- based capital budgeting Advantage)
Financial control through operating Analysis of resources and
budget capabilities
Shareholder value maximization
1960s- 70s (Corporate Planning)
Medium term economic forecasting Restructuring and re-engineering
Formal corporate planning Alliances
Diversification and quest for 1990s- 2000s (Strategy for the
synergy New Economy)
Creation of corporate planning Strategic innovation
departments New business models
1970s- 80s (Strategy as Disruptive technologies
Positioning) 2000s (Strategy in the New
Industry analysis Millennium)
Market segmentation CSR and business ethics
The experience curve Competing for standards
PIMS Analysis Winner-take-all markets
Planning through portfolios Global strategy
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The Concept of Strategy (3/…)
Two questions of strategic choices
Where to compete?
How to compete?
Levels
Corporate strategy (domain selection)- industry attractiveness
Business strategy (domain navigation)- competitive advantage
Strategy: Design vs Emergent
Intended, Realized & Emergent (Mintzberg, 1979)
Planned emergence
Roles of strategy:
As decision support (constraining range of decisions; acting as heuristics; pooling
of knowledge; and use of analytical tools)
Coordination device (communication device; consensus development)
Target (strategic intent)
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Tools for Strategy Analysis (1/…)
Primary sources of value
Production
Commerce
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Industry Analysis (1/…)
Determinants of firm’s profit
Value of product to customers
Intensity of competition
Bargaining power of produced relative to their suppliers
Industrial Organization (IO) Economics:
How industry structure drives competitive behavior and determines industry
performance
Industry structure drives competition, which, in turn, determines industry
profitability
Porter’s Five Force Model
Horizontal competition
Rivalry among existing firms
Threat of new entrants
Threat of substitutes
Vertical competition
Bargaining power of suppliers
Bargaining power of buyers
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Industry Analysis (2/…)
Threat of entry (entry barriers) Industry boundary defined by
Capital requirement group of companies that compete
Economies of scale to serve the same market
Absolute cost advantage
A market’s boundary is defined by
Product differentiation
substitutability
Access to channels of distribution
Demand side
Government and legal barriers
Supply side
Retaliation
Limitation of Game Theory: Good for historical analysis, not future; and good
for limited number of firms in concentrate industries
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Competitive Analysis (2/…)
Competitive intelligence (from publically available info)
Forecast competitors’ future strategies and decision
Predict competitors’ likely creation to firm’s strategic initiatives
Determine how competitors’ behavior can be influenced to make it more favorable
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Analyzing Resources & Capabilities (1/…)
Focus of strategy shifted from external environment to internal environment
Internal resources and capabilities are more secure source of advantage
Competitive advantage, rather than industry attractiveness is primary source of superior
profitability
Profit types
Superior marketing power (Monopoly rents)
Superior resources (Ricardian rents)
Resource vs Capabilities
Resources: Productive assets owned by the firm
Capabilities: What the firm can do
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Analyzing Resources & Capabilities (2/…)
Appraising resources and capabilities (sources of profit)
Establishing competitive advantage
Scarcity
Relevance (to key success factors)
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Analyzing Resources & Capabilities (3/…)
Ways of leveraging resources
Converging resources to a few, clearly defined goals. Focus and target.
Accumulating resources through mining experience or borrowing from other firms
Complementing resources through blending and balancing
Conserving resources through recycling and co-opting
Replicating capabilities
Replicating them internally
Systematization of knowledge that underlies capabilities
Creating Standard Operating Procedures (SOPs)
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Analyzing Resources & Capabilities (4/…)
Approaches to capability development
Acquiring capabilities: Mergers & Acquisitions
Integrating issues
Cultural and personality clashes
Accessing capabilities; Strategic alliances
Sharing of resources in pursuit of common goals
Creating capabilities
Acquiring necessary resources
Integrating these resources
Housed within dedicated organizational units
Search, experimentation and problem solving
Creation of organizational routines
Management of motivation and incentives
Role of ‘Knowledge Management’
Incubating capabilities into separate organizational unit
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Analyzing Resources & Capabilities (5/…)
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Org. Structure & Management System (1/…)
Ways of organizing production in capitalistic economy
Markets (by price mechanism)
Firms (by managerial direction)
If Administrative Cost is lesser than Transaction Cost, transaction will be
organized within the firm than across markets
Emergence of modern corporation (critical transformations)
Line- and –staff structures Complex functional structures (19th century) and Holding
Companies
Multi-divisional corporation (1920s): DuPont (increasing size and widening product
range), General Motors (weak financial control and confused product line)
Centralization Coordination and Decentralized Operation
Matrix organization
Shared service organization
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Org. Structure & Management System (2/…)
Specialization vs. Coordination and Cooperation
Stable environment eases division of labor (specialization)
Coordination mechanism
Price mechanism (transfer price between divisions; arms-length coordinator)
Rules and directives ()
Mutual adjustments
Routines (regular and predictable sequence of coordinated actions)
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Org. Structure & Management System (3/…)
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Org. Structure & Management System (4/…)
Mechanistic and organic form (Burns and Stalker)
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Org. Structure & Management System (5/…)
Basis of defining organizational units
Tasks
Products
Geography
Process
Based upon required and possible coordination intensity
Levels of interdependence (Thompson)
Pooled interdependence (least)
Sequential interdependence
Reciprocal interdependence (most intense)
Factors impacting efficiency of organizational arrangements
Economies of scale
Economies of utilization
Learning
Standardization of control systems
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Org. Structure & Management System (6/…)
Alternative structural forms
Functional structure
Exploring economies of scale, promoting learning and capability building, and
deploying standardized control systems
Problems of coordination and cooperation
Problem arises when firms grow in product range
Multi-divisional structure
Response to diversification
Loosely coupled modular organization
Business level strategy and operating decisions made locally and planning,
budgeting and common services are central
Three levels: corporate center; the division; and individual business units
Matrix structure
Often complex, slow and conflict pro structure
Companies move away from matrix structure
Alternative forms: Adhocracies; Team-based and project-based
organizations; and Networks. Characterized by focus on coordination rather
than control; by mutual adjustment; and individual playing multiple roles. 24
Org. Structure & Management System (7/…)
Management system for coordination and control
Information system
Collect, organize and communicate information
Information feedback and information networking
Strategic planning system
For achieving coordination within the company
Ensures consistency and commits managers
Three to Five years; combining top-down initiatives and bottom-up business plans
Assess the goals set assumptions and forecasts qualitative statement
specific action steps set of financial predictions
Financial planning and control systems
Capital expenditure budget
Operating budget
Human resources management system
Implementation of employee contracts
Corporate culture as control mechanism
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Nature and Source of Competitive
Advantage (1/…)
Emergence of competitive advantage
External sources of change
Changing customer demand
Changing price
Technology change
Magnitude of change and Resource heterogeneity leading to different impact
Competitive advantage from responsiveness to change
Information + Flexibility
Time based competition
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Nature and Source of Competitive
Advantage (2/…)
Production markets
Difference in resource endowments
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Nature and Source of Competitive
Advantage (3/…)
Industry conditions conducive to competitive advantage
Information complexity
Opportunities for deterrence and preemption
Difficulties of resource acquisition
Types of competitive advantage
Generic Key strategy elements Resources and organizational requirements
strategy
Cost Scale-efficient plants Access to capital
leadership Design for manufacture Process engineering skills
Control of overheads and R&D Frequent reports
Process innovation Tight cost control
Outsourcing (especially overseas) Specialization of jobs and functions
Avoidance of marginal customer accounts Incentives linked to quantitative targets
Differentiation Emphasis on branding advertising, Marketing abilities
design, service, quality, and new product Product engineering skills
development Cross-functional coordination
Creativity
Research capability
Incentives linked to qualitative performance
targets
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Cost Advantage (1/…)
Cost Leadership: Must find and exploit all sources of cost advantage
and sell a standard, no-frills product
Historical focus of strategy management was on cost advantage
Experience Curve (relation between cost and accumulated experience)
The unit cost of value added to a standard product declines by constant percentage
(typically 20 and 30%) each time cumulative output doubles
Firm’s primary objective to be expand market share
Pricing based upon anticipated cost (not current cost)
Cost advantage is a prerequisite for success, though may not guarantee long term
profitability.
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Differentiation Advantage (1/…)
Differentiation variables
Tangible and intangible dimensions (differentiation opportunities)
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Differentiation Advantage (2/…)
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Differentiation Advantage (3/…)
Cost of differentiation
Limits potential of economies of scale
Hampers exploitation of learning economies
High investment in brand, quality, employees, and services
Successful differentiation requires a combination of astute analysis and
creative imagination
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Differentiation Advantage (5/…)
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Industry Evolution & Strategic Change (1/…)
‘Innovators’ that pioneer the creation of new industry are typically different
companies from the ‘consolidators’ that develop it
Adapting to Technology
Competency enhancing/ Competency destroying (component or architecture level
change) 38
Industry Evolution & Strategic Change (4/…)
Profitability of innovation
Across companies, R&D intensity and frequency of new product introduction tend to be
negatively associated with profitability
40
Management of Innovation (2/…)
The risk of pioneering are greater for an established firm with a reputation
and brand to protect, while to exploit its complementary resources effectively
typically requires a more developed market
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Management of Innovation (3/…)
Managing Risk
Sources of uncertainty in emerging industries
Technology uncertainty
Market uncertainty
Corporate restructuring
Asset and cost surgery
Selective product and market pruning
Piecemeal productivity moves
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Mature Industries (2/…)
Quest of differentiation
Trend towards commoditization narrows the scope for differentiation and reduces
customer willingness to pay a premium for differentiation
Product standardization and increasing differentiation in complementary services
Brand promotion (e.g. cola and cigarettes)
Innovation
Strategic innovation (when product and process innovations fade out)
Redefining markets and market segments
Embracing new customer groups
Adding products and services that perform new but related functions
45
Mature Industries (3/…)
Strategy implementation
Efficiency through bureaucracy (traditionally popular)
Machine bureaucracy (centralize, well-defined roles, vertical communication)
Highly routinized operations and application of highly detailed rules and procedures
Beyond bureaucracy
Increased role of business level managers in decision making (autonomy)
Shrinking corporate staff
Less emphasis on economies of large scale production
Increased emphasis on teamwork
Profit incentives to motivate employees
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Declining Industries (1/…)
47
Vertical Integration & Firm’s Scope (1/…)
From an ear of integration, last 20 years have seen firms refocusing on core
strengths (flexibility and specialization)
Types of vertical integration: Backward/ Forward; and Full/ Partial
Concerns driving vertical integration
Opportunism and strategic misinterpretation (due to bargaining power)
Hold-up
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Vertical Integration & Firm’s Scope (2/…)
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Multi-national Corporation (1/…)
Patterns of internationalization
Success factors of Joint
Trade or Direct Investment Ventures and Alliances
Industry types: Strategic intent of partners
Sheltered industry (served exclusively by indigenous firms) (Competition for
Trading industries (trade, i.e. exports and imports) competence)
Multi-domestic industries (direct investment) Appropriability of
Global industries (both trade and direct investment) contribution (need for
gatekeepers)
Impact on competition Receptivity of company
Intense competition and lower industry profitability (clarity of synergies)
Lower entry barriers
Increased rivalry amongst existing firms
Lowering seller concentration
Increasing diversity of competitors How do national cultures
Increasing access capacity differ? (Hofstede, 1984)
Increasing bargaining power of buyers Power distance
Global sourcing Uncertainty avoidance
Internet-based markets
Individualism
Masculinity/ femininity
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Multi-national Corporation (2/…)
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Multi-national Corporation (3/…)
Direct investment
Joint venture (marketing and distribution only; fully integrated)
Wholly owned subsidiary (marketing and distribution only; fully integrated)
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Multi-national Corporation (4/…)
Multinational strategies
Assumptions of global strategy
Globalization of customer preference (technology homogenization)
Sales economics (development, manufacturing and marketing)
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Diversification Strategy (1/…)
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Diversification Strategy (2/…)
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Multi-business Corporation (1/…)
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Multi-business Corporation (2/…)
Strategic planning system (trade off between business initiatives and corporate
control)
Strategic planning systems (rational) don’t make strategy (rather it’s continuous decision-
oriented planning)
Weak strategy execution (advice adoption of: milestones, balanced scorecards, strategy
maps)
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Trends in Strategic Management (1/…)
Trends in external environment of business
The Third Industrial Revolution (knowledge revolution; casino of technology)
Societal pressures (CSR; sustainable business)
Decline of public corporation
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