Sie sind auf Seite 1von 324

Master in International Trade Business

Madrid
Barcelona
Valencia
Strategic management
www.esic.edu

Sevilla
Zaragoza
Málaga
Galicia
Pamplona
Bilbao
Granada
D. Fernando Flores Bas Pozuelo de Alarcón. AA: 2019-2020
Fernando Flores – professional background
● Companies
– CIONE – Grupo de Ópticas
– Gestair
– Endesa
– The Gillette Co.
– Sheraton
– International Paper Co.
– Loewe

● Areas of responsibility
– CEO
– General Management
– Finance Management

● Other references
– Professor of ESIC, EAE and Villanueva University (Complutense)
– Member of IESE Association

2
Cione
Classes objectives

● Gather the necessary skills in developing successfully the strategy of a firm

● Provide a clear understanding of the dynamics of the strategy, the tools of the strategy analysis
and the business and corporate strategies for the quest and development of competitive
advantages

● Learning approach
– Global mindset in the development of the strategy
– Innovation as a source of competitive advantage
– Corporate social responsibility integrated within the strategy
– Individuals with exemplary values and ethical behaviour

4
Classes objectives

● Specific learning objectives

– Understand the basic concepts of the strategy, its components and the importance of managing and leading the
development of a strategic plan of a firm

– Identify how digitalisation is impacting the main fields of strategy and is changing existing business models

– Determine, evaluate and assess characteristics, strengths and weaknesses of different strategies

– Manage different tools and techniques to evaluate and propose alternative strategic business models and/or solutions

– Evaluate and assess different organisation models in the accomplishment of the strategic objectives

– Identify and be familiar with the roles and responsibilities of the board of directors in relationship with the strategy and
the coordination with top management

5
Classes outline

1. The concept of strategy


INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digital transformation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

6
Master in International Trade Business

Groups and assessment planning

Madrid
Barcelona
Valencia
Strategic management
www.esic.edu

Sevilla
Zaragoza
Málaga
Galicia
Pamplona
Bilbao
Granada
Profes. Fernando Flores Bas Pozuelo de Alarcón. AA: 2019-2020
Classes outline

1. The concept of strategy


INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digitalisation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

8
Definition of strategy

“The most successful strategies


are the result of a fortunate vision;
for the time being we are working
on the fortunate part of it.....”

9
Definition of strategy

“A weak leadership may ruin the most solid strategy;


frequently the energetic execution of a plan, even if it is
bad, could bring the victory”

Sun Tzu – 5th Century B.C.

10
Definition of strategy

● It is the determination of a company goals and


fundamental objectives on a long term basis

– Business the firm is or is to be

– Kind of company it is or is to be

– Activities of the value chain to be covered

– Competitive advantage

– Allocation of resources

– Polices and procedures

– Action plan to achieve the goals

11
What is a competitive advantage?

● It is the advantage gained by a firm


over competitors by offering customers
(or consumers) greater value
– Better prices
– Additional satisfaction perceived by customers
thus justifying higher prices

12
What is a competitive advantage?

13
What is a competitive advantage?
• Best products/services
• Similar/superior prices
than competitors

Advantage based on value


VALUE perception
Expertise and
abilities
perceived as
ENTERPRISE MARKET
unique,
profitable and
sustainable
Advantage based on cost/price
COST relationship

• Similar products/services
• Lower prices than
competitors

14
What is a competitive advantage?

● Superior performance than competitors or much better than the average of the industry
– Higher profit margin, greater return on assets (ROA), unique technology in producing a product, etc.

● Can emerge due to changes in external environment or can be created inside the company

● When a competitive advantage remains over a long period of time it becomes a sustained
competitive advantage

15
Describing Coca – Cola strategy

Where are we competing?


– Competes in the soft drink industry, where it
Strategy as positioning supplies concentrate for its branded soda drinks
– Geographically, competes worldwide; its “big
• Where are we competing? five” are US, Mexico, Brazil, Japan and China
• Product market scope – In terms of vertical scope, main activities are
• Geographical scope product development, brand management and
the manufacture and distribution of concentrate.
• Vertical scope The production and distribution are undertaken
by franchised local bottlers
• How are we competing?
• What is the basis of our
How are we competing?
competitive advantage?
– Differentiation strategy relying on brand image
developed through heavy advertising and
promotion. It seeks market share leadership
through mass marketing and close relationships
with leading bottlers in each market

16
What means a strategic planning process?
The process and methodology through which managers create and
implement a strategy that can lead to a sustainable competitive advantage

Participants
– CEO

– Board of directors

– Directors

– Managers

– Consultancy firm?

17
Key points of a strategic planning process?

● Top management decision process

● Long term – high cost of reversion

● Dynamic process – adjustments

● Strategic planning direction skills

● Resources, policies and procedures

● Implementation plan to achieve the goals

18
Strategic planning process

Initial assessment

T
H
E Environment analysis

P
R
Strategy formulation
O
C
E
S Strategy implementation
S

Monitoring and results


evaluation

19
Strategic planning process

Initial assessment

T Where are we?


H
E Environment analysis

P
R
Strategy formulation
O Where are we going?
C
E
S Strategy implementation How are we getting there?
S

Monitoring and results


evaluation How are we doing?

20
Classes outline

1. The concept of strategy


INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digitalisation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

21
Managing strategic tools
Initial assessment

T
H • Vision Strategic
E Environment analysis
• Mission purpose
P • Values definition
R
Strategy formulation
O
C
E
S Strategy implementation
S

▪ Leadership style
Monitoring and results
evaluation When setting up the vision,
▪ Culture
mission & values managers
▪ Size
should take into account
▪ Stakeholders

22
Vision statement

What do we want to be?

● Outlines an aspirational description of what the organisation wants to accomplish in


the long term future

● It concentrates on the future and is a source of inspiration for all employees within
the organisation

● It provides clear guide for decision – making criteria

23
Vision statement

A few examples

We strive to have a positive impact on customers, employees, small


businesses, the economy, and communities

Create economic opportunity for every member of the global workforce

Whether it is in terms of convenience, health or pleasure, we are able


and committed to create trustworthy products, systems and services
that contribute to improving the quality of consumers’ lives

24
Vision statement

A few examples

Bring digital to every person, home and organisation for a fully


connected, intelligent world

Be a leading and innovative financial Group, with


the best customer service and a benchmark in
responsible banking

25
Mission statement

Why do we exist?

● Is a description of what an organisation actually does, what its business is and why it does it
– Serves as a filter to separate what is important from what is not
– States which markets will be served and how
– Communicates a sense of intended direction to the entire organisation

● Reviewed according to the frequency of major changes made within the business or the
organisation

● A mission is something to be accomplished, whereas a vision is something to be pursued


through that accomplishment

26
Mission statement

A few examples

Inspire and nurture the human spirit – one person, one cup and one
neighborhood at a time

Organise the world's information and make it universally


accessible and useful

Spread ideas

27
Mission statement

A few examples

Create a world where people can belong through healthy travel


that is local, authentic, diverse, inclusive and sustainable

Entertain, inform and inspire people around the globe


through the power of unparalleled storytelling, reflecting the
iconic brands, creative minds and innovative technologies
that make ours the world’s premier entertainment company

We innovate mobility solutions with passion to enhance the quality of life

28
Values

What do we believe in and how we will behave?

● Define the standards that govern the culture of the organisation

● The operating philosophies or principles that guide an organisation´s internal conduct as


well as its relationship with its customers, partners and shareholders

29
Values

Company Personal
values values

Are they always compatible?

What if they are not?

30
Values

ten core values..

1. Focus on the user and all else will follow


2. It’s best to do one thing really, really well
3. Fast is better than slow
4. Democracy on the web works
5. You don’t need to be at your desk to need an answer
6. You can make money without doing evil
7. There’s always more information out there
8. The need for information crosses all borders
9. You can be serious without a suit
10. Great just isn’t good enough

31
P&G vision, mission & values

Vision
“Be, and be recognised as, the best consumer products and services company in the world”

Mission
“We will provide branded products and services of superior quality and value that improve the lives of the world's
consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit
and value creation, allowing our people, our shareholders and the communities in which we live and work to
prosper”

Values
“Integrity, Leadership, Ownership, Passion for winning, Trust”

32
Hitachi vision, mission & values

Vision
“Hitachi delivers innovations that answer society's challenges. With our talented team and proven experience in
global markets, we can inspire the world”

Mission
“Contribute to society through the development of superior, original technology and products”

Values
“Harmony (Wa) – The willingness to respect the opinions of others and discuss matters in a manner that is
thorough and frank, but fair and impartial……
Sincerity (Makoto) – To approach issues openly and honestly…. Is the spirit that inspires the confidence that
society has placed in us
Pioneering Spirit (Kaitakusha-seishin) – A purposeful approach to one's work based on individual initiative…….
Is a keen desire to be at the forefront of technology……. These objectives are achieved by promoting the limitless
potential of each individual member of Hitachi”

33
vision mission

To be recognised by customers, competitors,


Ensure the satisfaction of our customers and
allies and collaborators, as leaders in the
consumers in order to be the best option of
optical sector, focused on the needs of the
the industry, generating value added to
visual and hearing health of the people and
based on innovation, quality and the opticians and audiologists through our

reliability of products and services, within a products and services, in response to the

responsible and sustainable social environment needs and expectations of our stakeholders

values

Innovation to undertake and lead new challenges


Commitment with social responsibility and people
Knowledge through talent management and people expertise and experience
Professionalism be efficient, flexible, capable and responsible in the development of activities

34
Managing strategic tools
Initial assessment

T
H
• External analysis
E Environment analysis • Internal analysis

P
• Critical success factors
R • Unique selling proposition
Strategy formulation
O
C
E
S Strategy implementation
S Tools
• PESTEL analysis
Monitoring and results
evaluation • CAGE model
• Porter´s 5 forces model
• Competitor analysis
• SWOT analysis
• VRIO
• Value chain
• Business canvas model

35
PESTEL analysis
Tool aimed to explore the external macro environmental
factors that might be affecting the position of a business

P
E
Political
S
T
Legal Economic P
+
E
E
L Industry Industry
Firm
=
S
P Environ- Socio-
Industry
mental cultural
E
T
S
T
Technolo-
E gical
L
36
PESTEL analysis
What changes do we exactly look for in
politics, economy, society and technology?

Political factors Economic factors


• Government stability and changes... • Stage of business cycle
• Tax policies • Growth rates
• Changes in political environment • Inflation rate and interest rates
• Regulation & de-regulation trends • Monetary and fiscal policies
• Level of corruption • Employment / unemployment P
• Bureaucracy • Impact of globalisation
• Competition regulation • Labour cost
• Import restrictions • Stock market E

S
Social factors Technological factors
• Population growth rate • R&D activities and investment
• Population health and education • Technology incentives T
• Age distribution & expectancy rates • Legislation
• Sex distribution • Basic infrastructure
• Lifestyles • Communication infrastructure
• Buying habits • Internet infrastructure & penetration
• Religion and beliefs • Access to newest technology
• Attitudes towards savings, product • Rate of technological change
quality, customer service, leisure..

37
PESTEL analysis
What changes do we exactly look for in
politics, economy, society and technology?

Environmental factors
• Weather
• Climate change
Environmental • Environment legislation
• Pollution
(ecological) • Waste and recycling policies and
management P
Political Economic • Attitude towards ecological products
and support for renewable energy
E
factors factors
S

Social Technological
+ Legal factors
• Anti-trust law
T
E
factors factors
• Discrimination law
L
• Copyright, patents, intellectual
Legal property law
• Employment law
• Health and safety law
• Education law
• Data protection

Analysis…. and conclusions…. 38


Netflix in India: the way ahead

39
PESTEL analysis

● Political
– Relatively low initial investment in terms of capital expenditure
– Information Technology Act, 2000 approved by the parliament aims to punish people who send offensive
messages online, but is often used to target dissident posts on social media. In the past, ambiguity related to
the definition of offensive content has been open to personal interpretation
– Indian Copyright Act, 1957. To date, this law has failed to check the exchange of pirated content, making it
harder for SVoD companies to be able to add value for their customers

● Economic
– India is a price – conscious market and the value versus price debate is useless
– Payments means in India are mainly through debit card more than credit card and Paypal
– Urban and rural areas with different internet penetration. High in urban areas but 70% of the population lives
in rural India with low internet penetration
– Purchasing power is very low; $ 1,582 as of 2015 despite expectations for 2020 are of $ 3,000

40
PESTEL analysis

● Social
– Despite a remarkable shift among Indian consumers from traditional to digital media, a major part of the
Indian populations still prefers the traditional media (TV and cinema) which may be a limitation factor
– Vast array of cultures, religions and languages (15)
– Preferences, behaviours and beliefs of Indian consumers vary in each region

● Technological
– Broadband infrastructure and payment modes are major challenges that still needs to be fixed
– Payment systems are critical to the over the top (OTT) ecosystem and hold great importance for paid
services. Billing through the Indian Reserve Bank authentication process might be difficult for multinationals

41
PESTEL analysis

● Environment
– Due to the nature of the industry there is no relevant issues on this part that should be considered

● Legal
– Interpretation of censorship law is not easy to handle… very strict
– The constitution of India (article 19) guarantees freedom of speech and expression but no the right to offend
on topics of morality, decency and public order. However the Indian Penal Code allows for cramping free
speech on the grounds of outranging religious feelings or making statements creating or promoting enmity,
hatred or ill – will between classes on grounds of religion, caste, language or race

42
PESTEL analysis

Economic factors
Political factors
• India is a price – conscious market
• Information Technology Act, 2000
• Payments in India through debit cards
✓ Ambiguity in the application: punish
• Urban and rural areas with different
people sending offensive messages
online but often used to target
internet penetration; high in urban but Social factors
70% lives in rural areas
dissident post on social media • Most of the Indian consumers are
• Purchasing power is very low; $1,582
• Indian Copyright Act, 1957 traditional and prefers TV and cinema
per capita instead of digital media
✓ This law has failed to check the
exchange of pirate content • Vast array of cultures, religions and
languages
• Preferences, behaviours and beliefs
of Indian consumers vary in each
PESTEL region
analysis
Legal factors
• Interpretation of censorship law is
not easy to handle…. very strict
Technological factors
• The Indian Constitution (art. 19th) • Broadband infrastructure and payment
guarantees freedom of speech and Environmental factors modes are a major challenge that still
expression but the Indian Penal • Due to the nature of the industry there needs to be fixed
Code allows for cramping free is no relevant issues to be considered • Billing through the Indian Reserve
speech under certain (unclear) apart from the impact of the climate Bank authentication is an issue
circumstances change in agriculture, energy, floods
and potential exacerbation of
inequality

43
PESTEL analysis

Economic factors
Political factors
• India is a price – conscious market
• Information Technology Act, 2000
• Payments in India through debit cards
✓ Ambiguity in the application: punish
• Urban and rural areas with different
people sending offensive messages
online but often used to target
internet penetration; high in urban but Social factors
70% lives in rural areas
dissident post on social media • Most of the Indian consumers are
• Purchasing power is very low; $1,582
• Indian Copyright Act, 1957 traditional and prefers TV and cinema
per capita instead of digital media
✓ This law has failed to check the
exchange of pirate content • Vast array of cultures, religions and
languages
• Preferences, behaviours and beliefs
of Indian consumers vary in each
PESTEL region
analysis
Legal factors
• Interpretation of censorship law is
not easy to handle…. very strict
Technological factors
• The Indian Constitution (art. 19th) • Broadband infrastructure and payment
guarantees freedom of speech and Environmental factors modes are a major challenge that still
expression but the Indian Penal • Due to the nature of the industry there needs to be fixed
Code allows for cramping free is no relevant issues to be considered • Billing through the Indian Reserve
speech under certain (unclear) apart from the impact of the climate Bank authentication is an issue
circumstances change in agriculture, energy, floods
and potential exacerbation of
inequality

44
CAGE model

Cultural distance Geographical distance


• India is a diverse country where • India is divided into two broad
consumers preferences and segments: urban a rural
behaviours vary drastically from • Internet penetration is high in urban
north to south areas and low in rural
• Having 15 different languages • 70% of the population lives in rural
implies that SVoD players have to areas
work towards offering multi-genre
and multi-language content • It will take time to rural areas to use
third or fourth generation services
CAGE to access SVoD services
model

Administrative distance Economic distance


• Indians´ annual income per capita is
• Stringent censorship law and
of $1,600 as of 2015 and is expected
SVoD must choose their content
to almost double and reach $3,500 by
carefully
2020
• Companies need to be sensitive
• Indian consumers are extremely price
towards preferences and beliefs of
sensitive
Indian consumers and adapt
content

45
Five forces model
● Captures the main idea of Porter´s theory of competitive advantage

● Define the level of competition in any industry and its structure

● Determine industry profitability and attractiveness; some sectors are more profitable
than other

● Highlights what is important and directs managers towards those aspects most important
to generate a long term advantage

● A recommendation when using this tool:


– Do not compose a long list of forces in the competitive environment
– Identify the few driving factors that really defines the industry

46
Five forces model
● Industry attractiveness
– Value of the product to customers

– Intensity of competition

– Bargaining power of industry members relative to their suppliers and customers

Perfect competition Oligopoly Duopoly Monopoly

Concentration Many firms A few firms Two firms One firm

Entry/exit barriers None Significant Very high

Homogeneous
Product differentiation Potential for product differentiation
(commodity)

No impediments for
Information availability Imperfect availability of information
information flow

47
Five forces model
New
entrants

Threat of…

Bargaining Bargaining
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry

Threat of…

Substitutes

48
Five forces model
New
entrants

Threat of…

Bargaining Bargaining
power of… power of…
Industry
competitors

Suppliers Buyers

Competitive
rivalry

Substitute products are those that


customer views as an alternative
Threat depends on:
Threat of… • Existence of close substitute products
• Switching cost
• Perceived level of product differentiation
Substitutes • Buyers tendency to substitute
• Performs the same function but are based
on different technology

49
Five forces model
Substitute products

● Substitute products are those that the customer views as alternatives; i.e. those that
give the consumers the same or similar benefits
– Contact lenses vs. eyeglasses vs. surgery
– Artificial sweeteners vs. sugar
– Plastic containers vs. glass vs. tin vs. aluminium

● Substitute products do not come from the same industry


– In most of the cases the product that is acting as a substitute is from a different sector

50
Five forces model
Substitute products

● The threat from substitute products depends on…


– Existence of close substitute products – increases the inclination of customers to switch to alternatives in
response to price differences
○ Margarine vs. Butter
– Switching cost – the greater the cost for customers to switch to a substitute product, the less the threat there is of
substitution
○ Petrol vs. natural gas for heating your home
– Perceived level of product differentiation – people are less likely to switch to an alternative product if they think
that it would be difficult to replicate all the features of their original product
○ Fuel cars versus electric cars
○ Fixed or mobile telephony vs. internet telephony
– Buyers tendency to substitute
○ Depends on price and performance characteristics (high speed train versus flight)
– Performs the same function but are based on different technology
○ Natural gas vs. wind power energy vs. solar energy

51
Five forces model
Degree of difficulty to enter in an industry;
profitable markets with high profits will
New
attract firms
entrants
Entry barriers:
Threat of…
Capabilities to impede the entry of new compe-
titors. Determined by:
- Competitive advantages
Bargaining Bargaining - Resources of firms competing
power of… power of…
Industry
competitors

Suppliers Buyers

Competitive
rivalry

Threat of…

Substitutes

52
Five forces model
Threat of new entrants

● Type of barriers
– Advertising; companies can seek to make it difficult for new competitors by spending heavily on advertising that
new firms would find more difficult to afford. This is known as the market power theory of advertising
– Cost advantages, independent of scale; proprietary technology, know-how, favourable access to raw materials,
favourable geographic locations, learning curve, etc.
– Customer loyalty; large companies may have existing loyal customers to established products. The presence of
established strong brands within a market can be a barrier to entry in this case
– Distributor agreements; exclusive agreements with key distributors or retailers can make it difficult for other
manufacturers to enter the industry
– Economies of scale; large experienced firms generally produce goods at lower costs than small inexperienced firms
– Globalisation; entry of global players into local market make entry of local players into the market difficult
– Government regulations; it may make entry more difficult or even impossible. Government may make competition
illegal and establish a statutory monopoly. Requirements for licenses and permits may raise the investment needed
to enter a market, creating an effective barrier to entry
– Inelastic demand; strategy of selling at a lower price in order to penetrate markets. This might be ineffective with
price – insensitive consumers

53
Five forces model
Threat of new entrants

● Type of barriers
– Intellectual property; potential entrant requires access to equally efficient production technology in order to freely
enter a market. Patents give a firm the legal right to stop other firms producing a product for a given period, and so
restrict entry into a market
– Investment; need of high level of investments. This is the case in industries with economies of scale and/or natural
monopolies
– Network effect; when a good or service has a value that depends on the number of existing customers then
competing players may have difficulties in entering a market where an established company has already captured a
significant user base
– Predatory pricing; the practice of a dominant firm selling at a loss to make competition more difficult for new firms
– Restrictive practices; such as air transport agreements that make it difficult for new airlines to obtain landing slots
at some airports
– Research and development; some products require a large upfront investment in technology which will deter
potential entrants
– Supplier agreements; exclusive agreements with key links in the supply chain can make it difficult for other
manufacturers to enter

54
Five forces model
New
entrants

Threat of…

Bargaining Bargaining
power of… power of…
Industry
competitors

Suppliers Buyers

Competitive
rivalry

Threat of… •The ability of customers to put


a supplier under pressure

Substitutes • It also affects the customer's


sensitivity to price changes

55
Five forces model
Bargaining power of buyers

● Determinants
– Bargaining leverage
○ Size and buyer concentration, buyer volume
○ Buyer information availability about supplier´s product, prices and costs
○ Threat of backward integration
○ Availability of existing substitute products

– Price sensitive
○ Buyer price sensitivity; importance of an item as a part of total cost
○ Product differentiation; brand identity
○ Impact on quality, performance or service level to the buyer
○ Buyers intensity of competition (profitability)
○ Decision makers´ incentives

56
Five forces model
New
entrants

Threat of…

Bargaining Bargaining
power of… power of…
Industry
competitors

Suppliers Buyers

Competitive
rivalry

Threat of…

Power that suppliers of raw materials,


components and services can impose
over a customer Substitutes
- Suppliers may refuse to work with a firm,
charge excessively high prices or reduce
the quality of raw materials

57
Five forces model
Bargaining power of suppliers

● Determinants
– Concentration of suppliers

– Suppliers branding

– Profitability of suppliers

– Switching cost of suppliers versus customers switching costs


– Product differentiation

– Presence of substitute products

– Supplier concentration to customer concentration ratio

– Importance of volume to suppliers

– Cost relative to total purchases in the industry

– Threat of forward integration by suppliers relative to the threat of backward integration by customers

58
Five forces model
New
entrants
Rivals can compete aggressively in:
• Price Threat of…
• Non–price related items; innovation,
marketing, etc.

Bargaining Bargaining
power of… power of…
Industry
competitors

Suppliers Buyers

Competitive
rivalry

Threat of…

Substitutes

59
Five forces model
The intensity of competitive rivalry

● Determinants
– Industry concentration – number of competitors
– Industry growth – market growth
– Fixed cost allocation – economies of scale
– Product differences – product differentiation
– Industry overcapacity – storage cost
– Exit barriers
– Switching cost – switching from one product to another
– Diversity of competitors – culture, philosophy, history, etc.
– Brand identity – level of advertising expenses
– Corporate commitments
– Industry shakeouts

60
Five forces model
New
entrants

Threat of…

Bargaining Bargaining
power of… power of…
Industry
competitors

Suppliers Buyers

Competitive
rivalry

Threat of…

Substitutes

Analysis…. and conclusions….

61
Five forces model
New
entrants

Threat of…

Bargaining Bargaining
power of… power of…
Industry
competitors

Suppliers Buyers

Competitive
rivalry

The suppliers of
complements create value
Threat of… for the industry and can
exercise bargaining power
Complements
Substitutes
A missing force in
the Porter model?

62
Five forces model

Attractive industry – High profits Unattractive industry – Low profits

• High barriers to enter • Low barriers to enter


• Weak suppliers bargaining power • Strong suppliers bargaining power
• Weak buyers bargaining power • Strong buyers bargaining power
• Few substitute product or services • Many substitute product or services
• Low competition • Intense competition

63
Five forces model template

YES M NO
1. Threat of new entrants Remarks
(+) (=) (-)
Do large firms have a cost or performance advantage in your segment of
industry?

Are there any proprietary product differences in your industry?

Are there any established brand identities in your industry?

Do your customers incur any significant costs in switching suppliers?

Is a lot of capital needed to enter your industry?

Is serviceable used equipment expensive?

Does the newcomer to your industry face difficulties in accessing distribution


channels?

Does experience help you to continuously lower cost?

Does the newcomer have any problems in obtaining the necessary skilled
people, materials or suppliers?

Does your product or service have any proprietary features that give you lower
cost?

Are there any licenses, insurances or qualifications that are difficult to obtain?

Can the newcomers expect strong retaliation on entering the market?

Note: High barriers to entry = + factors (favourable to industry)


Low barriers to entry = - factors (unfavourable to industry)
Overall rating = Favourable to the industry; medium to the industry or unfavourable to the industry

64
Five forces model template

2. Threat of substitutes: some other products or services YES M NO


Remarks
which perform the same job as yours (+) (=) (-)

Substitutes have performance limitations which do not completely offset their


lowest price, or, their performance advantage is not justified by their higher price

The customer will incur costs in switching to a substitute

Your customer has no real substitute

Your customer is not likely to substitute

Note: Low threat of substitution = + factors (favourable to industry)


High threat of substitution = - factors (unfavourable to industry)
Overall rating = Favourable to the industry; medium to the industry or unfavourable to the industry

65
Five forces model template

3. Bargaining power of buyers: to what extend are your YES M NO


Remarks
customers locked into you? (+) (=) (-)

Is there a large number of buyers relative to the number of firms in the


business?
Do you have a large number of customers, each with relatively small
purchases?

Does the customer face any significant cost in switching suppliers?

Does the buyer need a lot of important information?

Is the buyer aware of the need for additional information?

Is there anything which prevents your customer from taking your function in-
house?

Your customer; are not highly sensitive to price?

Your product; is unique to some degree or has accepted branding?

Are your customers´ businesses profitable?

Do you provide incentives to the decision makers?

Note: Low bargaining power of buyers = + factors (favourable to industry)


High bargaining power of buyers = - factors (unfavourable to industry)
Overall rating = Favourable to the industry; medium to the industry or unfavourable to the industry

66
Five forces model template

YES M NO
4. Bargaining power of suppliers Remarks
(+) (=) (-)
My inputs (material, labour, supplies, services, etc.) are standard rather than
unique or differentiated

I can switch between suppliers quickly and cheaply

My suppliers would find it difficult to enter my business or my customers would


find it difficult to perform my function in-house

I can substitute inputs readily

I have many potential suppliers

My business is important to my suppliers

My cost of purchase has no significant influence on my overall cost

Note: Low bargaining power suppliers = + factors (favourable to industry)


High bargaining power of suppliers = - factors (unfavourable to industry)
Overall rating = Favourable to the industry; medium to the industry or unfavourable to the industry

67
Five forces model template

YES M NO
5. Determinants of rivalry among existing competitors Remarks
(+) (=) (-)

The industry is growing rapidly

The industry is not cyclical with intermittent capacity

The fixed cost of the business are a relatively low portion of total cost

There are significant product differences and brand identities between the
competitors

The competitors are diversified rather than specialised.

It would not be hard to get out of this business because there are no
specialised skills and facilities or long-term contract commitments, etc

My customers would incur significant cost in switching to a competitor

My product is complex and requires a detailed understanding on the part of


my customer

My competitors are all of approximately the same size as I am

Note: Low level of rivalry = + factors (favourable to industry)


High level of rivalry = - factors (unfavourable to industry)
Overall rating = Favourable to the industry; medium to the industry or unfavourable to the industry

68
Five forces model template

Overall industry rating Favourable Moderate Unfavourable Remarks

1. Threat of new entrants

2. Threat of substitutes

3. Bargaining power of buyers

4. Bargaining power of suppliers

5. Intensity of rivalry among competitors

TOTAL

69
Netflix in India: the way ahead

70
Five forces model

● Threat of new entrants – barriers to entry


– Relatively low initial investment in terms of capital expenditure
– In choosing a particular service provider in this industry, consumers look for popular titles at reasonable
prices; minimal differentiating factors among competitors
– The primary barrier to entry is the high cost of producing new content
– Inability to stream content already available due to long term and exclusive nature of content licences

● Threat of substitutes
– Large variety of entertainment options
o Home entertainment: TV, video, cd´s, video games (Nintendo, Play Station, Wii, etc.) other games…
o Sports: football, basketball, hockey, tennis, etc.
o Live performance: theatre plays, musicals, concerts, opera, ballet, etc.
o Others: cinema, zoo, reading, etc.

71
Five forces model

● Suppliers bargaining power


– Netflix acquires its online video content through licensing agreements with several production houses. Those
who license streaming content are in full control of the terms and conditions with Netflix and have the option
to rescind the availability of the content at will.
– Firms in the SVoD industry are highly dependent on their suppliers for online content because suppliers
maintain ownership over the product. Different suppliers have different content to offer, so even though there
are various significant competitors in the content licensing industry, the smaller ones still have high
bargaining power

● Buyers bargaining power


– Minimal differentiation among competitors in this industry
– Audience demanding such services is mainly comprised of young consumers with high awareness
– Brand loyalty is almost non – existent and switching cost for buyers is low
– Most of the services available are free giving consumers high power to negotiate, in terms of both content
and price
– Consumers are moving from “what´s on TV” mindset to “what do I feel like watching?” mindset. Therefor
Indian consumers are looking for flexibility in terms of timing, volume of content and place for consumption

72
Five forces model
● Rivalry among competitors

– Although SVoD is new in India, it has gained popularity with the launch of websites and applications such as
Hotstar and Eros Now
– Competitors with huge content libraries with Western titles and Indian shows and live sporting events
– Free services (as a consequence of consumer pressure) threatening the demand for any new competitor
– However India is still in the developing phase of watching non – linear video. Traditional TV broadcasters
and producers are launching online video platforms and “everywhere” apps. Global players such as Apple´s
iTunes store and Google play store also have their presence in India and offer content through electronic
sell-through
– At the same time, YouTube continues to take the largest share of online video viewing in India accounting for
more than 50% of all online videos watched

73
Five forces model
Entry barriers (Medium)
New
• Low level of capital expenditure
entrants
• High production (content) cost
Suppliers (High)
• Long term exclusive content
• Licensor full control of the
licences
content (production companies, Threat of…
videos, movies, shows, etc.)

Competitive rivalry
Bargaining (High) Bargaining
power of… power of…
• Many powerful rivals:
Suppliers Hotstar, Eros Now, Buyers
Google Play, YouTube,
iTunes
• Competitors with huge
content libraries

Buyers (High)
• No real differentiation
Substitutes (High) Threat of… • No brand loyalty
• Large variety of entertainment • SVoD services for free
options (TV, videos, console
games, sports, cinema, theatre, Substitutes
musicals…)

74
Five forces model
Entry barriers (Medium)
New
• Low level of capital expenditure
entrants
• High production (content) cost
Suppliers (High)
• Long term exclusive content
• Licensor full control of the
licences
content (production companies, Threat of…
videos, movies, shows, etc.)

Competitive rivalry
Bargaining (High) Bargaining
power of… power of…
• Many powerful rivals:
Suppliers Hotstar, Eros Now, Buyers
Google Play, YouTube,
iTunes
• Competitors with huge
content libraries

Buyers (High)
• No real differentiation
Substitutes (High) Threat of… • No brand loyalty
• Large variety of entertainment • SVoD services for free
options (TV, videos, console
games, sports, cinema, theatre, Substitutes
musicals…)

75
Five forces model
New
entrants

Threat of…

Bargaining Bargaining
power of… power of…
Industry
competitors
Suppliers Buyers
Competitive
rivalry

● Key factors to consider


– Identification of industry structure; i.e. automobile Threat of…
industry differences.. manufacturing, insurance, leasing
– Forecast industry attractiveness
Substitutes
– Usage of industry analysis to develop strategy
o Alter industry structure; e.g. Uber, IKEA..
o Position the company; e.g. Amazon vs. retailers
76
Competitors analysis

● A framework for predicting competitor behaviour

How is the firm competing? Strategy

What are competitor´s current goals?


Is performance meeting these goals? Objectives
How are its goals likely to change?

Predictions
What assumptions does the competitor hold
Assumptions
about the industry and itself?
What strategy changes
will the competitor
initiate?
How will the competitor
What are the competitors strengths and Resources and respond to our initiatives?
weaknesses? capabilities

77
Industry segmentation
%
Industry profit pool

25

Leasing
20
Operating Margin

Service
Warranty
15 & repair

Auto insurance Auto


rental
Auto loans Petrol After
10 market
Auto
manufacturing parts

New car
5 dealers
Used car dealers

0 Share of industry revenue 100%


78
Industry segmentation

World
Broad GLOBAL BROAD-LINE
Automobile
PRODUCERS
industry GM, Ford, Toyota, Honda,
VW, Renault, Nissan, Fiat
Chrysler
Product Range

NATIONAL PRODUCERS
GLOBAL PRODUCERS
OF INTERMEDIATE
OF A LIMITED RANGE
RANGE OF MODELS
Tofas (Turkey), Proton (Malasya),
OF MODELS
BMW, Subaru, Isuzu, Suzuki
Tata Motors (India), Geely
(China), AvtoVAZ (Russia)

NATIONALY FOCUSED
SPECIALIST PRODUCERS PERFORMANCE
Bristol (U.K.), Tesla (U.S.), Classic CAR PRODUCER
Roadster (U.S.), Morgan (U.K.), Saab, Aston Martin,
Spyker Cars (Neth.) Ferrari, Rolls Royce
Narrow

National Geographical scope Global

79
SWOT analysis
Analysis of an organisation strengths and weaknesses and
opportunities and threatens present in the external environment

Positive Negative
To achieving the objective To achieving the objective

Organisation related
Internal origin
External origin
Market related

S
Strengths
W
Weaknesses

O
Opportunities
T
Threats

80
SWOT analysis
● Benchmarking
● VRIO (value, rare, inimitable and organisation) Difficulties to satisfy
the market
What could you
Resources and skills that Positive Negative improve or at least,
contributes to reach the To achieving the objective To achieving the objective reach the same level of
opportunities
your competitors?
What do you do better or

Organisation related
Internal origin
have more value than your

S W
competitors?

Strengths Weaknesses

External origin
Market related

O
Opportunities
T
Threats

81
SWOT analysis
● PEST or PESTLE analysis
● Competition (as a source of information)
● Market changes (as a source of inspiration)

Positive Negative
To achieving the objective To achieving the objective

Organisation related
Risks originated by

Internal origin
W
the market

S
External situations that
can be transformed into a Its importance
competitive advantage Strengths Weaknesses depends on the level
Business opportunities of impact and its
based on better strengths possibilities of
than competitors External origin concurrence
Market related

O
Opportunities
T
Threats

82
Netflix in India: the way ahead

83
SWOT analysis
AREAS OF GROWTH AREAS OF OPPORTUNITIES

Strengths Opportunities
• Brand recognition even prior to its entry into • New original in-house content. Indian
India due to its original series consumers are waiting for new production
series. Based on its success Netflix should
• Accessibility in almost any internet-enabled position itself as a one-stop shop for
devices entertainment
• Original content; Netflix has award-winning • Expand beyond movies like large-scale sporting

External Analysis
Internal Analysis

original content... House of cards.. events (cricket) of high interest for Indian
consumers

Weaknesses Threatens
• Cost of hosting and creating content to Indian • Competition:
consumers will be high (cultural and regional • Online market for SVoD services is constantly
backgrounds) changing driven by technological
advancements
• High subscription prices for a price-sensitive • Eros Now and Hotstar have gained market
Indian market. Might be a major barrier for share due to earlier market entrance
potential suscriptors • Piracy; people download content for free..
• Interpretation of censorship law might be a
threaten to stream uncensored content

AREAS OF REINFORCEMENT AREAS OF THREATENS

84
Edition: 2018
Opportunities – SWOT analysis Review: 4

Date: 20-06-2018

Rating WxR Rating WxR Rating WxR


OPPORTUNITIES Weight
2018 2018 2019 2019 2020 2020

O1 Independent sizeable opticians 25 1 25 1 25 2 50

O2 Strategic alliances with suppliers 21 2 42 2 42 2 42

O3 Expansion to the Portuguese market 18 1 18 1 18 2 36

O4 Increase cross – selling activities 14 2 28 2 28 3 42

O5 Mergers & acquisitions 11 1 11 1 11 1 11

O6 Training and coaching in business management 11 1 11 2 22 2 22

TOTAL 100 135 146 203

Rating guidelines
3 Ideal – Could not be better – Excellent – Exceeding expectations

2 Above the average – Better than the majority

1 Within the average - Sufficient – Opportunities for improvement

0 No good enough – problems can be generated- Important opportunities for improvement

-1 At initial stage

86
VRIO model
Is the tool used to analyse firm’s internal resources and capabilities to
find out if they can be a source of sustained competitive advantage

– The tool was originally developed by Barney, J.


B. (1991) in his work ‘Firm Resources and
Sustained Competitive Advantage’, where the
author identified four attributes that firm’s
resources must possess in order to become a
source of sustained competitive advantage

○ Valuable, rare, difficult to imitate and


organised to capture value

87
VRIO model
● Valuable
– A resource adds value by enabling a firm to exploit opportunities or defend against threats. Resources are also
valuable if they help organisations to increase the perceived customer value
● Rare
– Resources that can only be acquired by one or very few companies are considered rare. On the other hand, the
situation when more than few companies have the same resource or uses the capability in the similar way, leads to
competitive parity
● Difficult to imitate
– A resource is costly to imitate if other organisations that doesn’t have it can’t imitate, buy or substitute it at a
reasonable price. Three reasons why resources can be hard to imitate:
o Historical conditions; resources that were developed due to historical events or over a long period usually are costly to
imitate
o Causal ambiguity; firms cannot identify the particular resources that are the cause of competitive advantage
o Social complexity; the resources and capabilities that are based on company’s culture or interpersonal relationships
● Organised to capture value
– The resources itself do not confer any advantage for a company if it’s not organised to capture the value from them
– A firm must organize its management systems, processes, policies, organisational structure and culture to be able to
fully realise the potential of its valuable, rare and costly to imitate resources and capabilities

88
Netflix in India: the way ahead

89
VRIO framework for Netflix in India (*)

Capabilities V R I O
Valuable Rare Difficult to imitate Support organisation

Brand name
(One of the most recognised brands in the industry + can leverage its brand equity and gain Yes Yes Yes Yes
penetration in different markets)
High quality streaming
(Unlimited high quality streaming in TV shows, movies, comedy specials and original Yes No Yes Yes
productions)

Title variety Yes Yes No Yes


(Extensive selection – thousands of titles to choose)

Convenience
(Access entertainment as per customer choice, anywhere + streaming accessible on every Yes Yes Yes Yes
device)
Business model
(Provides commercial-free platform, unlikely most of its competitors, therefore adding to Yes Yes Yes Yes
customers´ convenience)

Customer service
(Rating guides to make selections, episode synopsis to assess suitability of content + highly Yes Yes Yes Yes
interactive website offering high quality service to customers)
(*) Jane Barney and Patricia Gorman, “ A valuable chain: real world strategies for analysing the value chain, Applying the VRIO framework and recognizing core competences”
in What I didn´t learn in business schools: how strategies works in the real world (October 2010) 1 - 18

90
Classes outline

1. The concept of strategy


INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digitalisation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

91
Value chain analysis
● Value Chain: represents the internal activities develop by a firm when transforming inputs into outputs
● Value Chain analysis: a process to identify a firm´s primary and support activities that add value to a
final product. The analysis of the activities helps to identify the competitive advantages or
disadvantages of a firm

M. Porter value chain analysis

Infrastructure: corporate strategy, planning, finance, information systems, legal services


ACTIVITIES
SUPPORT

Technology, research and development, design

Human resources, operations management, general management

Warehouse and
ACTIVITIES

Procurement,
PRIMARY

Inventory mgment, distribution


Sales and Distribution support
Materials Operations
marketing and customer service
(Outbound
(Inbound logistics) logistics)

Analysis…. and conclusions….


92
Business model canvas

Business model generation


(Alexander Osterwalder y Yves Pigneur)

93
Key partners Key activities Value proposition Customer relationship Customer segments

CUSTOMER NEGOTIATION
FOCUS WITH
SUPPLIERS
OWN LABEL
MANUFACTURERS
Business model canvas
TRADEMARKS
PERSONAL PROXIMITY INDEPENDIENT
RELATIONSHIP CLOSENESS OPTICIANS
AND DISTRIBUTION LICENSORS PRODUCT AND AFTER- OWN LABEL PRODUCT AND
SERVICE “OWNERS” AND TRUST (ASSOCIATES)
AGREEMENETS SALES
IQMS EXCLUSIVE DISTRIBUTION
DEVELOPMENT SERVICE (SPAIN)
SUPPLERS AGREEMENTS
(FRAMES, OPHTALMIC

FREQUENCY IN LENSES, CONTACTOLOGY,


ORGANISATION CONCEPT OF
INTERNATIONAL SALES AND AUDIOLOGY, ACCESSORIES EMPATHY
RELATIONSHIP SHAREHOLDER
PROMOTION AND AUDIOLOGY
MANUFACTURERS ALLIANCE AND WORKING AND OTHER PRODUCTS)
ACTIVITIES ASSOCIATE INDEPENDENT
(TOP “2” OF EACH ENVIRONMENT EXPERIENCE
STORES
CATEGORY)
(SPAIN)

TECHNOLOGY Key resources OTHER SERVICES


Channels
SUPPLIERS
COMMERCIAL CONDITIONS,
PEOPLE, PRODUCTIVITY TOOLS,
WEBSITE
ORGANISATION WORKSHOP, TRAINING, CENTRAL INDEPENDIENT
(SHOPPING
WAREHOUSING AND SKILSS
INVOICING AND PAYMENTS, COMMERCAL PORTAL AND OPTICIANS (CLIENTS)
TECHNOLOGY SALES
MARKETING PRODUCTS, INTRANET) (PORTUGAL)
AND LOGISTIC FORCE
KNOW-HOW FINANCING, ETC.
INFRASTRUCTURE
AND TECHNOLOGY TELE
Cione´s business OPERATIVENESS MARKETING
(SOFT + HARD)
model canvas MEDIA AND
OTHER
CREDIT- COMMUNICATION
WORTHINESS AND IMAGE AND MEANS
RELATIONSHIPS REPUTATION SUPPLIERS
WITH BANKS

Cost structure ASSOCIATES


Revenue streams
DEPRECIATION MARKETING MARKETING AND
OF ASSESTS SERVICES AND COMMUNICATION ADDITIONAL
PEOPLE RELATED COSTS PURCHASING
(TECHNOLOGY COSTS SALES OF MANAGEMENT MARKETING SUPPLIERS
PROMOTIONAL BROOKERAGE
PURCHASING RELATED COST AND OTHER) PRODUCTS AND FEES TO SERVICES FEES CONTRIBUTIONS
ACTIVITIES AND SERVICES WITH
COST AND EXPENSES SERVICES ASSOCIATES
SALES DISCOUNTS FREIGHT SUPPLIERS
EXPENSES
Basing the strategy on resources and capabilities
● The emphasis on resources an capabilities is the foundation of a firm´s strategy.
Essential competences or internal resources that are unique and exclusive to
the firm

● Several companies are good examples of how their strategy has been (almost
exclusively) based on the strengths of their internal resources; on what the firm
is capable to do

– Honda – design experience and engine development (motorbikes, cars, jets, hydraulic
pumps, lawnmowers)

– 3M – adhesive technology and film technology (sandpaper, adhesive tapes, audio an video
tapes, road signs, medical and household products)

– Canon – precision mechanics, microelectronics and fine optics (calculators, copy


machines, fax machines, scanners, printers, video cameras, camcorders, semiconductor
manufacturing equipment, etc.)

95
Basing the strategy on resources and capabilities
Interface between strategy and the firm

However, firms that bases their strategy on internal resources must permanently look
after the market environment in order to understand external opportunities and threatens

THE INDUSTRY
THE FIRM STRATEGY
ENVIRONMENT

• Mission, vision and values


• Competitors
• Resources and capabilities
• Customers
• Structure and systems • Suppliers

Firm-strategy Environment-strategy
interface interface

96
Resources, capabilities and competitive advantage
ORGANISATIONAL CAPABILITIES

Processes Organisation Motivation Organisational


structure alignment

TANGIBLE INTANGIBLE HUMAN


- Financial (cash, securities, borrowing - Technology (patents, copy-rights, trade - Skills/know-how, culture
capacity) secrets)
- Capacity for communication and
- Physical (plant equipment, land, - Reputation (brands, relationships) collaboration
mineral reserves)
- Motivation

RESOURCES

Resources: productive assets owned by the firm


Resources do not confer competitive advantages by themselves; they must work together to create
organisational capabilities
Capabilities: what the firm can do with resources

Organisation capabilities: firm´s capacity to deploy resources for a desired end result

97
Resources, capabilities and competitive advantage
Organisation capabilities

FUNCTIONAL AREA CAPABILITIES EXEMPLARY FIRMS

Systems for financial control, motivation and coordination of corporate General Electric, Shell, Google,
Corporate management and business units, strategic innovation, corporate Unilever, Bco. Santander,
Management leadership ability, corporate social responsibility Exxon, Luxottica, J&J, Danone

Management Information Integration of IT with managerial decision making Wal-Mart, Cemex

Research and Capabilities for basic research, ability to develop innovative products, Apple, Samsung, 3M, Merck,
development speed in the development of new products Inditex, Canon

High volume manufacturing efficiency, continuous improvement UPS, Toyota, Harley Davidson, Four
Operations Seasons Hotels, McDonald´s
capacity in production processes, flexibility and speed of response

Design Product design capability Apple, LVMH

Brand management, building reputation for quality, responding to P&G, LVMH, L´Oreal, Coca–Cola,
Marketing consumer requirements Amazon

Sales and Market trend response and sensibility, effective sales promotion and
PepsiCo, Pfizer, Dell, Amazon,
distribution execution, efficient, fast order processing, speed of distribution Telefónica

Service Customer service Singapore Airlines, CAT

98
Appraising the importance of resources and capabilities

THE POTENTIAL TO Scarcity For a resource or capability to establish a competitive


ESTABLISH advantage, two conditions must be present. i.e. in oil or
COMPETITIVE gas exploration; drilling and 3D seismic analysis are
ADVANTAGE needed but not enough to win. i.e. retail branch
Relevance networks of the banks is less relevant nowadays

Durability

SUSTAINABILITY
Once established, competitive advantage tends to
OF THE erode; three characteristics of resources and
Transferability capabilities determine the sustainability of the
COMPETITIVE
ADVANTAGE competitive advantage. i.e. branding, organisation
management system, superior inflight services
Replicability

Property rights
Ownership of resources and capabilities is key in
Bargaining
generating superior returns. But ownership may not be
APPROPRIABILTY power a clear cut. i.e. who is the owner of organisational
capabilities? Bargaining power of a football player…. or
an investment bank star…
Embeddedness

99
Core competences and competitive advantage

COMPETITIVE INDUSTRY KEY


STRATEGY
ADVANTAGE SUCCESS FACTORS

ORGANISATIONAL CAPABILITIES CAN LEAD TO CORE COMPETENCES

Processes Organisation Motivation Organisational


structure alignment

TANGIBLE INTANGIBLE HUMAN


- Financial (cash, securities, borrowing - Technology (patents, copy-rights, trade - Skills/know-how, culture
capacity) secrets)
- Capacity for communication and
- Physical (plant equipment, land, - Reputation (brands, relationships) collaboration
mineral reserves)
- Motivation

RESOURCES

Core competences: organisation capabilities that make a disproportionate contribution to add customer
value or provide efficiency to the value delivered
100
Industry key success factors
● Limited number of characteristics, variables or points (areas) in which is key the
accomplishment of satisfactory results to ensure a competitive business organisation

● Are those activities that must be performed at the highest possible level of
excellence to achieve and maintain the established objectives

● When in certain activities performance is better than competitors, then it becomes a


competitive advantage
– i.e.: purchasing pricing, product quality, product mix, number of customers, customer´s
loyalty, brand, delivery to customers, customer service, etc.

101
Industry key success factors
Pre-requisites for success

What do How does the firms


customers want? survive competition?

How to arrive
Analysis of demand Analysis of competition to key success
– Who are our customers? – What drives competition?
factors?
– What do they want? – What are the main dimensions
of competition?
– How intense is competition?
– How can we obtain a superior
competitive position?

Key success
factors

102
Industry key success factors

The retail of the food industry

Which are the key success factor?

103
Industry key success factors
Pre-requisites for success

Supermarkets

What do customers want? How the firms survive competition?

● Low prices
● Convenient location ● Intensity competition depends on number and
proximity of competitors
● Wide product range adapted to local preferences ● Bargaining power is a key determinant of cost of
● Fresh/quality produce, good service, easy of parking, bought-in goods
pleasant ambience

Key success factors

● Low cost requires operational efficiency, large scale purchases, low


wages
● Differentiation requires large stores (to allow wide product range),
convenient location, familiarity with local customer preferences

104
Industry key success factors

Key success factors


in this particular
part of this industry

● Customers: quality, quantity, loyalty


● Products and services: range, quality,
competitiveness
● Marketing services
● Economic and financial strength
● Alliances with manufacturers
● Organisation
● Technology: focused in innovation

105
Core competences and competitive advantage

COMPETITIVE INDUSTRY KEY


STRATEGY
ADVANTAGE SUCCESS FACTORS

ORGANISATIONAL CAPABILITIES CAN LEAD TO CORE COMPETENCES

Processes Organisation Motivation Organisational


structure alignment

TANGIBLE INTANGIBLE HUMAN


- Financial (cash, securities, borrowing - Technology (patents, copy-rights, trade - Skills/know-how, culture
capacity) secrets)
- Capacity for communication and
- Physical (plant equipment, land, - Reputation (brands, relationships) collaboration
mineral reserves)
- Motivation

RESOURCES

Core competences: organisation capabilities that make a disproportionate contribution to add customer
value or provide efficiency to the value delivered
106
Resources, organisation capabilities and core competences
An industry……

Indicators Status

Growth Negative

Profitability Declining

Many competitors of medium and large


Competitors
size with similar type of services

Manufacturers With high negotiation power

Customers Interested in other options

Would you invest in this sector?

107
Resources, organisation capabilities and core competences
The industry of the circus

Indicators Status

Growth Negative

Profitability Declining

Many competitors of medium and large


Competitors
size with similar type of services

Manufacturers Stars with high negotiation power

Customers Interested in other ways of entertainment

Social pressure Defenders of animal rights

Would you invest


in this sector?

108
Cirque du Soleil

The consumer perspective


109
Cirque du Soleil

From the inside perspective


110
Cirque du Soleil

111
Cirque du Soleil
Cirque du Soleil tangible resources

● Cirque du Soleil has competitive advantages that are valuable, rare and very difficult to
imitate, practically in each part of the value chain, that provides an enviable strong position

● Tangible resources
– 75,000 sq. Metres in infrastructure in Montreal
– Sophisticated training facilities (“the studio”)
– Key infrastructure were costumes are designed and produced (“the shops”)
– Centralised facilities (training and costume workshop) provides cost efficiencies and allows a consistent level
of quality
– Permanent locations in tourism places (Las Vegas, Orlando)

● Human resources
– Talented choreographers and composers
– Established base of experienced and well trained performers

112
Cirque du Soleil
Cirque du Soleil intangible resources and capabilities

● Intangible resources
– Brand recognition; word of mouth and media noise… has meant very little marketing expenditure
– Corporate culture placing artist merits over and above profits
– Worldwide reputation capable of attracting talent

● Capabilities
– Ability to combine talented artists, musicians and lavish costumes into creative and successful
performances
– Ability to hire athletes and acrobats to transform them into stage performers
– Ability in setting up and moving travelling shows around the world (more than 100 cities have been
visited worldwide since its inception)
– Human resource management ability to recruit, train, retain and motivate people from 40 countries
speaking 25 different languages, spread across the globe

113
Cirque du Soleil
Cirque du Soleil intangible core competences

● Core competences
– Offer to consumers an extraordinary performance in a circus tent
– Convey emotions and feelings connecting with consumers in an environment that provides them
unforgettable moments
– Motivate consumers to repeat the experience

● Challenges
– Market saturation of the existing format
– High dependency from its founder Guy Laliberté; on the top of the organisation and without an apparent
orderly succession
– IPO (stock market launch), capital risk investment or incorporation of an investment fund to ensure
expansion and other permanent location infrastructure in other continents

114
Appraising strengths of a firm´s resources and capabilities
Edward Jones has built
Retail branch networks
a successful contrarian
of the banks is less
strategy based on its
relevant nowadays….
network of local offices

High Superfluous strengths Key strengths


Relative strength

Key areas
to focus on

Zone of irrelevance Key weaknesses


Low

Low High
Strategic importance

115
Appraising strengths of a firm´s resources and capabilities
Resources and capabilities of Ducati Motor
10
• Design • Brand
• Location
• New product
• Engineering development

Superfluous strengths Key strengths


Relative strength

• Proprietary
technology

Zone of irrelevance Key weaknesses


• Customer • Distribution
service • Manufacturing
• Finance
0

0 10
Strategic importance
116
Summing up… how does competitive advantage emerge
How does competitive
advantage emerge?

External source of change; i.e.


- Changing customer demand
Internal source of change
- Changing prices
- Technological change

Resources heterogeneity Some firms are faster Some firms have


• New markets
among firms means and more effective in greater creative and • New customer segments
differential impact exploiting change innovative capability • New sources of competitive
advantage

Ability to anticipate Speed; quick response Strategic innovation;


changes in the external capability to creation of value for
environment external changes customers; i.e., Apple,
IKEA, Whatsapp, etc.

117
Classes outline

1. The concept of strategy


INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digitalisation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

118
What digital transformation means?

● Digital transformation
– Requires an integrated or global view of business and therefore must be linked and aligned with the strategy
of a firm; it is not about technology; it is about strategy
– Digital transformation is a customer – driven strategic business transformation that requires cross-cutting
organisational change as well as the implementation of digital technologies

● Digital strategy definition


– Digital strategy is the development plan of the digital initiatives (existing and new ones) towards the
accomplishment of the business strategy

119
Digital transformation definition

Digital transformation is the integration of digital technology into all areas of a business, fundamentally
changing how a firm operates and deliver value to customers. It's also a cultural change that requires
organisations to continually challenge the status quo, experiment, and get comfortable with failure

120
What things digital technologies are changing in the business?

● Change how we connect and create value with our customers


– Two way relationship: customers´ communications and reviews make them a bigger influencer than
advertisements or celebrities
– Customers´ dynamic participation has become a critical driver of business success

● Transform how we need to think about competition


– Rivals are competitors not just from our own industry but also from outside that are stealing customers
with their offerings
– Rivals might be also cooperating with a firm in some parts of the business while fiercely competing in other
areas

● Change our “world” in how we think about data


– If in the past data was expensive to obtain, store and use it in organisational silos…
– ….today the biggest challenge is turning the amount of data into valuable information

121
What things digital technologies are changing in the business?

● Transforming also the way that businesses innovate


– If in the past innovation was very expensive and testing new ideas was almost non-existent…
– …..today digital technologies enable continuous testing and experimentation, something unconceivable in
the past

● Force firms to think differently on how they understand and create value for the customers
– What customers value can change very quickly and competitors are always approaching our customers
with new proposals so complacency is not an option

122
What digitalisation is changing as an strategic stand point?

● Reconfiguring five key areas of the strategy

– Across these areas digital technologies are redefining many of the basic principles and changing the rules
by which firms must operate to succeed

Customers

Value Competitors

Innovation Data

123
What digitalisation is changing as an strategic stand point?
1. Customers

● In the digital age we are moving to a world of customer network


● Customers are constantly connecting with and influencing each other and impacting
business reputations and brands
● Customer usage of digital tools is changing how they discover, evaluate, purchase and
use products and how they share, interact and stay connected with brands

From To
• Customers as a mass market • Customers as dynamic network

• Communications are broadcast to customers • Communications are two ways

• Marketing to persuade purchaser • Marketing to inspire purchase, loyalty, endorse

• Firm is the key influencer • Customers are the key influencer

• One – way value flows • Reciprocal value flows

• Economies of scale (one product to serve as • Economies of (customer) value


many customers)

124
What digitalisation is changing as an strategic stand point?
1. Customers
Area Core strategic theme Key concepts

• Reinvented marketing funnel


Tackle customer networks • Path to purchase
Customers • Core behaviours of customer network

Customer

Customer
Comments Blogs

Customer

Customer
Customer
Firm Firm
Forums

Yellow
pages
Craigslist Customer
Portals

Mass market model Customer network model


125
What digitalisation is changing as an strategic stand point?
1. Customers
Reinvented
marketing funnel
Mass market Customer networks

TV, radio, out – of - door Awareness Search, buzz, blogs

Consideration Online research, user


Direct mailing, brochure
reviews
Path to purchase

Path to purchase
Preference Social networks, YouTube,
Product test comparison
local search

Group discounts,
In – store purchase Action purchase,
online/in – store/ mobile
“Friendind”
Reward point Loyalty (Faceook, Twitter, mail)
Customised up – selling

Endorsement Reviews, links, “likes”,


social buzz

Multiple touch points and behaviours

126
What digitalisation is changing as an strategic stand point?
1. Customers
Five customer network behaviours
Behaviours Tactics
Seek to access digital data content and interactions as Be faster, be easier, be
Access quickly, easily and flexible as possible (i.e.; searchers,
everywhere, be always on
ecommerce, instant messaging apps)

Seek to engage with content that is sensory, interactive and


Become a source of valued
Engage relevant to their needs (i.e.; portals, on-line video, virtual
content
reality, etc.)

Seek to customise their experience by choosing and


Customise modifying a wide variety of information, products or services Make your offering adaptable
(i.e.; personalised radio streams, Google´s search bar to your customers´ needs
anticipating the search)

Seek to connect with one another by sharing experiences, Become a part of your
Connect ideas and opinions via text, images and social links (i.e.;
customers´ conversation
blogs, social networks, communities)

Seek to collaborate (working together) on projects and goals


Invite your customers to help
Collaborate through open platforms (i.e.; software, raising money, write-
ins and protests worldwide) build your firm

A day made of glass Thank you mom! Offer more than technology

127
What digitalisation is changing as an strategic stand point?
1. Customers
Five customer network behaviours
Behaviours Tactics Examples
Tesco posters in the underground station with a QR code to
Be faster, be easier, be
Access buy grocery; Starwoods with room doors that clients can
everywhere, be always on unlock with a swipe of their smartphones

Vichy Dermablend video with Rick Genest known as the


Become a source of valued
Engage “Zombie Boy”
content https://www.youtube.com/watch?v=UV8m_45mnig

Coke cans personalised names; Netflix personalised


Customise Make your offering adaptable
recommendations or Lancôme´s magic mirror
to your customers´ needs https://www.youtube.com/watch?v=Conf9Ccdhjo

Become a part of your GoPro asking customers to share their videos; Starbucks
Connect customers´ conversation
with IdeaStorm platfom to gather suggestions or P&G with
beingGirl.com for feminine hygiene products

Invite your customers to help Waze Navigation which is a collaborative tool; Wikipedia as
Collaborate a content digital collaboration; NGO´s crowdfunding
build your firm
initiatives; InnoCentive for R&D

128
What digitalisation is changing as an strategic stand point?
2. Competition

● The biggest challengers may be firms from other industries offering competing value to
our customers
● Need of cooperation with a direct rival due to interdependent business models
● Empowering of platform business models which allow one business to create and
capture value by facilitating interactions between other business or customers

From To
• Competition within defined industries • Competition across fluid industries

• Clear distinctions between partners and rivals • Confused distinctions between partners and rivals

• Competition is a zero – sum game • Competitors cooperate in key areas

• Key assets are held inside the firm • Key assets are in outside networks

• Products with unique features and benefits • Platform with partners who exchange value

• A few dominant competitors per category • Winner takes all due to network effects

129
What digitalisation is changing as an strategic stand point?
2. Competition
Area Core strategic theme Key concepts

• Platform business model


Build platforms not just products
• (In)direct network effects
Competitors

● Airbnb is a an example of a platform; a business that rethought which competitive assets were
needed to be own by a firm and which ones could be managed through new types of relationship

● Platform businesses are everywhere


– Retail: eBay, Amazon
– Media: YouTube, Forbes
– Advertising: Google, Baidu, Craigslist
– Gaming: Xbox, Playstation
– Mobile computing: IOS, Android, Xiaomi
– Business software: SAP, Salesforce
– Hospitality: Airbnb, Tripadvisor
– Transportation: Uber, Cabify
– Finance, recruitment..
130
What digitalisation is changing as an strategic stand point?
2. Competition

What is platform business model?

A platform is a business that creates value by facilitating direct interactions between two or more distinct types
of customer (*)

● Distinct types of customers: to be a platform the business model must serve to two or more distinct type of
customers
– Is Skype a platform?

● Direct interaction: platforms must enable these two or more sides to interact directly
– Is a supermarket.com a platform?

● Facilitating: despite interactions are not dictated by the platform, those must take place through it and be
facilitated by it
– Is a franchise a platform?

(*) Andrew Hagiu and Julian Wright; Multisided Platforms; working paper HBS, March, 16th 2015
131
What digitalisation is changing as an strategic stand point?
2. Competition

Different platform business model?

Distinct customers, direct


Platforms interaction, facilitating

Host
Airbnb
Renters

Freelance drivers
Uber
Riders Forbes.com?

A platform is a business that Account holders


PayPal Merchants
creates value by facilitating Banks
direct interactions between
two or more distinct types of Viewers
Android/IOS?
YouTube Creators
customer
Advertisers

Search users
Google search Website creators
Search advertisers

Software users
Salesforce.com App developers creating
additional services

132
What digitalisation is changing as an strategic stand point?
2. Competition

Type of platforms

Type of platforms Pre-digital Digital


Product market places
Exchange (eBay, Amazon)
• Real state brokers
(bring together two distinct Service market places
group of customers for a direct
• Shopping malls
(Airbnb, Uber)
value exchange) • Nightclubs
Dating websites
Platform business models (eHarmony, meetic)
Transaction system Digital payment systems
are not new to the digital • Credit cards
(intermediation between different (Paypal)
age although digitalisation parties to facilitate payments and • Debit cards Digital currencies
financial transactions) (Bitcoin)
are boosting their spread
Ad-supported media Websites with ads
and dominance (plays a role of creating – or • News papers (Google, Yahoo, newspapers)
sourcing – media content • Broadcast TV Social networks with ads
attractive to consumers)
(Facebook, Twitter, Instagram)

Hard/soft standard Videogame consoles


(provides uniform standard for the
• Colour TV´s (Xbox, PlayStation)
design of subsequent products to • Videotapes Mobile operating systems
benefit end consumer) • Motor fuels (IOS, Android)

133
What digitalisation is changing as an strategic stand point?
2. Competition

Direct/indirect network effect

One of the key features of platforms is that their value increases


as more customers use them; this is the network effect

Direct network effect


(“same – side” network effect)

When the increasing number of customers or Facebook, Twitter,


users of a product drives an increase in Whatsapp, WeChat
value or utility for the same type of users

Indirect network effect


(“cross – side” network effect)

When an increase in the number and quality


of customers on one side of the platform VISA (cardholders and merchants)
drives increasing value for the customers on Airbnb (renters and hosts)
the other side of the platform

134
What digitalisation is changing as an strategic stand point?
2. Competition

Competitive benefits of platforms

Six (Apple, Amazon, Alphabet, Microsoft, Facebook and


Alibaba) of the ten most valuable companies in the world
have built their business on platform business models

What is the secret?

Light in assets

Scaling fast
(increase revenue with slow employee growth)

Winner(s) takes all


(monopoly or oligopoly in the best case)

Economic efficiency
(phenomenon of mislabelled “sharing economy”)

135
What digitalisation is changing as an strategic stand point?
2. Competition

Users

social interaction,
social interaction,
$ for apps, audience $
content, apps
share for apps, data
(networking tools)

audience audience Facebook business model map


(viral distribution) (targeting tools)

Advertisers
Publishers (primary
(sweetener) payer)
Platform
Content $ for audience
(user stickiness)

$ for apps Apps


(viral distribution) (user stickiness)

App
developers
(payers)

137
What digitalisation is changing as an strategic stand point?
3. Data

● Generated in unprecedented quantities from every conversation, interaction or process


inside or outside businesses
● Social media, mobile devices, sensors, etc. every business has access to a river of
unstructured data without planning
● Big data can be utilised with new analytical tools and with these tools firms can make
predictions, discover new patterns and unlock new sources of value

From To

• Data is expensive to generate in firm • Data is continuously generated everywhere

• Challenge is storing and managing data • Challenge is turning data into valuable info

• Firms make use only structured data • Unstructured data is increasingly usable and
valuable

• Data is managed in operational silos • Value of data is connecting it across silos

• Data is a tool for optimizing processes • Data is key intangible asset for value creation

138
What digitalisation is changing as an strategic stand point?
3. Data
Area Core strategic theme Key concepts

• Templates of data value


Turn data into assets • Drivers of big data
Data • Data – driven decision making

● Data is an intangible asset and most of platform firm´s market capitalisation is based on the
information collected from users and its ability to exploit the data

● Data goes beyond…


– Cartographic data
– Photos, videos
– Shopping behaviour or traffic
– Consumer experience (RFID tags)

139
What digitalisation is changing as an strategic stand point?
3. Data

Type of data

Type of data Examples Utility


• Inventory and supply chain
Manage and optimise business
Business process • Sales
operations, risk management,
• Billing
external reporting
• Human resources

• Maps data (Google) Deliver the core value proposition of


Product/service data • Business data (Bloomberg) the business´ product or service
• Weather data (TWC)

• Purchases
• Behaviour and interaction Provide a complete picture of the
Customer data • Comments and reviews customer and allow for more relevant
• Demographics and valuable interactions
• Survey responses

Once we treat data as an asset, every business needs to develop a data strategy in its organisation

140
What digitalisation is changing as an strategic stand point?
3. Data

Principles in developing data strategy

● Gather data types

● Use data as a predictive layer in decision making

● Apply data to new product innovation

● Watch what customers do (not what they say they do..)

● Combine data across the organisation

141
What digitalisation is changing as an strategic stand point?
3. Data

What is big data?


A vast amount of unstructured data (social, location, sensors..) that can be converted in
valuable information with the usage of tools and appropriate organisation skills

● The three myths of big data

1. The algorithm will figure it out


– What do you believe making sense of data will require?

2. Correlation is all that matters


– If you are the P&G product manager of a shampoo brand for women, what would you do if your add agency
determines a correlation between your advertisements and married women?
– Spotting a pattern is not (always) enough

3. All the good data is big data


– Data not always need to be big in order to be useful to a business

142
What digitalisation is changing as an strategic stand point?
4. Innovation
● Digital technologies can enable a different approach to innovation based on continuous learning
through rapid experimentation
● Market feedback can be gained at the beginning of the innovation process, during the process up
to the launch and even afterwards
● Innovation assumptions are repeatedly tested and design decisions are based on validation by real
customers
● Products are developed iteratively, saving time and costs of failure

From To
• Decisions made based on intuition and seniority • Decisions made based on testing and validating

• Testing ideas is expensive, slow and difficult • Testing ideas is cheap, fast and easy

• Experiments conducted infrequently by experts • Experiments conducted constantly by everyone

• Challenge of innovation is to find the right solution • Challenge of innovation is to solve the right problem

• Failure is avoided at all cost • Failures are learned from early and cheaply

• Focus is on finished products • Focus is on minimum viable prototypes and iteration after launch

143
What digitalisation is changing as an strategic stand point?
4. Innovation
Area Core strategic theme Key concepts

• Divergent experimentation
Innovate by fast experimentation
• Convergent experimentation
Innovation

● Innovation can be define as any change to a business product, service or process that adds value to a
customer
– For Google, innovation may be.. Gmail or Google maps, but also for Google innovation includes... the continuous
process of refining, adding and eliminating features and evolving the user interface and experience

● In the digital age firms need to innovate in a radical different way based on fast experimentation and
continuous learning; in fact experimentation is a process of learning of what does work and what does
not work

144
What digitalisation is changing as an strategic stand point?
Type of experiment
● Convergent experiments are best for learning that eliminate options and converges on a specific answer
to a defined question; i.e. which of these three designs is preferred by the customer?
● Divergent experiments are best for learning that explore options, generate insights, ask multiple questions
and at the same time and when done right, generate new questions to explore next iterative stage; i.e.
putting a prototype in the hands of customers

Convergent experiments Divergent experiments


• Formal (scientific/causal) experimental design • Informal (qualitative) experimental design
• Ask a precise question or specific set of questions • Posses an unknown set of questions
• Seek to provide an answer • May provide an answer or rise more questions
• Needs a representative customer sample to test • Needs the right customer (might not the average)
• Needs a statistically valid example • Sample size may vary
• Goal is to test the thing itself • Goal is to test a rough prototype (good enough)
• Confirmatory • Exploratory
• Useful for optimisation • Useful for idea generation
• Common in late stages of an innovation • Common in early stages of an innovation

In common: increase knowledge, test assumptions, look


outside for answers, willingness to learn versus decide
145
What digitalisation is changing as an strategic stand point?
4. Innovation

Principles of experimentation

● Learn early
● Be fast and iterative
● Fall in love with the problem, not the solution
● Get credible feedback
● Measure what matters
● Test your assumptions
● Fail smart

146
What digitalisation is changing as an strategic stand point?
4. Innovation

Exercise

Think about the two types of experiments and prepare three examples for each

Convergent experiments Divergent experiments


• An ecommerce site might run A/B tests in which • A design of a finance app for Indian farmers through a
two sets of customers see the same webpage project team in order to increase the revenue of their
with one difference in design, measuring perishable products in their negotiations with their
customer behaviour agents
• •

• •

• •

• •

147
What digitalisation is changing as an strategic stand point?
5. Value
● Value proposition is permanently changing to avoid disruption by new competitors
● Businesses need to focus on exploring emerging opportunities, divesting from declining
sources of advantage and adapting early to stay ahead of the curve of change
● Firms have to be in permanent evolution, looking to every technology as a way to extend and
improve the value proposition to customers

From To
• Value proposition defined by industry • Value proposition defined by changing customer needs

• Execute your current value proposition • Uncover the next opportunity for customer value

• Optimise your business model as long as possible • Change before you must, to stay ahead of the curve

• Evaluate change by how it impacts your current business • Evaluate change by how it could create your next business

• Market success allows for complacency • Permanent evolution of the customers´ value proposition

148
What digitalisation is changing as an strategic stand point?
5. Value

Area Core strategic theme Key concepts

• Concepts of market value


Adapt your value proposition • Paths out of a declining market
• Steps to value prop evolution
Value

● Every firm should focus on how each new technology might help in creating a new business model
rather than evaluating the impact in the existing business model

● For instance, what changes faced real state brokers?

● Every firm should explore permanently the core value your business offers to customers
– Why does my business exist?
– What needs does it serve?
– Are they still relevant?
– What business am I really in?

149
What digitalisation is changing as an strategic stand point?
5. Value
What to do in a stagnant or declining market

Adapt your value proposition before you must

Both
New
Value proposition

New value (new value and


new customers)
Same

Current position New customers

Same New
Customers/use case
150
What digitalisation is changing as an strategic stand point?
5. Value

What to do in a stagnant or declining market

Adapt your value proposition before you must

Both
Value proposition
New

New value (new value and


Paper manufacturers
new customers) or photo retailers

https://www.shutterfly.com/
https://www.moo.com/us/
Same

Current position New customers

Same New
Customers/use case

151
What digitalisation is changing as an strategic stand point?
5. Value

What to do in a stagnant or declining market

Adapt your value proposition before you must

Encyclopaedias or Both

Value proposition
New
newspapers New value (new value and
https://www.nytimes.com/ new customers)
https://www.britannica.com/

Same
Current position New customers

Same New
Customers/use case

152
What digitalisation is changing as an strategic stand point?
5. Value

What to do in a stagnant or declining market

Adapt your value proposition before you must

Pin ball machines,


Both comics, casinos
Value proposition
New
New value (new value and https://www.scientificgames.com/
new customers) https://www.marvel.com
Same

Current position New customers

Same New
Customers/use case

153
What digitalisation is changing as an strategic stand point?
5. Value

What to do in a stagnant or declining market

Adapt your value proposition before you must

Can you let me know what Facebook did to


adapt their value proposition in 2012?

What they did to cope with the shift of


consumers to mobile devices?

Acquisition of Instagram and WhatsApp

154
Organisation challenges
Area The journey…

• Enabling the network inside


Customers • Adding new skills and removing old habits
• Eliminating silos and cultural barriers

• Shifting roles midstream (sales channel conflicts)


Building platforms • Warfare mentality (my competitor is the enemy..)
• Openness (platform and the organisation)

• Changes in your business processes


• Embedding data skills sets (adopt a mindset towards using data;
embrace analytical thinking)
Data • Eliminating silos (“this is my data”) and cultural barriers
• Sharing data with partners (vendors, distributors, retailers…)
• Cybersecurity, privacy and consumer attitudes

• Building a test and learn organisation


• Leading without deciding
Innovation • Involving everyone (teams, camps, incentives on recognition
rather than compensation)
• Planning to fail and celebrating it

• Leadership (who is in charge of making the change?)


• Allocate resources (talented people and financials)
Adapt your value
• Change (most than probably) the organisation and reporting
proposition • Avoid myopia (looking beyond the conventional of your current
business like… “this is not the way we do things here”)

158
AccorHotels´ digital transformation: a strategic
response to hospitality disruptor Airbnb

159
Questions

1. What do you expect from an accommodation provider, as a leisure guest and as a business traveller? (Use
following five categories: search and booking process, actual accommodation, additional services, emotional
factors/experience)

2. How different are AccorHotels´ and Airbnb´s value proposition? What are the strengths and weaknesses of
their respective business models?

3. What are Airbnb main factors for being so successful? How sustainable are those factors?

Before answering the questions please watch the following videos from Sebastian Bazin, Chairman and CEO of AccorHotels

https://www.youtube.com/watch?v=rJSjDQ4Rwo0
https://www.youtube.com/watch?v=ispZEhs9g3o

160
1.What do you expect from an accommodation provider, as a leisure guest and as a
business traveller? (Use following five categories: search and booking process, actual accommodation,
additional services, emotional factors/experience)

Category Travellers´ expectation

• Easy and speed of search


• Up to date information
Search and booking
• Transparency (review and ratings)
process • Easy of getting additional information
• Easy of booking (online/mobile/phone)

• Room itself (size, comfort amenities)


• Availability of additional facilities (fitness, pool,
bar, business centre, etc.)
Accommodation • Restaurant and food offering
• Location (in the centre vs. outside of town)
• Price

• Concierge
• Transportation; transfer
Additional services • Daily room cleaning
• Dry cleaning
• Additional information on destination

• Expected experience no surprise


Emotional factors • Unique authentic experience/live like a local
• Trust

161
2. How different are AccorHotels´ and Airbnb´s value proposition? What are the strengths
and weaknesses of their respective business models?

Strengths

AccorHotels Airbnb

• Financial resources • Horizontal structure and flat organisation

• Human resources • Agile, flexible and ability to move fast

• 50 years of experience in the industry • Collective intelligence (sharing ideas)

• Wide range of services available • Wide range of products

• Direct daily contact with consumers • Flexible offer – supply can be expanded
fast
• Expected experience (consumers knows
what to expect) • Low marginal cost

• Higher trust rate (70% users do not trust • More intense loyalty (due to its sharing
renting a room in someone else´s house and economy mind set and verification system,
52% do not trust renting a holiday property 73% of Airbnb users are “at least very
from someone else) satisfied”)

162
2. How different are AccorHotels´ and Airbnb´s value proposition? What are the strengths
and weaknesses of their respective business models?

Weaknesses

AccorHotels Airbnb

• Asset heavy company • No direct contact with consumers

• Vertically structured • No offer to business travellers

• Slow with little flexibility • Consumer isolation (no interaction nor social
contact in common areas)
• High fixed costs (HR, maintenance)
Bazin: “when you rent a private
apartment, the reality is that you are in
• Significant marginal cost (for expanding their
your own place and you do not really get
operations and room supply)
that sense of community”
• Branding (no well-defined image; fragmented
• Restrictions (legal an political) in many
offer)
cities (central districts) all over the world

163
2. How different are AccorHotels´ and Airbnb´s value proposition? What are the strengths
and weaknesses of their respective business models?

Learning points

● Airbnb has the typical strength of digital companies: asset – light, flexible, agile, innovation
– driven and the ability to move fast

● AccorHotels on the other hand, as an industry incumbent is asset – heavy, rather slow and
inflexible with a traditional top – down structure

● AccorHotels can build on its experience, strong resources, a wide range of available
services and large customer base

● AccorHotels has the opportunity to exploit some Airbnb´s key weaknesses like services,
product offering particularly for luxury and business travellers and potential restrictions

164
3. What are Airbnb main factors for being so successful? How sustainable are those factors?

Superior consumer proposition Sustainability

Superior benefits to customers, compared to hotels: Limited (competition can adapt its
• Better value offer; in particular lowering prices)
• Larger accommodations
• Improved experience
High (Airbnb experience is unique
Strong emotional benefit: and difficult for hotels to replicate)
• Offers an authentic unique experience of living like a local
High (consumer trend expected to
• Millennials (today´s new travellers) want to go off the traditional tourist
grow)
track and connect with local communities

Competitive business model Sustainability

Asset - light business model using existing infrastructure:


• No investment in real state properties Very High (inherent to the business
• The platform works as an intermediary between real state owners and model; a major competitive advan-
guests tage compared with hotel chains and
• Supply (properties) may grow exponentially through a (relatively) non- alike)
capital intensive strategy
• Flexibility and speed

Technology driven innovation: Medium/low (technology can easily


• Newest technology through its digital exchange platform to facilitate be replicated)
sharing lowering transaction costs and allowing strangers to be trusted
thanks to reviews

165
3. What are Airbnb main factors for being so successful? How sustainable are those factors?

Learning points

● The success of Airbnb is based in a combination of several drivers


– Superior consumer vale proposition with added benefits to consumers
– Highly appealing emotional benefit in terms of unique experience
– Strong demand growth supported by a healthy industry growth
– Simple business model competitive and efficient supported by a strong digital platform

166
What is business disruption?

● Innovation and business disruption


– Business disruption is not innovation but innovation might lead in certain cases to business disruption…
– …and disrupters do not necessarily introduces new fundamental technology to the market

– Some examples
o A drug against cancer (once it is discovered) will be a society disruption but is not a business disruption
o Self – driving cars is a technology incorporation that for sure will have a major impact in driving and drivers, but probably will not
disrupt the business of car manufacturers

● Business disruption definition


– The business impact faced by an existing industry with the entry of a challenger capable to offer a superb value
proposition to customers in a way that existing incumbents cannot compete with directly

167
Why these companies disrupted industries?

● Apple
● Google
● Facebook
● Airbnb
● eBay
● Amazon
● Netflix
● Hawkers

168
The two diferential of business model disruption

In order to disrupt an existing business, a challenger must posses a significant


differential on each side of the business model

– A difference in value proposition that dramatically transfers the value provided by the
incumbent/s at least for some customers

– A difference in value network that creates a barrier to imitation by incumbent/s

169
The two diferential of business model disruption
Value proposition Network proposition
differential differential
● Price ● Customers
● Free or “freemium” offer ● Channels
● Access ● Partners
● Simplicity/frictionless ● Complementary
products or services
● Personalisation
● Brand
● Aggregation/disaggregation
● Revenue model
● Integration
● Cost structure
● Social/sharing
● Skills and processes
● Physical assets
● Intellectual properties
assets
● Data assets

170
Classes outline

1. The concept of strategy


INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digitalisation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

171
Managing strategic tools
Initial assessment

T
H
E Environment analysis • Business &
corporate
P strategies
R
Strategy formulation
O
C
E
S Strategy implementation
S Tools
• BCG matrix
Monitoring and results
evaluation • GE – Mckinsey matrix
• Internal – External matrix
• Porter´s generic strategies
• Ansoff matrix
• Corporate type of strategies
• Evaluation strategy test

172
Strategy formulation
Competing in the present, preparing for the future…

Strategy as positioning Strategy as a direction

• Where are we competing? • What do we want to become?


• Product market scope • Vision statement
• Geographical scope
• What do we want to achieve?
• Vertical scope
• Mission statement
• How are we competing? • Performance goals
• What is the basis of our
competitive advantage? • How we will get there?
• Guidelines for development
• Priorities for capital
expenditure, R&D, etc.
• Growth modes: organic,
alliances, M&A, etc.

173
Strategy formulation definition

● Method to design the firm strategy, both at corporate level and for each single
type of business

– Business unit strategy: how the firm competes within a particular industry or market. Is
concerned with establishing competitive advantage and the source of the competitive
advantage/s in a business

– Strategy at corporate level: where a firm competes; decisions over the scope of the firm´s
activities, including product scope, geographical scope, decisions regarding diversification,
acquisitions, new ventures, etc. and allocation of resources among them

● But before, a proper strategic analysis of the current situation is required…..


– Corporate portfolio analysis (assessment or pre – strategy formulation)

174
BCG matrix
● Used to evaluate the strategic position of a firm´s brand portfolio, SBUs, business lines or
customers and determine its potential

● The matrix considers industry attractiveness and competitive position


– Market growth (industry attractiveness)
– Market share (competitive position)

● The general purpose of the analysis is to help understand, which brands the firm should invest
in and which ones should be divested

High

MARKET
GROWTH Medium
RATE

Low
Low Medium High
MARKET SHARE RATE

175
BCG matrix

High

MARKET
GROWTH Medium
RATE

Low

Low Medium High

MARKET SHARE RATE

176
BCG matrix
Cash flow generation

High

Large negative Cash consumer


MARKET cash flow Cash neutral
GROWTH Medium
RATE

Cash consumer Large positive


Modest cash flow cash flow
Low

Low Medium High

MARKET SHARE RATE


Disaster sequence
Successful sequence

177
BCG matrix
Dilemma
– High growth market but low market share
High – Consume large amount of cash and do not
generate much cash
– No consolidation has been achieved in a very
competitive, but growing market
MARKET – Potential to gain market share and become a
star for a later move to cash - cow
GROWTH Medium
– Because of the high growth environment they
RATE can be seen as a “cash sink”

Low

Low Medium High

MARKET SHARE RATE

178
BCG matrix

High
Star
– High market share in a fast-growing market
MARKET – Require high investments to maintain
competitiveness and leadership
GROWTH Medium
– Re-invest profits to gain consumers (cash
RATE generators and cash users)
– Marginally profitable but as they reach a
mature status, returns becomes more
attractive
– Expected to become cash-cows and
Low positive cash flows
generate

Low Medium High

MARKET SHARE RATE

179
BCG matrix
Cash cow
– High market share in a slow-growing
industry
– Generates cash in excess of the amount of
cash needed to maintain business
High
– As the market matures, the need for
investment reduces
– Loyal customers and low distribution cost

MARKET
GROWTH Medium
RATE

Low

Low Medium High

MARKET SHARE RATE

180
BCG matrix
Dog
– Low market share in slow growth market
High – May well have been cash cows
– In general, they are not worth investing in
because they generate low or negative cash
– Often they enjoy misguided loyalty from
management, although some dogs can be
MARKET revitalised
GROWTH Medium – Profits are, at best, marginal
RATE

Low

Low Medium High

MARKET SHARE RATE

181
BCG matrix highlights

CHARACTERISTICS CASH COW DOG DILEMMA STAR

Weak
MARKET GROWTH Growth
Declining Fast expansion Fast expansion

MARKET SHARE High Weak Weak High

PRODUCT Provides Consume Demand


High investment
CHARACTERISTICS profitability resources resources

Low, unstable, Low, stable,


EARNINGS High, stable Low, unstable
growing growing

Invest for
Invest (to Invest (if
Liquidation or growth (will
STRATEGIC OBJECTIVES maintain current
divestment
potential) or
replace cash
level) or harvest divestment
cows)

182
BCG matrix; advantages and disadvantages

● Advantages
– Simple variables and fast analysis
– Businesses, products, channels, brands or clients can be graphically represented
– Provides priorities despite the enormous amount of information
– Good starting point for a further detailed analysis

● Disadvantages
– Centred in a coupled of variables and the use of “high” and “low” to form four categories is too simplistic
– Assumes that market share and profitability are directly related
– Considers every business as independent: ignores interdependence and synergies
– Many businesses are positioned in the middle of the matrix
– Considers the product or business in relation to the largest player only; ignores the impact of small
competitors whose market share is rising fast

183
BCG matrix exercise

% of Largest Brand´s Market


Revenues Relative
Brands corporate competitor´s market growth
(000´s) market share
revenues market share share rate

1 $ 500 50% 20% 20% 1.00 2%

2 $ 300 30% 30% 7% 0.23 10%

3 $ 100 10% 45% 25% 0.55 15%

4 $ 100 10% 10% 1% 0.10 17%

184
BCG matrix exercise
0 0.5 1

High
4 3
MARKET GROWTH RATE

Medium

1
Low

Low Medium High

RELATIVE MARKET SHARE


185
Apple BCG matrix Good market share (14,5%) as
Reasonable market share (10,5%) compared with market leader
as compared with market leader (Samsung with a 19,8%) and
(Fitbit - 22,0%) and higher market positive market forecast for
forecast calling for a growth of 27% demand and projected growth
rate for Smartphones of 4%

High

MARKET
High market share (22,0%)
GROWTH Medium and market leader. Negative
market forecast for demand
RATE and negative growth potential
in the tablet segment of 2/3%

Low
Low market share (7,1%) as
compared with market leader
(Lenovo – 21,0%) and
Low Medium High
negative market forecast
calling for a decline of 2% MARKET SHARE RATE

18
6 186
GE/Mckinsey matrix

● Maps the business units on a grid of the industry and its strategic position in that industry
A 4 3 2 1
T
T High
Invest and
Invest and grow Hold and maintain
I R grow
(Strong) (Opportunistic)
(Selective)
N A
D C 3
U T Invest and grow
Hold and
Medium maintain Harvest or divest
S I (Selective)
(Selective)
T V 2
R E
Y N Hold and
Harvest or
maintain Harvest or divest
E (Protection)
divest
S Low 1
S Strong Average Weak
COMPETITIVENESS POSITION

● The GE matrix, however pretends some improvements


– Industry attractiveness: market growth, profitability, size, pricing policies, accessibility, competitors penetration...
– Business unit strength or competitiveness: market share, trade marks, technology, distribution..

187
GE/Mckinsey matrix
● Used to establish three main recommendations
– Growth, maintain or harvest

A 4 3 2 1
T
T High
Invest and
Invest and grow Hold and maintain
I R grow
(Strong) (Opportunistic)
(Selective)
N A
D C 3
U T Invest and grow
Hold and
Medium maintain Harvest or divest
S I (Selective)
(Selective)
T V 2
R E
Y N Hold and
Harvest or
maintain Harvest or divest
E (Protection)
divest
S Low 1
S Strong Average Weak
COMPETITIVENESS POSITION

● Subjectivity and certain risk due to the number of criteria

188
GE/Mckinsey matrix; attractiveness assessment
● Select the elements or components to compare: business units, products, brands, etc.

● Define key industry factors – criteria – that are relevant to determine the industry
attractiveness

A 4 3 2 1
T
T High
Invest and
Invest and grow Hold and maintain
I R grow
(Strong) (Opportunistic)
(Selective)
N A
D C 3
U T Invest and grow
Hold and
Medium maintain Harvest or divest
S I (Selective)
(Selective)
T V 2
R E
Y N Hold and
Harvest or
maintain Harvest or divest
E (Protection)
divest
S Low 1
S Strong Average Weak
COMPETITIVENESS POSITION

189
GE/Mckinsey matrix; attractiveness assessment
Possible key factors for industry attractiveness

● Market factors ● Competitive factors


– Size of the market – Type of competitors
– Growth rate – Competitors structure
– Potential growth – Competitors power
– Life cycle – Market share
– Potential differentiation – Risk of product substitution
– New entrants to the market – Ability for switching suppliers
– Bargaining power – ………..
– Entry/exit barriers ● Financial and economic factors
– Profitability – Margin
– Market stability – Margin evolution
– …………. – Economies of scale and experience
– Utilisation of capacity
● Technological factors – ………..
– Investment requirements ● Social factors
– Technology maturity – speed of change – Social tendencies and attitude
– Access to raw materials – Laws and regulations
– …………. – Unions, consumers associations
– …………….
190
GE/Mckinsey matrix; attractiveness assessment
RATING WEIGHTED a. Select key attractiveness factors
ATTRACTIVENESS FACTORS WEIGHT (*)
1–5 SCORE

Size 0.15 4 0.60 b. Weigh each factor in terms of relative importance in


achieving corporate objectives (0 – 1.0 and total will
Rate of growth 0.10 3 0.30 be equal to 1.0)
Pricing 0.05 3 0.15
Market accessibility 0.05 3 0.15 c. Rate the attractiveness of the industry on these
factors
Competitive structure 0.05 3 0.15
a. 1 = very unattractive
Differentiation possibilities 0.15 3 0.45 b. 5 = very attractive
Customers concentration 0.10 5 0.50
Industry profitability 0.20 3 0.60 d. Calculate weighted score

Inflation vulnerability 0.05 3 0.15


(*) Some criteria may be a GO/NO GO type. For example
Energy impact 0.05 3 0.15 many firms would decide not to invest in industries that
are viewed negatively by the society, even if they were
Social GO 4 - both, legal and very profitable

Environment GO 4 -
Legal GO 4 -
Human 0.05 4 0.2
TOTAL 1 3.4
191
GE/Mckinsey matrix; competitiveness assessment

● Define key success factors that are relevant to determine the (strength) competitive
position of a firm within a market

A 4 3 2 1
T
T High
Invest and
Invest and grow Hold and maintain
I R grow
(Strong) (Opportunistic)
(Selective)
N A
D C 3
U T Invest and grow
Hold and
Medium maintain Harvest or divest
S I (Selective)
(Selective)
T V 2
R E
Y N Hold and
Harvest or
maintain Harvest or divest
E (Protection)
divest
S Low 1
S Strong Average Weak
COMPETITIVENESS POSITION

192
GE/Mckinsey matrix; competitiveness assessment
Possible key success factors for the firm competitive positioning

● Market positioning ● Capabilities


– Market share – Experience and skills

– Segments market share – Distribution effectiveness

– Range of products and services – Differentiation from the competitors

– Pricing, advertising, promotions – Customer service levels

– Customer service fulfilment – Organisation and management

– Customer´s quality perception – Market characteristics knowledge

– …………….. – ………………

● Economic and technology positioning


– Margins
– Cost positioning
– Production capacity
– Leadership in technology and know – how
– Patents
– …………..
193
GE/Mckinsey matrix; competitiveness assessment
RATING WEIGHTED a. Identify key factors for success in the industry
KEY SUCCESS FACTORS WEIGHT (*)
1–5 SCORE

Market share 0.10 5 0.50 b. Weigh each success factor in terms of its relative
importance to profitability or achieving corporate
SBU growth rate 0.10 3 0.30 objectives (0 – 1.0 and total will be equal to 1.0)
Sales distribution effectiveness 0.20 4 0.60
Key account advantages - 4 - c. Rate the SBU / product strength competitive
positioning on each factor
Price competitiveness - 3 -
a. 1 = very weak competitiveness
Advertising & promotion b. 5 = very strong competitiveness
0.10 4 0.40
effectiveness
Facilities location 0.05 4 0.20 d. Calculate weighted score
Capacity and productivity - 3 -
Experience curve effect 0.15 4 0.60 (*) For any particular industry, there will be some factors
that, while important in general, will have little or no
Raw materials cost 0.05 4 0.20 effect on the relative competitive position of firms within
that industry. It is better to drop such factors from the
Relative product quality 0.15 5 0.75 analysis than to assign them very low weights

Research and development


0.05 4 0.20
position
General image/reputation 0.05 5 0.25

TOTAL 1 4.0
194
GE/Mckinsey matrix
4 3 2 1

A 4 ● Businesses with high ratings in both


T WINNER Invest WINNER QUESTION MARK parameters do have excellent
High and grow Invest and grow Hold and maintain profitability expectations and should
T (Strong) (Selective) (Opportunistic)
I R INVEST AND GROW
N A 3
D C
U T
WINNER AVERAGE LOSER ● Businesses with low ratings in both
Medium Invest and grow Hold and maintain
Harvest or divest parameters do have negative
S I (Selective) (Selective)
T V expectations and should be
R E 2 HARVEST OR DIVEST
Y N PROFIT
Low PRODUCER LOSER LOSER
E
Hold and maintain Harvest or divest Harvest or divest ● Businesses within the other situations
S (Protection)
should be HOLD AND MANTAINED
S 1
Strong Average Weak

COMPETITIVENESS POSITION

195
IFE/EFE matrix
● IFE matrix (internal factors evaluation) is an strategic tool to evaluate how a company is
performing in regards to identified internal strengths and weaknesses

● Steps
‒ List internal factors; strengths and weaknesses (10 factors max.)
‒ Assign weights according to the relative importance of the factor to being successful in the firm´s
industry. Weights are industry based
‒ Rate factors on the scale from 1 to 4. Rating captures whether the factor represents a major weakness
(rating = 1), minor weakness (rating = 2), minor strength (rating = 3) and major strength (rating = 4)
‒ Weighted score; adding the weighted scores for each factor to construct the IFE matrix

● A real understanding of individual factors included in the IFE matrix is still more important
than the actual numbers

196
IFE matrix
WEIGHTED
Key internal factors WEIGHT RATING 1 – 4
SCORE
Strengths
iTunes platform is a good revenue stream 0.10 4 0.40
Customer loyalty that makes the customer price insensitive 0.10 3 0.30
No debts means Apple capacity of investing in other
0.15 4 0.60
sectors
Existing products are of high quality while compared to
0.10 3 0.30
competing products in the markets
Strong brand that is quite popular among customers 0.15 4 0.60
Apple products are hard to imitate 0.15 3 0.45

Weakness
Apple is too much dependent on product launches 0.15 2 0.30
Poor relations with other key players like Microsoft 0.05 1 0.05
Strong presence only limited to few countries 0.05 1 0.05
TOTAL 1 3.05

197
IFE/EFE matrix
● EFE matrix (external factors evaluation) is an strategic tool to visualise and prioritise the
opportunities and threats that the industry is facing

● Steps
– List external factors; opportunities and threats (10 max.)
– Assign weights according to the relative importance of the factor to being successful in the firm´s
industry. Weights are industry based
– Rate factors on the scale form 1 to 4. Rating indicates how effective the firm´s current strategies respond
to the factor. Respond is poor (rating = 1), respond is below average (rating = 2), respond is above
average (rating = 3) and respond is superior (rating = 4)
– Weighted score; adding the weighted scores for each factor to construct the EFE matrix

● Factors to be included should be those coming from political, economic, social, technological,
environmental and legal variables

198
EFE matrix

WEIGHTED
Key external factors WEIGHT RATING 1 – 4
SCORE
Opportunities
Increase presence in other countries 0.10 3 0.30
New product development 0.20 2 0.40
Increase virus and worn attack protection 0.10 3 0.30
Government crackdown on illegal downloading sites 0.10 3 0.30
Threats
Various existing illegal file sharing websites 0.05 3 0.15
Economic downturn 0.10 2 0.20
Competition from established competitors 0.15 2 0.30
Perception that Apple´s product are not compatible 0.10 2 0.20
Very few suppliers 0.10 3 0.30
TOTAL 1 2.45

199
IE/EFE matrix
4 3 2 1
High
WINNER
WINNER QUESTION MARK
Invest and
Invest and Grow Hold and maintain
Grow
(Selective) (Opportunistic)
(Strong)
E
F 3
E
WINNER AVERAGE
LOSER
Medium Invest and Grow Hold and maintain
S (Selective) (Selective)
Harvest or divest
C
O 2
R
E PROFIT
PRODUCER LOSER LOSER
Hold and maintain Harvest or divest Harvest or divest
(Protection)
Low
1
Strong Average Weak

IFE SCORE
200
IE/EFE matrix strategies
4 3 2 1
High Market penetration, market
development and product development
Grow and build
Backward integration, forward
E integration, horizontal integration
F 3
E
Market penetration and
S Medium Hold and maintain
product development
C
O 2
R
E Revitalise business or
Harvest or exit
aggressive cost management
Low
1
Strong Average Weak

IFE SCORE
201
Strategy formulation definition

● Method to design the firm strategy, both at corporate level and for each single
type of business

– Business unit strategy: how the firm competes within a particular industry or market. Is
concerned with establishing competitive advantage and the source of the competitive
advantage/s in a business

– Strategy at corporate level: where a firm competes; decisions over the scope of the firm´s
activities, including product scope, geographical scope, decisions regarding diversification,
acquisitions, new ventures, etc. and allocation of resources among them

202
Types of competitive strategies

Competitive advantage
M. Porter model
Low cost Uniqueness

Broad market scope Cost leadership Differentiation


Targeted market Concentration Concentration
Narrow market scope
(costs) (differentiation)

● Cost leadership: manufacturing efficiency or process efficiency

● Differentiation: product perceived as unique in the market

● High segmentation: specialisation in a group of consumers

The key is to be different from competitors

203
Types of competitive strategies

● Cost leadership: product or services cheaper than those offered by competitors


– Wal-Mart, Ryanair, Southwest Airlines, Tata Motors, etc

● Differentiation leadership: involves the creation of products or services that are perceived
by customers (and even suppliers) as unique

– Lexus, Bang & Olufsen, TAG Heuer, Mckinsey & Co., Miele, BMW, etc.

204
Types of competitive strategies
● Cost leadership: product or services cheaper than those offered by competitors
– Wal-Mart, Ryanair, Southwest Airlines, Tata Motors, etc

● Characteristics
– Product with a weak consumer implication
– Massive distribution
– High inventory turnover
– High purchasing volume
– Efficient manufacturing: economies of scale, standardisation and production technology, capacity of
utilisation, learning curve, etc.
– Tight cost control and low level of general expenses
– Part of the economies of scales are transferred to the customers or consumers
– Manufacturing plants located in countries with low purchasing power

205
Types of competitive strategies
Using value chain in cost analysis
Approach to perform a value chain analysis depending on the
competitive advantage a company wants to create

Cost advantage Differentiation advantage


Organisation competes on costs and want to understand The firm that strive to create superior products or services
the sources of their cost advantage or disadvantage and use differentiation advantage approach
the factors driving those costs

Step 1 – Identify customer´s value – creating


Step 1 – Identify primary and support activities
activities

Step 2 – Establish the relative importance of each Step 2 – Evaluate the differentiation strategies
activity in the total cost of the product for improving customer value

Step 3 – Identify the best sustainable differen-


Step 3 – Identify cost drivers for each activity
tiation

Step 4 – Identify links between activities

Step 5 – Identify opportunities for reducing costs

206
Types of competitive strategies
Automobile manufacturing company that competes on cost advantage
Infrastructure: corporate strategy, planning, finance, information systems, legal services
Using value chain in cost analysis
Technology, research and development

Human resources, operations management, general management

Purchasing Assembly
Design and Sales and Distribution and
materials testing and
Step 1 engineering marketing dealer support
& components quality control

Step 2 $ 164 M $ 410 M $ 534 M $ 384 M $ 230 M

Advertising
AVG
expenditure ratio Number of dealers
Step 3 Sales per model purchases per Capacity utilisation
versus sales or sales per dealer
supplier
volume

1. High quality assembling process reduces testing and control activities; 2. Locating plants near suppliers
Step 4 or dealers reduces purchasing or distribution costs; 3. Fewer model designs reduce assembling costs; 4.
Higher order size increase warehousing cost

1. Create just one model design for different regions to cut cost in design and engineering, to increase
Step 5 order sizes, simplify assembling and quality control and to lower marketing costs;
2. Manufacture components inside facilities to eliminate transaction costs of buying them in the market
and to optimise plant utilisation

207
Types of competitive strategies
● Differentiation leadership: involves the creation of products or services that are perceived
by customers (and even suppliers) as unique
– Lexus, Bang & Olufsen, TAG Heuer, Mckinsey & Co., Miele, BMW, etc.

● Characteristics
– Product with high consumer implication
– Selective distribution
– Intensity of marketing activities
– Design and technology
– Quality, product/service guarantee, brand image, complementary services, etc.
– Skills and experience of employees
– High level of investment in the development of new products, new features for current products and
services, location (retail stores)

208
Types of competitive strategies
Using value change to identify differentiation

IT that supports fast Training to support Unique product features


response capabilities customer service excellence Fast new product development

Infrastructure: corporate strategy, planning, finance, information systems, legal services


ACTIVITIES
SUPPORT

Technology, research and development, design

Human resources, operations management, general management

Procurement, Warehouse and


ACTIVITIES
PRIMARY

Inventory mgment, distribution


Sales and Distribution support
materials Operations
marketing and customer service
(Outbound
(inbound logistics) logistics)

Quality of Defect free Fast delivery, Customer support,


components and products, Building brand consumer credit,
efficient order reputation
materials wide variety processing after-sale service

Differentiation adds cost


209
Types of competitive strategies
Cost leadership Differentiation leadership

Advantages: Advantages:
● Barriers to entry with economies of scale and ● Differentiation acts as a barrier entry
experience ● Creates customer loyalty
● Strong positioning in front of competitors and also ● High prices and margins
customers and suppliers
● Bargaining power with customers and suppliers

Disadvantages: Disadvantages:
● Product and processes obsolescence in case of lack ● Usually, difficulties to obtained high market share
of investments ● Attracts imitators – followers
● Substitute products developed by competitors ● Very sensible to consumer preferences
● Technology changes could have substantial impact ● Price and differentiation could be imbalanced
in economies of scale and experience
● Changes on costs might be sensible to profitability

210
Business strategy growth
Ansof Matrix

MARKET PRODUCT
M Current
A PENETRATION DEVELOPMENT
R
K
E
T MARKET
DIVERSIFICATION
S New DEVELOPMENT

Current New
PRODUCTS

211
Business strategy growth

Market penetration Increase sales of current products in current markets:

● Increase market share


M MARKET PRODUCT ● Increase usage or consumption of current products:
A Current
PENETRATION DEVELOPMENT ‒ Frequency of use: shower gel, toothpaste, etc.
R
K ‒ Increase per–capita consumption: Danone yogurts, campaign
E
MARKET
“consume Spanish wines”, etc.
T
New DIVERSIFICATION
‒ New product applications: instant soups, baking soda as a fridge
S DEVELOPMENT
deodorizer, cotton swabs, etc.

Current New
● Attract new users: margarine consumers to butter, wine consumers to
beer, banking products
PRODUCTS

Market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a
growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if
competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another
strategy must be followed if the firm is to continue to grow

212
Business strategy growth

Market development Introduce current products in new markets:

● New market segments: Coffee, water, sport drinks, milk, cars, etc.
M MARKET PRODUCT ● Geographical expansion: regional, national, international
A Current
R
PENETRATION DEVELOPMENT ● New distribution channels: a strategy between market penetration and
market development
K
E
MARKET
‒ Pharma “traditional” products (cosmetic products, oral care)
T through hypermarkets, supermarkets and convenient stores
New DIVERSIFICATION
S DEVELOPMENT
‒ Books through new-stands, airports, , etc.
‒ Sandwiches, drinks, chocolates in vending machines, convenient
Current New
stores or petrol stations
PRODUCTS
‒ Internet, eCommerce

Market development options include the pursuit of additional market segments or geographical regions. The development of new
markets for the product may be a good strategy if the firm's core competences are related more to the specific product than to its
experience with a specific market segment. A market development strategy typically has more risk than a market penetration strategy

213
Business strategy growth
Develop new products for current markets:
Product development
● Additional features: ABS, Airbag, hybrid...
● Enlarge product range: Gillette – female depilation range of products; Coca –
MARKET PRODUCT
M Cola with the launch of “Zero”, Mars confectionary, Mars ice – cream, Mars
A Current drinks, etc.
PENETRATION DEVELOPMENT
R
K ● Improve quality: courtesy car when the vehicle is under repair, all inclusive
E price of some cars – i.e. Lexus, car pick – up and/or delivery when checking is
MARKET
T needed
New DIVERSIFICATION
S DEVELOPMENT
● New flankers or product refreshment: new packaging for beers, ice –
creams, etc.
Current New ● New products: tablets, smart – phone, voice service devices, etc.
PRODUCTS
● New services: private houses for tourists, freelance drivers… under a market
place model

Product development strategy may be appropriate if the firm's strengths are related to its specific customers rather than to the specific
product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the
case of new market development, new product development carries more risk than simply attempting to increase market share

214
Business strategy growth

Ansof Matrix

Market penetration

MARKET PRODUCT Market development


M Current
Product development
A PENETRATION DEVELOPMENT
R
K
E
T MARKET
DIVERSIFICATION
S New DEVELOPMENT
Internal
diversification

Current New
PRODUCTS

215
Business strategy growth

Diversification ● Basis for a diversification


‒ Superior profit potential of the industry to be entered or..
M MARKET PRODUCT ‒ Ability to create a competitive advantage in the new industry
A Current
PENETRATION DEVELOPMENT
R
● Why diversification for a firm?
K
E ‒ Growth (traditional markets saturation)
MARKET
T
S
New DIVERSIFICATION ‒ Reduce global risks
DEVELOPMENT
‒ Opportunities to invest excess of cash
Current New ‒ Reinforce current competitive position
PRODUCTS ‒ New technologies with potential further usage in current businesses

Diversification is the most risky of the four growth strategies since it requires both product and market development. Going into an
unknown market with an unfamiliar product offering..., lack of experience in the new skills and techniques required…., significant expanding
of human and financial resources, which may detracts focus, commitment and sustained investments in the core business….. Diversification
may be a reasonable choice if the high risk is compensated by the chance of a high rate of return

216
Mergers and acquisitions
● Diversification occurs also when a firm looks outside of its current operations and buys
access to new products or markets

– Mergers: two or more firms combine operations to form one corporation, perhaps with a new
name. This requires the agreement by the shareholders of the two companies. These firms are
usually of similar size. One goal of a merger is to achieve management synergy by creating a
stronger management team

– Acquisitions: or takeover is where one company purchases another. The purchased


corporation loses its identity. The acquired company and its assets may be absorbed into an
existing business unit or remain intact as an independent subsidiary within the parent company.
○ Acquisitions usually occur when a larger firm purchases a smaller company and can be friendly or
unfriendly when the board of the targeted firm are opposed

● Justification for mergers and acquisitions


– Acquiring tangible or intangible resources, organisation capabilities, cost economies, market power,
geographical extension and it is the predominant mode of diversification for firms

217
Competitive advantage from diversification
● Economies of scope
– Efficiencies when using a resource across multiple activities; uses less of that resource than
when the activities are carried out independently

● Economies of scale
– Economies of scope are cost economies from increasing the output of multiple products
– Economies of scale are related to cost economies from increasing output of a single product

● Economies from internalising or externalising transactions


– Are economies of scope better exploited internally or within the firm through diversification or
externally through market contracts with independent firms

218
When diversification will truly create shareholder value
Porter´s test

1. Attractiveness test: industry attractiveness or capacities to make it attractive


The industry that has been chosen has to be either attractive or capable of being made attractive. An
attractive industry will yield a high return on investment, but entry barriers will be high, customers and
suppliers will have only moderate bargaining power and there will be only a few substitute products. An
unattractive industry will be swamped by a range of alternative products, high rivalry and high fixed costs

2. Entry cost test: should not jeopardise future business profit


The cost of entry must not capitalise all future profits. If the cost of entry is so high that jeopardise the
potential return on investment, profitability is eroded before the game has started

3. The better–off test: the new business must obtain a competitive advantage that do not exit at
corporate level
The new business must either gain competitive advantage from its link with the corporation or vice-versa.
How will the acquisition provide advantage to either the acquirer or the acquired?

219
Strategy formulation definition

● Method to design the firm strategy, both at corporate level and for each single
type of business

– Business unit strategy: how the firm competes within a particular industry or market. Is
concerned with establishing competitive advantage and the source of the competitive
advantage/s in a business

– Strategy at corporate level: where a firm competes; decisions over the scope of the firm´s
activities, including product scope, geographical scope, decisions regarding diversification,
acquisitions, new ventures, etc. and allocation of resources among them

220
Types of corporate strategy
● Comprises all businesses that belongs to the firm, markets and industries in
which business is developed with appropriate distribution of resources

– Concentration: Boeing – centred on aviation manufacturing activities; Coca – Cola centred in


soft drinks

– Vertical integration: Heineken (Cruzcampo) – Tavern´s franchising “Gambrinus” ; L´Oreal and


The Body Shop

– Horizontal integration: Jaguar acquisition by Tata Motors, Santander and Abbey

– Concentric diversification: Nestea (alliance with Nestlé); Google acquisition of Motorola;


Microsoft acquisition of Nokia

– Conglomerate diversification: Mitsubishi – banks, chemical, automobile, electronic, air


conditioned, industrial automation, industrial visual information systems, elevators, hotels,
aluminium, etc.

221
Types of corporate strategy

Ansoff Matrix
Products Technologically Technologically
related non related
Customers
M MARKET PRODUCT N
A Current PENETRATION DEVELOPMENT E
R W Same type Horizontal Diversification
K
E
T MARKET M
Same type
S New DIVERSIFICATION
A Supplier – Customer
Vertical Diversification
DEVELOPMENT
R
K
New Similar type Concentric Diversification
Current E
PRODUCTS
T
S
Concentric Conglomerate
Different type
Diversification Diversification

NEW PRODUCTS

222
Types of corporate strategy
● Concentration strategy – most of the turnover comes from a primary line of business
– McDonald's – centred in fast food - burgers
– Boeing – centred on aviation manufacturing activities

● In a concentration strategy a firm directs all or most of its resources to a single market
(business), to a single product or a single technology

● In this strategy, a company chooses to pursue a large share of one or a few markets
(businesses)

● An inherent risk for this kind of strategy occurs when the demand in the market
suddenly drops or if a strong competitor enters the same market

223
Types of corporate strategy
● Vertical integration strategy – the degree to which a firm owns its upstream suppliers
and its downstream buyers
– Expansion of activities downstream is known as forward integration and expansion upstream is
known as backward integration

Industry Level of integration


value chain Forward Backward Balanced

Raw materials

Intermediate goods

Manufacturing

Marketing & Sales

After-sales services

224
Types of corporate strategy
● Vertical integration strategy – the degree to which a firm owns its upstream suppliers
and its downstream buyers
– Expansion of activities downstream is known as forward integration and expansion upstream is
known as backward integration

Level of integration
Industry
None Partial Full
value chain

Raw materials

Intermediate goods

Manufacturing

Marketing & Sales

After-sales services

225
Types of corporate strategy
● Vertical integration strategy – the degree to which a firm owns its upstream
suppliers and its downstream buyers
– Expansion of activities downstream is known as forward integration and expansion upstream
is known as backward integration

● Avon – its primary line of business has been the selling of cosmetics door–to–door. Avon achieved a
backward form of vertical integration by entering into the production of its cosmetics

● ESPN is a key element of Disney’s operations within the television business. Rather than depend on
outside production companies to provide talk shows and movies centered on sports, ESPN created its
own production company achieving a backward integration

● Levi Strauss & Co – traditionally a manufacturer of clothing, has diversified forward by opening retail
stores to market its textile products rather than producing them and selling them to another firm to retail

● Apple ownership of its own branded stores. Apple stores are popular in part because store employees
are experts about Apple products. The opening of Apple stores in relevant cities all over the world is a
forward integration
226
Types of corporate strategy
Benefits of vertical integration
● Technical economies from the
physical integration of processes
Vertical integration is effective when:
Value chain for steel cans – Few distributors/suppliers are available in the industry
– Suppliers/distributors or retailers have high profit margins
Iron ore
mining Market
– Suppliers/distributors are unable to meet firm´s needs

Steel
contracts
– Industry is expected to grow significantly
production Vertical – Pricing instability
integration
Steel trip – There are benefits of stable production and distribution
production
Market
contracts
– The firm has enough resources and capabilities to manage the
Can making integration
Vertical
integration &
market
Canning of contracts
food, drinks,
oil, etc.

The sources of transaction


cost in vertical exchanges
227
Types of corporate strategy
Issues

Value chain for steel cans


– Differences in optimal scale between different stages of
production; i.e. FEDEX to build its own vehicles?

Iron ore – Developing distinctive capabilities; i.e. IT specialists in


mining Market manufacturing or distribution are distinctive to their business
contracts
Steel – Managing strategically different businesses; i.e. manufacturing
production Vertical and retailing require different capabilities
integration
Steel trip
production – Incentive problems; i.e. vertical integration changes the incentives
Market
contracts
between vertically related businesses and the priorities..
Can making
Vertical – Competitive effects; i.e. the risk of damaging the competitive
integration &
market
position of its original business
Canning of contracts
food, drinks, – Flexibility; i.e. Apple or Microsoft products manufactured by
oil, etc.
contract manufacturers
The sources of transaction
cost in vertical exchanges – Compounding risk; i.e. problems at one stage of production might
threaten production and profitability at other stages. A strike is a
good example

228
Types of corporate strategy
Smartphones Industry Automotive Industry

Design Raw materials


Apple, Huawei, HTC, ArcelorMittal, Baosteel,
Sony, Nokia, Samsung POSCO, Nippon Steel

Software Components
Apple, Google, RIM, Denso, Bosch, Aisin,
Microsoft & others Seiki, Continental,
Hyundai, Magna
Value chain
Manufacturing integration...
Flextronic, Foxconn, HTC, Assembly
LG, Samsung & others Ford, GM, Hyundai,
Nisan, Toyota, VW

Marketing & Sales


Importing & Exporting
Apple, Huawei, HTC,
Ford, GM, Hyundai, Nisan,
Sony, Nokia, Samsung
Toyota, VW

After-sales services
Verizon, Telefónica, China Marketing & Sales
AT&T, Mobile, Vivo, Ford, GM, Hyundai,
Vodafone, etc. Nisan, Toyota, VW

229
Types of corporate strategy
Informal
Low supplier/ Vertical
customer Integration
relationships
Supplier/
customer
partnerships
Formalisation

Spot Joint Trends


sales/ Ventures
purchases • Collaborative vertical relationships (high-
tech or microelectronics)
• Network of firms sharing knowledge,
Different types of vertical relationships product development and R&D activities
• Equity stakes and profit sharing

Agency • BtoB hubs (Covisint for auto-parts)


agreements • Outsourcing; simple to complex models
Long Franchises (i.e.; virtual corporation)
term
contracts
High

Low Degree of commitment High

230
Types of corporate strategy
● Horizontal integration strategy – the acquisition of additional business activities at
the same level of the value chain
– Horizontal growth can be achieved by internal expansion or by external expansion through
mergers and acquisitions of firms offering similar products and services

● An automobile manufacturer's acquisition of a sport utility vehicle manufacturer: Jaguar


acquisition by Tata Motors

● Disney-Pixar: Mickey and Nemo, Pinocchio and “Toy Story”, “Cinderella” and “Cars”… The
merger of legendary Walt Disney and Pixar was a match made in cartoon heaven. Disney
had released all of Pixar’s movies before, but with their contract about to run out after the
release of “Cars,” the merger made perfect sense. With the merger, the two companies could
collaborate freely and easily

231
Types of corporate strategy
● Horizontal integration strategy can be effective when:
– Organisation competes in growing industry
– Competitors lack of some capabilities, competencies, skills or resources
– Economies of scale with significant impact
– High industry concentration is allowed by governments
– Organisation with enough resources to manage M&A

● Horizontal integration examples (acquiring and acquired)


– Porsche and Volkswagen
– Kraft Foods and Cadbury
– Glaxo Wellcome with SmithKline Beecham
– Mittal Steel with Arcelor
– British Airways and Iberia
– RBS and ABN - Amro

232
Types of corporate strategy
● Concentric diversification strategy – expansion through the set – up or acquisition of
new businesses related with the core business
– Microsoft – operating system, soft. tools, security, antivirus, media, web, etc.
– AT&T acquisition of cable companies to control communication distribution

● Technological similarity between the industries which means that the firm is able to leverage
its technical know-how to gain some advantage
– A manufacturer of an industrial adhesives might decide to diversify into adhesives to be sold via
retailers. The technology would be the same, but marketing effort will have to change; i.e. 3M

● Achieve strategic fit since allows an organisation to achieve synergies


– Avon´s move to market jewellery and fashions through its door – to – door sales force involved
marketing new products through existing channels of distribution
– UPS acquired Overnite to diversify its packaging business into the trucking business

233
Types of corporate strategy
● Conglomerate diversification occurs when a firm diversifies into areas that are unrelated
to its current line of business managing a portfolio of businesses not related to each other
– Mitsubishi – banks, chemical, automobile, electronic, air conditioned, industrial automation, industrial
visual information systems, elevators, hotels, aluminium...
– Union Pacific – railway industry, gas and oil, mining, optic fibre, etc.

● The firm operates in the market with products and/or services that have no technological or
commercial synergies between them, but which may appeal to new groups of customers

● Main reasons of adopting such a strategy

– Improve the profitability and the flexibility of the company

– Get a better reception in capital markets as the company gets bigger

– Even if this strategy is very risky, it could if successful, provide increased growth and profitability

234
Types of corporate strategy
● Alliance: a collaborative agreement between two or more firms, that decide to act
together in order to obtain future common benefits

● Why an alliance?
– Fast and frequent technological changes
– Share know – how: R&D, customers, market knowledge, distribution channels, etc.
– Creation of a network of inter-firms relationships (Zara, Toyota, Benetton)
– Risks in product development (In petroleum most upstream projects are joint ventures)
– Access to new markets
– Share financial support and costs

● Examples
– Star Alliance, Oneworld
– Nissan, Daimler – Benz and Renault
– Google and NASA developing Google Earth
– Starbucks JV with Tata Beverages to break into the Indian retail market
– Nike with Apple to offer real biometric data to an iPhone
– Bulgari Hotels and Resorts; a JV between Marriot and Bulgari
235
Types of corporate strategy
PEUGEOT

and 7% ownership
Joint development
AVTOVAZ
SAAB

10% owned; co-production FIAT


SUZUKI
GM
GM´s network of
international alliances
ISUZU 60%
FUJI
with other automakers owned

40% investment
IBC Vehicles
Ltd. (UK)
SAIC
(Makes vans in UK)

New United Motor DAEWOO


TOYOTA
Manufacturing Inc.
50% owned

(Makes cars in US)

236
Types of corporate strategy
STRATEGIC ALLIANCES

TYPE OF ALLIANCES EXAMPLES

Operating alliances (cooperation) ● Common interest: sector, professional, lobbies, ...

● Marketing budgets (co – branding)

● Branding and know – how

Operating alliances (sharing resources) ● Commercial structure and investments

● Purchasing agreements (buying groups)

● R&D, offices, people, infrastructure, etc.

Strategic alliances (capital investment) ● Joint venture (50/50, minority, management control)

Strategic alliances (M&A) ● Buying a firm, merger of different BU´s, etc.

237
Types of corporate strategy
Fast
1. Market development
Market development Grand
1. Market penetration
M 2. Market penetration Strategy
A 2. Product development
3. Product development
3. Forward integration Matrix
R 4. Horizontal integration
K 4. Backward integration
5. Divestment
E 5. Horizontal integration
6. Liquidation
T 6. Concentric diversification
Medium

G 1. Retrenchment 1. Concentric diversification


R 2. Concentric diversification 2. Horizontal integration
O 3. Horizontal integration 3. Conglomerate diversification
W 4. Conglomerate diversification 4. Joint ventures
T 5. Divestment
H
Slow 6. Liquidation

1 2 3 4

Weak Average Strong


COMPETITIVE POSITION
(Could be measured by an IFE – Internal Factor Evaluation)
238
Evaluation strategy test
● Best formulated strategies have no value if an implementation plan is not effectively put in
place – evaluation strategy test

1. Superior and sustained results

2. External coherence – respond to key success factors as an answer to the market environment

3. Internal coherence – between strategic design and operating design; between execution of activities
and the mission

4. Organisation structure – resources, control and follow – up of objectives and action plan

5. Cooperation structure – alliances with suppliers and customers

239
Evaluation strategy test
● Best formulated strategies have no value if an implementation plan is not effectively put in
place – evaluation strategy test

6. Management leadership – their words and personal example do have significant influence on the
behaviours, thoughts and feelings of those working with them

7. Corporate entrepreneur and innovation – provides a competitive advantage if:


– It is difficult to imitate
– Implementation cost is very expensive for competitors
– Customers perceive the value added
– There is a time – frame to exploit a competitive advantage
– The firm is capable to distribute the product/service

240
Lenovo: building a global brand

241
Corporate strategy
1. Why did IBM want to sell its PC business?
– IBM was loosing money on its PC business
– Market share was declining and its cost structure was unfavourable
– Strategy shifting towards problem – solving consulting
– Absent of significant product innovation since a few years ago

2. Why did IBM sell to Lenovo?


– IBM had longstanding relations with Lenovo and its precursor, NTD. IBM PCs had been distributed in
China by NTD. IBM had sourced PC components in China
– Lenovo chairman, Yung Yuanqing, had a longstanding ambition to make Lenovo the IBM of China. He
imbued Lenovo with a similar corporate culture
– Selling to Lenovo might boost goodwill towards IBM in Chinese government circles and result in further
business contracts for IBM in China
– IBM could see how to continue to make profits from the PC business, even after selling it to Lenovo.
The IBM sales force that targeted large corporations would continue to sell Lenovo PCs and service
contracts for them

242
Corporate strategy
2. What explains Lenovo´s success prior to the acquisition?
– PC market share leader in China with 21.5% but with strong track record in innovation that was put in place
in the Chinese market

– Modelled on IBM, with an emphasis on technical innovation, strong government support and leadership,
Lenovo had a long standing ambitions to become a global player. But achieving scale was imperative to
survive

– Another factor prompting the company to think global was China´s imminent entry into the World Trade
Organisation. This promised to reduce tariff and other trade barrier and open Chinese market to more direct
competition from the likes of HP and Dell

– In 2004 Lenovo made two important moves on its path to globalisation: First, it changed its name from
Legend to Lenovo. The name Lenovo implied innovation versus Legend emphasizing on past
achievements. Lenovo easily understandable and easy to pronounce in multiple languages

– A Chinese brand sponsoring the Olympics both the winter games in Turin and the summer games in Beijin
in 2008! Lenovo become the exclusive PC sponsor and provider of the Olympics in return for $80 million

243
Corporate strategy

3. What challenges did Lenovo face after the acquisition?


• Defend its acquired market share against external competitors rather than have its energies eroded by
internal competition between IBM and Lenovo managers. To retain IBM customers and employees Lenovo:
– Appointed the head of the IBM PC business as CEO of Lenovo
– Communicate to the market that IBM would not have sold the PC business to a company that would put its customers at risk
– Establish the world HQ of Lenovo in the USA at the HQ of the former IBM PC business
– Designated English as Lenovo´s principal language for business communications

• Lenovo´s culture emphasized speed and entrepreneurship wile the IBM culture was more formal and
bureaucratic

• Risk of moving too slowly over the IBM culture, showing too much respect and not establishing control
promptly. With M. Dell opinion..., sceptical customers about Lenovo´s ability to deliver innovation, product
quality and service support

• Regarding employees should be motivated; the best would be re – inspired by the acquisition. Lenovo should
do its best to retain salespeople and marketers to secure the customers

244
Corporate strategy

4. How should Lenovo handle the brand management challenges associated with the
acquisition?
• From a business perspective the Lenovo and IBM brands are complementary rather than duplicative. The
brand essence of IBM and Lenovo are dissimilar
– Lenovo is strong in desktops, IBM in notebooks
– Lenovo is a value brand, IBM is a premium brand with long standing relationships with large multinational customers
– Lenovo is a Chinese brand and IBM is a global brand

• Therefore it is not so obvious that IBM PC customers will migrate to Lenovo if the IBM name disappears.
Additionally the Think brand is closely associated with IBM and 20 million PC´s...

So, what principles might be usefully guide to Lenovo management´s decision – making
regarding the brand transition.......?

245
Corporate strategy

4. What principles might usefully guide to Lenovo management´s decision – making


regarding the brand transition?
– Management needs to establish Lenovo as its preeminent global brand and the marketing efforts
must focus on a single positioning for the Lenovo brand
– Given the large marketing expenses of HP and Dell, Lenovo cannot afford to dilute its marketing
efforts for long cross more than one global brand
– Lenovo´s success depends not only on building global brand awareness for Lenovo but on significant
product innovations and advertising under the Think brand
– A separate strategy may be appropriate for China where Lenovo is the market leader, enjoys high
brand awareness and has a value brand image
– A consistent global positioning must developed for the Lenovo brand

Lenovo positioning:
efficiency plus innovation

Commodity Innovation

Everyone Dell/HP Lenovo

A few Sony/Apple

246
Corporate strategy

4. What four brand options did Lenovo had to choose? Which one was chosen by Lenovo
management?

– Master brand; Lenovo would be the master brand. Think would become a sub-brand of Lenovo

– House of brands; equal resources behind the Lenovo and Think brands. The Think brand would not appear on
Lenovo products or vice-versa

– Hybrid; Think would be a hero sub-brand to Lenovo, analogous to Sony Playstation and Apple iPad or iPhone.
Overtime, the strong sub-brand (in this case Think) would hopefully transfer some of its equity (premiumness,
innovativeness) to elevate the Lenovo master brand

– Lexus/Toyota solution; Lenovo would be positioned as a mass market brand (as Toyota) and Think would be
positioned as a premium brand (as Lexus)

Management elected to pursue the hybrid solution. This would require Lenovo to invest in product innovations
for both its own brand and the Think brand; i.e. X41 tablet series, Think Pad Z60, 3000 Family

247
Corporate strategy

5. What four brand options did Lenovo had to choose? Which one was chosen by Lenovo
management?

Management elected to pursue the hybrid solution. This would require Lenovo to invest in product innovations
for both its own brand and the Think brand; i.e. X41 tablet series, Think Pad Z60, 3000 Family

Two Lenovos?

• Relationship marketing • Transaction marketing


• Corporate customers • Small businesses
• Think • Other product lines
• Ultimate business tool • Smart choice
• Rock solid, thoughtful design • Worry free, exciting/stylish, great value
• Innovation/efficiency • Efficiency/innovation
• West? • East?

248
Corporate strategy

6. In trying to become a global brand, does Lenovo have a problem coming from China?
– China is currently associated with low cost production of easy – to – manufacture products, not with
100% reliable manufactured high end brands like Think. As happened with Japan and Korea, this
image will improve quickly..

– China has a poor image in the global business community. Chinese business is viewed as state –
influenced. Lenovo is still partially owned by Chinese government entities

– As the first global brand to come out of China, Lenovo is breaking new ground

– Because of China´s size and power, Asian consumers are especially wary of supporting Chinese
brands

249
Classes outline

1. The concept of strategy


INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digitalisation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

250
Cirque du Soleil: a blue ocean strategy

251
Blue ocean versus red ocean strategy

Business problems Red ocean Blue ocean

Competitiveness Bleeding Innovation

Strategy Beat competitors Make competitors irrelevant

Procedures Continuous improvement Differentiation

Market Standing Create new markets

Improve the service to existing Redefine the customers


Customers
customers and create new customers

Comparison only Comparison with


Benchmarking
with competitors other industries

Products Sale same products Create new products

Use variables that Increase, decrease,


Methods
defines de industry create, eliminate variables

252
Blue ocean versus red ocean strategy

Re-inventing the circus

Indicators Status per year

Audience + 15 million spectators

Global presence + 200 cities over the world

Productions 20 different shows

Revenue $ 1,000 million

Profitability High – 15%/20%

253
Blue ocean versus red ocean strategy

Productions

254
Blue ocean versus red ocean strategy

Business problems Red ocean Blue ocean

Competitiveness Bleeding Innovation

255
Blue ocean versus red ocean strategy

Business problems Red ocean Blue ocean

Make competitors
Strategy Beat competitors
irrelevant

256
Blue ocean versus red ocean strategy

Business problems Red ocean Blue ocean

Procedures Continuous improvement Differentiation

257
Blue ocean versus red ocean strategy

Business problems Red ocean Blue ocean

Market Standing Create new markets

258
Blue ocean versus red ocean strategy

Business problems Red ocean Blue ocean

Improve the service to Redefine the customers


Customers
existing customers and create new customers

259
Blue ocean versus red ocean strategy

Business problems Red ocean Blue ocean

Comparison only Comparison with


Benchmarking
with competitors other industries

260
Blue ocean versus red ocean strategy

Business problems Red ocean Blue ocean

Products Sale same products Create new products

261
Blue ocean versus red ocean strategy

Business problems Red ocean Blue ocean

Use variables that defines Increase, decrease, create,


Methods
de industry eliminate variables

262
Blue ocean versus red ocean strategy

Business problems Red ocean Blue ocean

Competitiveness Bleeding Innovation

Strategy Beat competitors Make competitors irrelevant

Procedures Continuous improvement Differentiation

Market Standing Create new markets

Improve the service to existing Redefine the customers


Customers
customers and create new customers

Comparison only Comparison with


Benchmarking
with competitors other industries

Products Sale same products Create new products

Use variables that Increase, decrease,


Methods
defines de industry create, eliminate variables

263
Blue ocean versus red ocean strategy

Other examples of blue ocean strategies

264
Blue ocean strategy; shifting the focus

● Implementing the new value in innovation..

– Create uncontested market spaces

– Make the competition irrelevant

– Create and capture new demands – looks for serving “non–customers”

– Break the relationship between value and cost

– Align the organisation with its strategic choice

○ Differentiation and low cost when possible

265
Blue ocean strategy; where to look for inspiration

• Look across other industries/sectors

• Look across services or complementary • Long term focus


technology

• Divergence

• Rethink the functional/emotional orientation


• Compelling message to
customers/consumers
• Between the present and the future (trends)

266
Blue ocean strategy; innovation tools

● Innovation tools helps to…..

– Establish an innovation culture that involves the whole organisation

– Discuss innovation opportunities within different areas of the organisation

– Differentiate between technological innovation and real innovation of value

267
Blue ocean strategy; innovation tools
Four actions framework tool (ERRC grip)

Raise Raise the determining factors that


the industry provokes to the
consumers of its products

Factors that today are What factors should be


considered but have no raised well above the
value actually
industry's standard?
Eliminate Create

What factors that the What factors should


A new
industry takes for be created that the
value
granted should be industry has never
eliminated?
curve offered?

New sources of value capable


to generate a new demand and
What factors should be a new strategy for establishing
prices
reduced well below the

Factors that have been


industry's standard?
oversized in the current
race to beat competitors
Reduce 268
Blue ocean strategy; innovation tools
Four actions framework tool (ERRC grip)

ELIMINATE RAISE

• •

• •

REDUCE CREATE

269
Blue ocean strategy; innovation tools
Four actions framework tool (ERRC grip)

ELIMINATE RAISE
• Animals
• Circus for adults and corporate
• Stars performers
• Price
• Conductor
• Potential customers (firms)
• Spoken language
• Unique venue
• Multiple arenas
• Artist injuries
• Sale on tiers and halls

• Refine watching environment


• Humour and fun
• Connecting theme
• Clowns role
• Stage set – up, customs, music,
• High risk: emotion, danger, etc.
dance, show, performance etc.
• Interaction with spectators
• Multiple productions
• Branding, universality

REDUCE CREATE

273
Blue ocean strategy; innovation tools
Strategic canvas tool

High

Low

• When the curve of value converges with competitors curve, we are in the middle of a red ocean
• If the curve shows a high positioning among all factors, that implies high level of investments and
therefore we should ask ourselves if a high return for the investment is reflected
• A zigzag curve should rise some question marks about the coherence of the strategy or the
existence of contradictions (high levels in some of the factors and the ignorance of other factors)

274
Blue ocean strategy; innovation tools
Strategic canvas tool

National Circus
Differentiation
High Cirque
du Soleil
Innovation

Low

276
Blue ocean strategy; innovation tools
Strategic canvas tool
Musical as a
substitute
product?
High Cirque
du Soleil
Innovation

Low

277
Blue ocean strategy; differentiation and low cost?

What factors should be Costs Cost savings from


eliminating and
eliminated that the industry
reducing
takes as granted?

What factors should be


reduced well below the
industry standards? Cost advantages
Value from high volume
innovation

What factors should be raised


well above the industry
standards?
Differentiation by
raising and
What factors should be
creating
created that the industry has
Consumer utilities
never offered?

278
Blue ocean strategy; differentiation and low cost?

● Revenue generation
– Accessing to a new and more profitable pool of customers (adults, corporate, events) willing to pay a higher price
– Scalability, the opportunity to offer a new product to satisfied customers that wants to enjoy a totally new
production
– Strong brand integrating different parts of the value chain that usually in the entertainment industry are managed
separately: (1) authors and creators; (2) organisation and training of a performance team (3) the management and
provision of the performing venue

● Cost reduction
– Elimination of animals: logistics, trainers, maintenance and care, security, infrastructure (one elephant costs
5,000€ per week), renting cost, animal rights defenders
– Star performers another significant cost factor eliminated. The salary cost and fringe benefits of a star could reach
1 mill. €. Cirque du Soleil acrobats are anonymous and their cost is significantly lower (40,000 to 200,000 €)

279
Jugaad innovation

● Jugaad
– Is a colloquial Hindi word meaning “an innovative fix; an improvise solution born from ingenuity and cleverness”

● Jugaad innovation definition


– Is a unique way of thinking and acting in response to challenges; it is the gutsy art of detecting opportunities in
the most adverse circumstances and resourcefully improvising solutions using simple means

● Jugaad in other countries


– Brazil – “Gambiarra”
– China – “Zizhu Chuangxin”
– Kenya – “Jua Kali”
– France – “Système D”

280
Jugaad innovation

● Mitticool

https://www.youtube.com/watch?time_continue=131&v=xDFsIe6bTYs

● Embrace Innovation
https://www.youtube.com/watch?v=-PyY94ssSww

281
Jugaad innovation
How the West lost its jugaad

Managing innovation like any other business activity; creating dedicated


R&D departments and standardising the processes of taking ideas to market

● The structured approach is too expensive and resource consuming


– “More (inventions) with more (resources)”
– Pharma industry; the sector where the bigger is better. Big Pharma´s spending in R&D is around $45 billion
– U.S. automobile industry expenditure in R&D near $20 billion

● The structured approach lacks flexibility


– With such R&D budgets firms became risk averse in innovating
– A heavy structured process full of tools and practices to reduce uncertainty

● The structured approach is elitist and insular


– Large R&D labs employing hundreds of top scientists and engineers
– A belief that “knowledge is power” and therefore becoming an elitist activity

282
Jugaad innovation
How the West lost its jugaad

Today the reality is….

● Money cannot buy innovation


– There is a weak correlation between R&D expenditure and inventions

● Invention is in essence a messy and chaotic process


– You cannot put a six sigma process behind inventions and say… I am planning to work next Wednesday in two
new ideas…

● The old belief that only a few smart scientist or engineers could invent new things is over
– In a consumer driven economy is more important to commercialise technology, skills that scientist and engineers
might not have
– Innovation is not an invention; is converting a new idea into a consumer satisfaction. Otherwise is not innovation
– The power has shifted from the professional class to the masses

283
The six principles of jugaad innovation

Six practices of highly effective innovators in complex settings like emerging economies

1. Seek opportunity in adversity

2. Do more with less

3. Think and act flexibly

4. Keep it simple

5. Include the margin

6. Follow your heart

284
The six principles of jugaad innovation
1. Seek opportunitie in adversity
Jugaad entrepreneurs perceive constrains as an invitation to innovate; they transforms adversity into
opportunities adapting to changing circumstances by improvising solutions along the way

● Enrique Gómez Junco founder of Optima Energía (Mexico)


https://www.youtube.com/watch?v=7m3i75ePGVw

● Tulsi Tanti founder of Zuzlon Energy (India)


https://www.youtube.com/watch?v=RT4UUApbWw4

285
The six principles of jugaad innovation
1. Seek opportunitie in adversity

Key learnings to capitalise on adversity


1. The glass is always half – full
‒ P&G Affinnova for R&D and community Vocalpoint for promotional campaigns

2. Extreme conditions are a fertile soil for extreme innovation


‒ Salesforce.com – SaaS

3. Build psychological capital to boost confident resilience


‒ Danone with a decentralised decision making power and R&D network

4. Approach big challenges with a growth mindset


‒ IBM from a PC maker to business consulting
‒ 3M´s 30% and 15% (NPVI – new product vitality index)

5. Tap the power of networks to tackle big market threats


‒ Pfizer´s R&D alliances with external partners
286
The six principles of jugaad innovation
2. Do more with less
Jugaad practitioners work with what they have helping firms in emerging markets
to optimise the use of scarce financial and natural resources while delivering high
value to a greater number of customers. Scarcity is the mother of invention

● Safaricom (M-PESA) (Kenya)


https://www.youtube.com/watch?v=zQo4VoLyHe0

https://www.youtube.com/watch?v=i0dBWaen3aQ

● Hapinoy (Philippines)
https://www.weforum.org/agenda/2015/12/everyone-a-microentrepreneur/

287
The six principles of jugaad innovation
2. Do more with less

Key learnings to capitalise in a scarcity environment

1. Reuse and combine resources and technologies


‒ Safaricom; transfer your money with an SMS without having a bank account

2. Leverage the assets of others to scale up their model; assets light


‒ Grobocapatel, everything was outsourced… renting equipment, land, freelance labourers

3. Leverage existing networks for distribution to solve the “last mile” problem
‒ Colgate Palmolive “micro-stores on wheels” to sell oral-care products

4. Help customers to get more value; it is not about reducing costs but also passing
value to consumers
‒ Embrace Innovation

288
The six principles of jugaad innovation
3. Think and act flexibly

An attempt to negotiate street traffic in India is the best way to explain how instinctively you
have to think and act flexibly; jugaad innovators adapt to survive and accept unpredictability

● Harish Hande, founder and CEO of SELCO (India)

https://www.youtube.com/watch?v=HGTO2Nm5lng

https://www.youtube.com/watch?v=ZaacsKYTg5E&pbjreload=10

https://www.youtube.com/watch?v=RavLjmWdMK4

289
The six principles of jugaad innovation
3. Think and act flexibly
A few ways for firms to learn think and act flexibly to adapt their business models in
changing circumstances
1. Break the rules and change values when necessary
‒ IBM

2. Do not let investors and customers dictate your innovation agenda


‒ iPad

3. Create time and space for employees to improvise and experiment


‒ Google 70/20/10 model

4. Experiment with multiple business models


‒ Biocon with insulin treatment with direct distribution in emerging markets and licences to
Pfizer for distribution in Western markets

5. Fail cheap, fail fast, fail often


‒ Endeavor (NGO) determines that jugaad entrepreneurs do not take large risks
‒ Celebrate failure and share your experience

6. Breakdown organisational silos to gain speed


290
The six principles of jugaad innovation
4. Keep it simple

Jugaad innovators are at the forefront of a low – tech revolutions devoted to finding “good enough”
solutions; offer products that are easy to use and maintain and solve customers´ fundamental needs

● Illac Díaz, inventor of SLB (Philipinnes)


https://www.youtube.com/watch?v=cQCHvO2H0_0

https://www.youtube.com/watch?v=z02ngSto-sk

● Ushahidi, a platform in response to cataclysmic events (Kenya)


https://www.youtube.com/watch?v=EhT3co2qNAA

https://vimeo.com/255812747

https://vimeo.com/209485585

291
The six principles of jugaad innovation
4. Keep it simple

How firms can simplify products and organisations…


1. Redesign the entire organisation around simplicity
‒ Philips
2. Distil customers needs to the essence and design simple products
‒ Apple; Steve Jobs was the Michelangelo of the digital age..
3. Design simple offerings from the ground up
‒ Siemens SMART philosophy (simple, maintenance friendly, affordable, reliable, timely)
4. Get engineers, designers and marketing people to work together
‒ If P&G, Facebook and Google can do it every company can do it…
5. Simplify product architectures and reuse platforms across products
‒ GM global R&D platforms encourage to share best practices
6. Make it simple not simplistic
‒ KISS rule; keep it simple and stupid
‒ Think for instance in Google home page… and compare it with what they have behind the scene….

292
The six principles of jugaad innovation
5. Include the margin

One of the most relevant principle. Jugaad entrepreneurs intentionally looks


after marginal, underserved customers and pull them into the mainstream

● Dr. Liu Jiren, Chairman of Neusoft (China)


http://fortune.com/2018/03/20/neusoft-china-healthcare/
https://www.youtube.com/watch?v=NiDiiym6BHc

https://www.forbes.com/global/2006/0724/034.html#34aeaff5acfa

https://www.suse.com/media/success-story/neusoft_wuhan.pdf

● Rana Kapoor, founder and CEO of YES BANK


https://www.ibef.org/download/banking_story_06.pdf
https://www.yesbank.in/pdf/yesbankstory

293
The six principles of jugaad innovation
5. Include the margin
How firms could make business including the margin..
1. Social inclusion with a business mindset
‒ Florida Ice&Farm
2. Serve low – income Western consumer base
‒ Renault; Dacia, Logan
3. Create an inclusive work culture
‒ Flattening organisations for instance and fostering commitment at all levels
4. Marginal segments are not marginal minds
‒ Yourencore.com innovation community launched by P&G, Lilly and Boeing

5. Use technology to lower the cost of inclusion


‒ Telemedicine programmes to reach people in underserved areas
6. Partner with non profit organisations
7. Secure C – level buy-in to drive business model changes
‒ GE healthymagination; healthcare affordable and accessible for masses
8. Adapt and adopt best practices from emerging markets
‒ J&J Text4baby; VidaNET in Mexico for HIV patients
294
The six principles of jugaad innovation
6. Follow your heart

Jugaad entrepreneurs do not rely on focus groups or formal market research to decide
what products to make. They follow their hearts; use intuition, empathy and passion

● Diane Geng and Sara Lam cofounders of Rural China Education Foundation (RCEF)
https://inspirationalwomenseries.org/2017/09/12/inspirational-woman-interview-diane-geng/
https://www.youtube.com/watch?time_continue=264&v=s5eC45_PiJU

https://www.youtube.com/watch?v=LV6bpdmzEkc

● Kishore Biyani, founder of Big Bazaar (India)


https://www.youtube.com/watch?v=v2LoK-m9j7s
https://www.thenational.ae/business/the-making-of-india-s-retail-king-1.519687

https://www.youtube.com/watch?v=P00Q4opJ-0A

295
The six principles of jugaad innovation
6. Follow your heart

How firms cultivate their heart power..

1. Connect R&D with the customers real world and emotionally connect marketing with
customers

2. Send senior managers to empathy development training camps


‒ Allianz Global
3. Ignore market researchers and investors to innovate radically
‒ Encourage the C – level courage
4. Embrace customer – centric design principles
‒ Intel employ ethnographers that are living during months in emerging markets
5. Engage your customers in a hear to heart conversation
‒ Starbucks engaging emotionally with customers
6. Create “centres of passion” across the organisation
7. Encourage employees to trust their gut and validate with experimentation
‒ Google, Facebook beta – testing their intuitive ideas

296
Integrating jugaad into your organisation

● Jugaad is not a panacea to be applied to all innovation problems in all situations

● Jugaad is not a substitute for the traditional structured approaches used in Western
economies; is a useful complement

“Company cultures are like country cultures. Never try to


change one. Try, instead, to work with what you´ve got”

Peter Drucker

297
When jugaad work best?
Jugaad innovation delivers the most relevant benefits when it is practiced in
complex and volatile environments with some characteristics

● Rapid changes
‒ Short product lifecycle, changes in demographics patterns, competition is heating or coming from
everywhere, government policies and regulations are constantly changing

● Widespread resource scarcity


‒ Limited capital, access to natural resources is constrained; i.e., water, oil, etc.

● Frugal and diverse customers


‒ Cost-conscious customers seeking affordable products and want/needs them to be tailored to their particular
needs; i.e., consumer products, healthcare products

● Industry immaturity
‒ Emerging sectors where industry standards are not established; i.e., clean tech, biotech

● Exploding interconnectivity
‒ Industries undergoing a technology revolution and where social media tools and cell phones are making
collaboration easier and communication cheaper; i.e., unbanked people

298
When jugaad work best?
Jugaad innovation delivers the most relevant benefits when it is practiced in
complex and volatile environments with some characteristics

● These extreme conditions have been more extended in emerging markets


‒ India, China, Brazil rather than Europe or United States

● How should companies with an stablished structured approach to innovation can deal
with jugaad innovation?
‒ Abandon the structured approach or integrate jugaad approach into it?
‒ If the latter, how should both approaches be integrated?

The answer is not the hammer (traditional innovation


approach) versus the screwdriver (jugaad innovation
approach) but the hammer and the screwdriver....

....and when to use each approach

299
When jugaad work best?
Benefits of the hammer – traditional innovation approach

● Volume oriented economies of scale


‒ Large R&D departments and supply chain resources enable companies to scale up new products and distribute
them to homogeneous markets

● Infusion of hard capital


‒ Favours “big risk, big rewards” R&D projects undertaken by firms with huge resources
‒ Potentially this could lead to disruptive technology or ground-breaking products

● Efficiency
‒ Six Sigma can help firms execute innovation projects more efficiently within an stable environment

300
When jugaad work best?
Benefits of the screwdriver – jugaad innovation approach

● Value oriented economies of scope


‒ As populations grow more diverse and markets become more fragmented, jugaad enables firms to tailor solutions to
specific needs of multiple customer segments

● Infusion of soft capital


‒ Incorporating employees into jugaad practices favours motivation and passion thus helping to retain valuable people
‒ Involving customers/consumers will foster better relationships and loyalty

● Flexibility
‒ Managers need to think how to overcome unexpected challenges
‒ Jugaad mindset can help in developing robust solutions in a tough environment with limited resources and
constrains

301
Getting started with jugaad
Jugaad is like a booster, expanding the abilities of a firm to cope with volatility and do more
with less in constrained environments. Firms need to give themselves the freedom to swing to
both approaches and manage the creative tension between jugaad and structured approach

● Prioritise the jugaad principles you need to put in place


‒ Not all principles are of equal importance to all organisations
‒ P&G; “do more with less” for its consumers or the H.R. departments could implement “follow your heart”
principle in its firms like for instance Google is doing

● For each principle you choose to follow target first the quick wins
‒ Handle them in manageable stages
‒ Siemens, Philips or GM´s

302
Siemens CerberusEco in China: introducing low-frills products in a high – quality company

303
Jugaad innovation

1. What general options does Siemens have to fight emerging low-cost rivals for fire
detection products in China?

2. How would you assess Castern Liesener´s plan for China?

a) What are the critical issues for the proposal?

b) How would you improve the proposal?

304
1. What general options does Siemens have to fight emerging low-cost rivals
for fire detection products in China?

● Differentiate even more

● Add low – cost

● Concentrate exclusively in low – cost

But how would you decide between those options?

305
2. How would you assess Castern Liesener´s plan for China?
a) What are the critical issues for the proposal?

● Key elements/topics of the business case

‒ Business model

‒ Sales/salesforce approach

‒ Cost accounting

‒ Human resources

‒ Brand

306
2. How would you assess Castern Liesener´s plan for China?
a) What are the critical issues for the proposal?

Topic Liesener´s plan Issues/challenges


• PM is responsible for translating market
requirements into product features and setting
Sourcing, R&D, production, sales in China while
Business model PM steered from Switzerland
the pricing of the products. It is at least
questionable that PM in Switzerland has a deep
understanding of Chinese market requirements

• New dedicated M3 VAP´s in tier 2 and tier 3


cities • Potential cannibalisation as M2 VAP´s might sell
• Use existing M2 VAP´s in tier 1 cities on the M3 products in M2 markets
Salesforce approach coast • Potential channel conflict by adding another
• Develop a network of distributors (several layer
VPA´s as customers) in more remote areas

• Quite relevant when it comes to M3 markets


Cost accounting Use Siemens HQ accounting charges
• HQ charges might kill low – cost approaches

• Use HQ resources will generate important costs


Human Resources Use Siemens HQ resources
(English, equipment to salesforce, cars, etc.)

Brand Siemens CerberusEco • No impact on Siemens brand

307
2. How would you assess Castern Liesener´s plan for China?
b) How would you improve the proposal?

Topic Liesener´s plan Issues/challenges Potential solution


• PM is responsible for translating market
requirements into product features and setting the
Sourcing, R&D, production, sales in China Product management has to be
Business model while PM steered from Switzerland
pricing of the products. It is at least questionable
in China too
that PM in Switzerland has a deep understanding
of Chinese market requirements

• New dedicated M3 VAP´s in tier 2 and Make a clear distinction:


tier 3 cities
• Use existing M2 VAP´s in tier 1 cities on • Potential cannibalisation as M2 VAP´s might sell • CerberusEco with new M3
Salesforce approach the coast M3 products in M2 markets VAP´s
• Develop a network of distributors • Potential channel conflict by adding another layer
(several VPA´s as customers) in more • Existing M2 products with
remote areas existing VAP´s

Allocation of overheads are always a


• Quite relevant when it comes to M3 markets
Cost accounting Use Siemens HQ accounting charges
• HQ charges might kill low – cost approaches
major issue in MNC´s. Use a viable
criteria (economies of scope…)

• Use HQ resources will generate important costs Use resources compliant with standards
Human Resources Use Siemens HQ resources
(English, equipment to salesforce, cars, etc.) (basic/plain) but avoid European standard

Brand Siemens CerberusEco • No impact on Siemens brand Not really an issue

308
Classes outline

1. The concept of strategy


INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digitalisation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

309
Managing strategic tools
Initial assessment

T
H
E Environment analysis
● Annual objectives
P ● Policies
R
O
Strategy formulation ● Resource allocation
C ● Organisation chart
E ● Performance and rewards
S Strategy implementation
S

Monitoring and results


evaluation Tools
● Annual budget
● Leadership
● Salary and incentives policies
● Motivation programmes
● Projects methodology

310
Cione

311
Strategic plan
components
● Vision, mission and values

● Industry analysis

● Key success factors

● SWOT analysis

● Business model canvas

● Strategic map

● Strategic objectives

● Projects

● Profit and loss statement

● Key performance indicators


312
Methodology
process

Environment
analysis Trends
Vision, Business (internal and (industry, Strategic
mission model external) and economics, options
and values analysis industry cultural..) evaluation
asessment

Financial Business
plan and Strategic Strategic Strategic model
resources projects initiatives objectives assessment
and change

313
External analysis
status of the industry

● Market saturation; ten thousand optical stores

● Low level of investment in the renovation and modernisation of the stores

● Pricing pressure and decrease of margins in the whole value chain

● Uniformity in the product and services offering; no real differentiation

● Lack of specific positioning

● Well informed consumers and very demanding in their requirements

● Product accessible through multiple channels; opticians stores, pharma stores, department stores,
hypermarkets, fashion stores, sport stores, internet, etc.

314
External analysis
Industry trends

● Fewer number of stores


– Ratios will be closer to the rest of the European markets

● Market concentration (forward integration and manufacturers concentration)

● Polarised offering to consumers


– Pricing on one extreme and service (visual health) on the other

● Incorporation of technology into the stores demanded by new consumers


– Additional equipment, new ways of interaction with consumers (in the store and outside the store),
communication, internet sites, personalisation, etc.

● Science progress
– Surgery and other potential medical breakthroughs might be a serious threaten

● Additional training requirements in management

315
Strategic objectives
In four years

● Market share of 15% in Spain


– 1.200 associates in Spain

– 240 customers ( non associate independent opticians)

● Market share of 7% in Portugal


– 150 customers in Portugal

● Penetration of 4 product lines per associate

316
Scope
Customers and product range

● Our customers (associates and members of the cooperative) are optician stores of
medium and small size to which we offer products and services:

– Own label products and exclusive distribution agreements with an excellent quality/price
relationship

– Complementary value added services to help opticians to improve the sales of their stores
and enhance their management and marketing capabilities

– Commercial conditions with different manufacturers thus guaranteeing their prices and
discounts to counterbalance the power of major multinationals

317
Scope
Competitive advantage
Criteria • Competitors (*) • Cione

Quality/price relationship

Product range
Ample offer of products and services
Speed of service
with a high quality/price relationship to
Commercial relationships
a close network of opticians (members
Commercial conditions of a cooperative) and based in

Marketing services commercial relationships of trust,


empathy, almost personal and with a
Assessment
remarkable customer driven orientation
Customer service

Associate training

Selling tools (clinical devices)


Other services (workshop,
central invoicing, finance
services portal, etc.)
Low Medium High

318
Business model To be…
Key partners Key activities Value proposition Customer relationship Customer segments

OWN LABEL PRODUCT AND


CUSTOMER NEGOTIATION
EXCLUSIVE DISTRIBUTION PROXIMITY
OWN LABEL FOCUS WITH PERSONAL
AGREEMENTS CLOSENESS
MANUFACTURERS TRADEMARKS SUPPLIERS RELATIONSHIP
(FRAMES, OPHTALMIC AND TRUST INDEPENDIENT
AND LICENSORS “OWNERS”
ASSOCIATE IMS LENSES, CONTACTOLOGY, OPTICIANS
DISTRIBUTION PRODUCT AND POST-
ADVANCE
SERVICE AUDIOLOGY, (ASSOCIATES)
AGREEMENETS MONITORING SALES
IQMS
DEVELOPMENT SYSTEM FOR SERVICE ACCESSORIES AND OTHER (SPAIN)
SUPPLERS
SERVICE EXCELENCE, PRODUCTS)
CONCEPT OF
INFORMATION EMPATHY
INTERNATIONAL DATAMINING AND SHAREHOLDER
FREQUENCY IN AND
ORGANISATION
BSC
MANUFACTURERS ALLIANCE SALES AND ASSOCIATE
RELATIONSHIP EXPERIENCE
(TOP “2” OF PROMOTION AUDILOGY
AND WORKING OTHER SERVICES
ACTIVITIES
EACH CATEGORY) ENVIRONMENT INDEPENDENT
COMMERCIAL CONDITIONS,
PRODUCTIVITY TOOLS, STORES

WORKSHOP, TRAINING, (SPAIN)

CENTRAL INVOICING AND


EQUIPMENT,
Key resources PAYMENTS, MARKETING
Channels
TRAINING, TECHNOLOGY
SUPPLIERS PRODUCTS, FINANCING, ETC.
MARKETING,
COMMUNICATION AND PEOPLE,
ECOMMERCE ORGANISATIO WEBSITE
AND MARKET (SHOPPING INDEPENDIENT
SERVICES N AND SKILSS
RESEARCH PORTAL OPTICIANS
WAREHOUSING COMMERCAL
SUPPLIERS AND
TECHNOLOGY (CLIENTS)
AND LOGISTIC SALES INTRANET)
ASSOCIATE (PORTUGAL)
KNOW-HOW
MANAGEMENT ATTRIBUTES FORCE
INFRASTRUCTURE
AND TECHNOLOGY SUPPORT SERVICE
EXCELENCE, BEST TELE
OPERATIVENESS ASSESSMENT,
QUALITY/PRICE MARKETING
(SOFT + HARD) MANAGEMENT AND
RATIO, PRODUCT MEDIA AND
COMMERCIAL
AND SERVICES OTHER
TOOLS, CIONE
CREDIT- PERSONALISATION COMMUNICATION
UNIVERSITY,
WORTHINESS AND MEANS
IMAGE AND MARKETING,
RELATIONSHIPS
ECOMMERCE, ETC. SUPPLIERS
WITH BANKS REPUTATION

Cost structure Revenue streams


ASSOCIATES
DEPRETIATION MARKETING MARKETING AND
OF ASSESTS SERVICES AND COMMUNICATION ADDITIONAL
PEOPLE RELATED COSTS COSTS PURCHASING
(TECHNOLOGY SALES OF MANAGEMENT MARKETING SUPPLIERS
RELATED PROMOTIONAL BROOKERAGE
PURCHASIN AND OTHER) PRODUCTS FEES TO SERVICES FEES CONTRIBUTIONS
COST AND ACTIVITIES AND SERVICES WITH
G COST AND ASSOCIATES
EXPENSES SALES DISCOUNTS FREIGHT SUPPLIERS
SERVICES
EXPENSES

319
Value map
Where is the change?

TODAY TOMORROW

PIONEER
VALUE PROPOSITION Future
offering of
products
and services

MIGRATIORS

Current
SETTLERS

offering of
products and
services

320
Value map
Where is the change?

TODAY TOMORROW

PIONEER
VALUE PROPOSITION
Assessment
Excellence
Personalisation
Training

MIGRATIORS
eCommerce

Current
SETTLERS

offering of
products and
services

321
Strategic projects

● IMQS and assessment to associates

● Service excellence and personalisation

● Associate network

● Product lines penetration

● Sales of frames (exclusive distribution) to clients (non associates)

● Sales of marketing services to independent associates

● Audiology business model for associates

● Cione University

● eCommerce

322
From the business canvas model
to individual objectives

Business
canvas model

Strategy and
business plan

Strategic
objectives

Strategic
projects

KPI´s and
organisation
objectives

323
From the business canvas model
KPI´s

Own label product sales per employee (000´s €)


193
190

186

181

173

2015 2016 2017 2018 2019

324
Managing strategic tools
Initial assessment

T
H
E Environment analysis

P ● Compare performance with


R
Strategy formulation
standards defined
O
C ● Evaluate project process
E
S Strategy implementation
S

Monitoring and results


evaluation
Tools
• Project reviews
• Profit & loss / KPI´s
• Steering committee
• Performance evaluation with
directors and project leaders

325
Managing the implementation plan

1. Establish a formal planning process…… but using the opportunistic plan when
appropriate

2. Invest time and effort for a satisfactory planning

3. Avoid the dangers of the planning process

326
Managing the implementation plan
1. Establish a formal planning process…… but using the opportunistic plan when
appropriate

● Determine objectives
– Profitability: sales and profit
– Quality: service level
– Marketing: market growth and market share
– Innovation: patents or sales of new products

● Establish an action plan and a calendar


– Pro–activity: define and review the plan frequently
– Congruence: fitted to the organisation characteristics and the external environment
– Synergies: integration of efforts from the organisation of the business units

● Define an incentive plan (compensation plan)


– Short and long term

327
Managing the implementation plan
2. Invest time and effort for a satisfactory planning
● Management commitment from different organisation levels
● Combine qualitative and quantitative methods
● Flexible, in order to be adaptive to changes
● Avoid excess of planning – paralysis for the analysis
● Focused on the main areas and activities

3. Avoid the dangers of the planning process


● Lack of or insufficient evaluation of the future market conditions
● Planning is perceived as a closed activity within the organisation
● Extensive bureaucracy
● Inflexible adherence – inflexible to objectives and processes
● Inconsistent budgeting activities
● Lack of resources (financial and human)
● Promote “hierarchical relationships”

328
Managing strategy; management styles
Characteristics Strategic planning Financial control

• Strategy formulated at business level


Strategy • Business and corporate jointly formulate strategy
• Corporate HQ largely reactive, offering little
formulation • HQ coordinates strategies of businesses
coordination

Controlling • Primarily strategic goals with medium to long term • Financial budgets set annual targets with monthly
performance horizon and quarterly monitoring

• Linkages among businesses


• Business unit autonomy supports initiative,
Advantages • Innovation responsiveness, efficiency and development of
business leaders
• Long term competitive position

• Loss of divisional autonomy and initiative • Short – term focus discourages innovation and
long term development
Disadvantages • Conducive to unitary strategy view
• Limited sharing of resources and capabilities
• Tendency to persist with failing strategy among businesses

• Highly diversified companies with low relatedness


• Companies with few closely related businesses
among businesses
Style suited to • Works best in highly competitive, technology –
• Work best in mature, low – tech sectors, where
intense sectors where investment projects are
investment projects are relatively small and short
large and long term
term

Based on M. Goold and A. Campbell; Strategies and styles (Oxford: Blackwell Publishing, 1987)

330
Managing strategy; trends
New environment of business…

● Turbulence and unpredictability


– Black swans events

● Competition
– Sluggish economic growth

● Technology
– The potential to undermine established positions of competitive advantages

● Social pressure and the crisis of capitalism


– Sluggish economic growth

331
Managing strategy; trends
Requires new directions in strategic thinking….

1. Reorienting corporate objectives


– Focus in strategic factors that drive profits: operational efficiency, customer satisfaction, innovation and new
product development

2. Seeking more complex sources of competitive advantage


– Development of multiple layers of competitive advantage: cost efficiency, differentiation, responsiveness and
global learning

3. Managing options
– During turbulent times, growth options, abandonment and flexibility options become important sources of
value. Exploration of different options on corporate finance, industry analysis, potential of internal
resources/capabilities, etc.

4. Understanding strategic fit


– Strategy must fit with the business environment, firm´s resources and capabilities, organisational design,
management systems, complexity, etc.

5. Redesigning organisation
– Organisational conditions conducting to innovation
– Making organisations informal, self – organising and permeable

332
Managing strategy; some recommendations
● Strategy direction; innovation and customer responsiveness with operational efficiencies

● Strategy formulation; ample participation of middle management

● Structure; matrix organisation with hierarchical reporting; flat organisation; project teams;
additional focus on informal style of relationships

● Controls; combination of short (annual budget) and long term (strategic plan)

● Incentives; individual targets with a combination of financial and non financial objectives.
Compensation plan for the whole organisation

● Communication; vertical (for reporting and delegation process) but promoting strong participation
and involvement in strategic projects of people from different parts of the organisation. Strategic
project groups responsible for the execution of the projects with a leader for each project

● Leadership; strategic leader, combining clear strategic direction with considerable


decentralisation of decision making

333
Thank you very much
for your attention
Madrid • Barcelona • Valencia • Sevilla • Zaragoza • Málaga • Vigo • A Coruña • Navarra • Bilbao • Granada