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Strategy
Plans for the allocation of a firms scarce resources,
over time, to reach identified goals. Environment,
competition, customers.
Structure
The way in which the organization's units relate to
each other: centralized, functional divisions (top-
down); decentralized; a matrix, a network, a holding, etc.
Systems
The procedures, processes and routines that characterize how the work should be done: financial systems; recruiting,
promotion and performance appraisal systems; information systems.
Staff
Numbers and types of personnel within the organization.
Style
Cultural style of the organization and how key managers behave in achieving the organization's goals. Compare:
Management Styles.
Skills
Distinctive capabilities of personnel or of the organization as a whole. Compare: Core Competences.
STRENGTHS OF THE 7-S MODEL. BENEFITS
Diagnostic tool for understanding organizations that are ineffective.
Guides organizational change.
Combines rational and hard elements with emotional and soft elements.
Managers must act on all Ss in parallel and all Ss are interrelated.
Core Competency
Inside-out strategy. Explanation of Core Competence of Hamel and Prahalad.
The Core Competence model of Hamel and Prahalad is a corporate strategy model that starts the strategy process
by thinking about the core strengths of an organization.
In their article "The Core Competence of the Corporation" (1990), Prahalad and Gary Hamel dismiss the portfolio
perspective as a viable approach to corporate strategy. In their view, the primacy of the Strategic Business Unit is
now clearly an anachronism. Hamel and Prahalad argue that a corporation should be built around a core of shared
competences. Compare: Horizontal Integration.
Business units must use and help to further develop the CC(s). The corporate center should not be just another layer
of accounting, but must add value by articulating the strategic architecture that guides the process of competence
building.
Once top management (with the help of Strategic Business Units managers) have identified an all-embracing Core
Competence, it must ask businesses to identify the projects and the people that are closely connected with it.
Corporate auditors should perform an audit of the location, number, and quality of the people related to the CC. CC
carriers should be brought together frequently to share ideas.
CORE RIGIDITIES?
Care must be taken not to let core competencies develop into core rigidities. A Corporate Competence is
difficult to learn, but is difficult to unlearn as well. Companies that have spared no effort to achieve a
competence, sometimes neglect new market circumstances or demands. They risk to be locked in by
choices that were made in the past.
BCG Model
Portfolio Management based on Market Share and Market Growth. Explanation of BCG Matrix. ('70)
The BCG Matrix method is the most well-known portfolio management tool. It is based on product life cycle theory.
It was developed in the early 70s by the Boston Consulting Group. The BCG Matrix can be used to determine what
priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company
should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth
products that generate a lot of cash. The Boston Consulting Group Matrix has 2 dimensions: market share and
market growth. The basic idea behind it is: if a product has a bigger market share, or if the product's market grows
faster, it is better for the company.
THE FOUR SEGMENTS OF THE BCG MATRIX
Placing products in the BCG matrix provides 4 categories in a portfolio of a company:
Stars (high growth, high market share)
o Stars are using large amounts of cash. Stars are leaders in the business. Therefore they
should also generate large amounts of cash.
o Stars are frequently roughly in balance on net cash flow. However if needed any attempt
should be made to hold your market share in Stars, because the rewards will be Cash Cows if
market share is kept.
Cash Cows (low growth, high market share)
o Profits and cash generation should be high. Because of the low growth, investments which
are needed should be low.
o Cash Cows are often the stars of yesterday and they are the foundation of a company.
Dogs (low growth, low market share)
o Avoid and minimize the number of Dogs in a company.
o Watch out for expensive ‘rescue plans’.
o Dogs must deliver cash, otherwise they must be liquidated.
Question Marks (high growth, low market share)
o Question Marks have the worst cash characteristics of all, because they have high cash
demands and generate low returns, because of their low market share.
o If the market share remains unchanged, Question Marks will simply absorb great amounts
of cash.
o Either invest heavily, or sell off, or invest nothing and generate any cash that you can.
Increase market share or deliver cash.
THE BCG MATRIX AND ONE SIZE FITS ALL STRATEGIES
The BCG Matrix method can help to understand a frequently made strategy mistake: having a one size fits all
strategy approach, such as a generic growth target (9 percent per year) or a generic return on capital of say 9,5% for
an entire corporation.
In such a scenario:
Cash Cows Business Units will reach their profit target easily. Their management have an easy job.
The executives are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash
amounts in their mature businesses.
Dogs Business Units are fighting an impossible battle and, even worse, now and then investments
are made. These are hopeless attempts to "turn the business around".
As a result all Question Marks and Stars receive only mediocre investment funds. In this way they
can never become Cash Cows. These inadequate invested sums of money are a waste of money. Either
these SBUs should receive enough investment funds to enable them to achieve a real market dominance
and become Cash Cows (or Stars), or otherwise companies are advised to disinvest. They can then try to
get any possible cash from the Question Marks that were not selected.
OTHER USES AND BENEFITS OF THE BCG MATRIX
If a company is able to use the experience curve to its advantage, it should be able to manufacture
and sell new products at a price that is low enough to get early market share leadership. Once it becomes a
star, it is destined to be profitable.
BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of Stars, Cash
Cows, Question Marks and Dogs.
BCG method is applicable to large companies that seek volume and experience effects.
The model is simple and easy to understand.
It provides a base for management to decide and prepare for future actions.
LIMITATIONS OF THE BCG MATRIX
Some limitations of the Boston Consulting Group Matrix include:
It neglects the effects of synergy between business units.
High market share is not the only success factor.
Market growth is not the only indicator for attractiveness of a market.
Sometimes Dogs can earn even more cash as Cash Cows.
The problems of getting data on the market share and market growth.
There is no clear definition of what constitutes a "market".
A high market share does not necessarily lead to profitability all the time.
The model uses only two dimensions – market share and growth rate. This may tempt
management to emphasize a particular product, or to divest prematurely.
A business with a low market share can be profitable too.
The model neglects small competitors that have fast growing market shares
Measuring corporate reputation by capturing the
perceptions of stakeholder groups. Explanation
of Corporate Reputation Quotient of Harris-
Fombrun.
The Corporate Reputation Quotient of Harris-Fombrun is a
comprehensive measuring method of corporate reputation that was
created specifically to capture the perceptions of any corporate
stakeholder group such as consumers, investors, employees, or key
influencers. The instrument enables research on the drivers of a
company's reputation, and allows to compare reputations both within
and across industries.
Emotional Appeal
Workplace Environment
- good feeling about the company
- is well managed
- admire and respect the company
- appears to be a good
- trust the company
company to work for
Products and Services
- appears to have good
- company believes in its products
employees
and services
Financial Performance
- company offers high quality products
- history of profitability
and services
- appears a low risk investment
- develops innovative products and
- strong prospects for future
services
growth
- offers products and services that are
- tends to outperform its
good value
competitors
Vision and Leadership
Social Responsibility
- has excellent leadership
- supports good causes
- has a clear vision for the future
- environmentally responsible
- recognizes and takes advantage of
- treats people well
market opportunities
Once the value chain has been defined, a cost analysis can be performed by assigning
costs to the value chain activities. Porter identified 10 cost drivers related to value chain
activities:
1. Economies of scale.
2. Learning.
3. Capacity utilization.
4. Linkages among activities.
5. Interrelationships among business units.
6. Degree of vertical integration.
7. Timing of market entry.
8. Firm's policy of cost or differentiation.
9. Geographic location.
10. Institutional factors (regulation, union activity, taxes, etc.).
A firm develops a cost advantage by controlling these drivers better than its competitors
do. A cost advantage also can be pursued by "Reconfiguring" the value chain.
"Reconfiguration" means structural changes such as: a new production process, new
distribution channels, or a different sales approach.
Normally, the Value Chain of a company is connected to other Value Chains and is part of
a larger Value Chain. Developing a competitive advantage also depends on how
efficiently you can analyze and manage the entire Value Chain. This idea is called:
Supply Chain Management. Some people argue that network is actually a better word
to describe the physical form of Value Chains: Value Networks.
Alleviate
world
poverty.
Do not
treat the
poor as
victims or
as a
burden.
Explanatio
n of
Bottom of
WHAT IS THE BOTTOM OF THE PYRAMID? DESCRIPTION
the The bottom of the (economic) pyramid consists of the 4 billion people living on less
than $2 per day. For more than 50 years, the World Bank, donor nations, various aid
Pyramid
agencies, national governments, and, lately, civil society organizations have all done
their best, but they were unable to eradicate poverty.
of C.K.
Aware of this frustrating fact, C.K. Prahalad begins his book: "The Fortune at the
Bottom of the Pyramid" with a simple yet revolutionary proposition: If we stop thinking
Prahalad.
of the poor as victims or as a burden and start recognizing them as resilient and
creative entrepreneurs and value-conscious consumers, a whole new world of
opportunity will open up.
Prahalad suggests that four billion poor can be the engine of the next round of global
trade and prosperity, and can be a source of innovations. Serving the Bottom of the
Pyramid customers requires that large firms work collaboratively with civil society
organizations and local governments. Furthermore, market development at the
Bottom of the Pyramid will also create millions of new entrepreneurs at the grass
roots level.
Prahalad presents his new view regarding solving the problem of poverty as a Co-
Creation solution towards economic development and social transformation (figure),
of which the parties involved are:
Private enterprises
Development and aid agencies
Bottom of the Pyramid consumers
Bottom of the Pyramid entrepreneurs
Civil society organizations and local government
12 PRINCIPLES OF INNOVATION FOR BOTTOM OF THE PYRAMID MARKETS
Prahalad provides the following building blocks for creating products and services for
Bottom of the Pyramid markets:
1. Focus on (quantum jumps in) price performance.
2. Hybrid solutions, blending old and new technology.
3. Scaleable and transportable operations across countries,
cultures and languages.
4. Reduced resource intensity: eco-friendly products.
5. Radical product redesign from the beginning: marginal changes
to existing Western products will not work.
6. Build logistical and manufacturing infrastructure.
7. Deskill (services) work.
8. Educate (semiliterate) customers in product usage.
9. Products must work in hostile environments: noise, dust,
unsanitary conditions, abuse, electric blackouts, water pollution.
10. Adaptable user interface to heterogeneous consumer bases.
11. Distribution methods should be designed to reach both highly
dispersed rural markets and highly dense urban markets.
12. Focus on broad architecture, enabling quick and easy
incorporation of new features.
ORIGIN OF THE BOTTOM OF THE PYRAMID. HISTORY
Before his 2005 book, Prahalad published two articles regarding this framework
about alleviating poverty:
Jan 2002: The Fortune at the Bottom of the Pyramid
(Strategy+Business), with Stu Hart
Sep 2002: Serve the World's Poor, Profitable (Harvard Business
Review), with Allen Hammond
USAGE OF THE BOTTOM OF THE PYRAMID. APPLICATIONS
This framework provides an impetus for a more active involvement
of the private sector in building the marketing ecosystems for transforming
the Bottom of the Pyramid.
Helps to reconsider and change long held beliefs, assumptions
and ideologies.
Provides clues on developing products and services for Bottom of
the Pyramid consumers.
STRENGTHS OF BOTTOM OF THE PYRAMID THINKING. BENEFITS
The biggest strengths of the Bottom of the Pyramid approach by Prahalad is, that it
helps to reconsider and change long held beliefs, assumptions, and ideologies,
which are all based on and are supporting victim- and burden thinking:
There is money at the Bottom of the Pyramid: it is a viable market.
Access to Bottom of the Pyramid markets is not necessarily
difficult. Unconventional approaches such as the Avon ladies approach
may work.
The poor are very brand-conscious.
The Bottom of the Pyramid market has been connected (mobile
phones, TV, Internet).
Bottom of the Pyramid consumers are very much open towards
advanced technology.
ASSUMPTIONS OF THE BOTTOM OF THE PYRAMID. CONDITIONS
1. The poor can not participate in the benefits of globalization without
an active involvement of the private sector and without access to products
and services that represent global quality standards.
2. The Bottom of the Pyramid market provides a new growth
opportunity for the private sector and a forum for innovations. Old and tried
solutions cannot create markets at the Bottom of the Pyramid.
3. Bottom of the Pyramid markets must become an integral part of
the work and of the core business of the private sector. Bottom of the
Pyramid markets can not merely be left to the realm of Corporate Social
Responsibility (CSR) initiatives.