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Strategic decisions:

-Ê A particular set of actions that set a company apart from its rivals
-Ê Longer term direction and survival of the firm
-Ê Require substantial resources and commitment
-Ê Hard to reverse, and involves majority of organization

Operational decisions:

-Ê Day to day running of business ʹ more related to efficiency

-Ê Use inputs effectively, keep costs and wastage down
-Ê Operates within the context of a strategy, for example a factory can make operational improvements to
make it produce more, vs. the decision to get that factory in the first place (operational decisions are at a
lower level than strategic decisions)
-Ê Competitors can match these
-Ê Just because your operations are efficient doesn͛t mean business will succeed ʹ building widgets cheaply
and efficiently is pointless if widgets have been replaced by gadgets in the market place

Tactical decisions:

-Ê Competitive choices enabled by choosing business model

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-Ê The basis of competition is the value your firm offers in the mind of customers relative to value offerings of
other firms ʹ you have competitive advantage if you offer more value.
-Ê Means you offer more value than competitors in the same industry (better customer value proposition), and
customers are drawn to your products and services over that of rivals through factors like price, quality,
brand, customer experience, features, or overall value.
-Ê To identify
àÊ Low cost provider (best quality for that price)
àÊ Differentiation on quality, product selection, tech (better product)
àÊ Ñocus on narrow niche and specialize in meeting those niche needs better than others
àÊ Have huge product offerings (ops geared towards large model numbers)
àÊ Developing expertise / resources that other companies cannot easily imitate (Toyota͛s TPS)
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-Ê Strategy is a managerial commitment to a set of actions, and needs to be distinctive / unique to be

successful ʹ the roadmap for the future, the high level plan for the business
àÊ Ñocuses on how company will gain competitive advantage in the market
-Ê Business model is about the m


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(CVP and PÑ), and ͞executing
the CVP profitably͟. Essentially the blueprint for how the business mechanics will work, how revenue will be
generated, how costs will be controlled, and how the firm will be profitable.
-Ê Example of TV giving free programs but making advertising revenue based on the audience size, or Gillette
selling a cheap master product (razor) but then selling the recurring related products (blades) at a high
markup, or a software business focusing on new sales of products, vs. license & subscription / recurring
revenue

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-Ê Vision
àÊ The    and high level ambitions of the business ʹ needs to be distinctive.
-Ê Mission
àÊ The 
 , and what the business is all about at this point.
àÊ     
  
àÊ Example ʹ Google ͞to organize the world͛s info and to make it accessible͟
-Ê Values
-Ê Game plans at multiple levels
àÊ Corporate / overall
àÊ Business - Payments
àÊ Ñunctional area e.g. Shared Services
àÊ Operational e.g. IST
-Ê Objectives
àÊ How to strengthen market position and gain competitive advantage
àÊ Actions to build competitive capabilities

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-Ê CS is at the top ʹ the initiatives that firm uses to establish positions in different industries
àÊ Includes the approaches execs use to amplify combined performance of the set of businesses, like
turning cross-business synergies into competitive advantage
àÊ Major decisions typically reviewed by the board of directors
-Ê BS concerns actions and approaches to produce successful performance in specific line of business.
àÊ -ey focus: craft responses to changing market circumstances and initiating actions to strengthen
market position
àÊ Also responsible for seeing that lower level strategies are executed properly


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-Ê Main considerations are:

-Ê Giving you five options:

-Ê Low cost provider best when͙

àÊ Difficult for rivals to copy cost cutting approaches
àÊ Price competition among rivals is strong
àÊ Products of rivals are very similar
àÊ Differentiation doesn͛t mean much to buyers
àÊ Low switching costs for buyers
àÊ rew industry entrants build a client base

-Ê Broad differentiation is best when͙

àÊ Buyers needs and preferences too diverse for a standardized product offering
àÊ Many ways to differentiate, and buyers see this as valuable
àÊ Ñew rival firms following a similar differentiation approach
àÊ Tech change is fast paced and competition revolves around evolving product features

-Ê Ñocused / niche strategy is best when͙

àÊ Target niche is a good size
àÊ Industry leaders do not take active interest in the niche
 àÊ Costly for multi-segment rivals to meet specialized needs of buyers in niche
àÊ Many niches means lots of blue oceans for many people
àÊ Reservoir of customer goodwill and loyalty



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-Ê Purpose: convert strategic vision in specific performance targets. Objectives represent a managerial
commitment to particular results and outcomes.
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-Ê Typically supported with incentives to achieve those objectives.
-Ê Vision: 


   

 


ʹ takes a strategy from being something
nebulous to a set of well defined, measurable objectives that management can pursue.
àÊ Examples include gaining X% market share,
àÊ Achieving lower overall costs than rivals,
àÊ Deriving X% of revenue from new products
àÊ Having a wider product line than rivals
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future financial performance ʹ because the competitive advantage is growing
-Ê How it relates to Balanced Scorecards & Strategy Map:
àÊ Only pursuing a narrow ͞class͟ of objectives does not lead to a sustainable and profitable business
àÊ E.g. only going after financial objectives might work in the short term, but you could be put out of
business by a disruptive innovator.
àÊ Likewise, having strategic objectives but not being profitable is also senseless.
àÊ BS aims to set strategic objectives and financial objectives, both short and long term, to lead
business to competitive advantage
-Ê reed objectives at every level of the business ʹ typically a top down affair

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-Ê Corporate Governance (CG) concerned with making sure that the company is being run in a manner that is in
the interest of shareholder and other stakeholders (such as employees and the community), and to prevent
abuse of power or misappropriation of company resources by the firm͛s management. It also aims to ensure
ethical and sustainable behavior based on the concept of Ubuntu.
-Ê Board of directors the primary mechanism for overseeing shareholder interests and ͞double checking͟
management. Board plays the key role in ensuring corporate governance.
-Ê Board:
àÊ Inquiring mm
of company͛s direction & strategy
àÊ w
 caliber of senior executives͛ strategy making & executing skills
àÊ Institute m
 
for top executives that reward them for serving stakeholder &
shareholder interests
àÊ Oversee company͛s  m
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-Ê Identify strength of each of the 5 forces in the industry.
-Ê Ñorces can be:
àÊ Ñierce
àÊ Strong
àÊ rormal
àÊ eak
-Ê Determine whether the collective strength of the 5 competitive forces is conducive to earning attractive
profits. 

( 
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àÊ Buyer demand growing slowly
àÊ Excess capacity in industry
àÊ Large number of rivals, and of equal size / power
àÊ Buyer switching costs low
àÊ Products weakly differentiated

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àÊ Entry barriers low
àÊ Existing industry members want to extend their reach into new segments / areas
àÊ rewcomers can get attractive profits
àÊ Buyer demand grows rapidly
àÊ Industry members unable / unwilling to fight entry of new rivals

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àÊ Good subs available

àÊ Subs are better priced
àÊ Subs have better or similar features
àÊ Buyers have low switching costs

 

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àÊ High switching costs to other suppliers

àÊ reeded inputs are in short supply
àÊ Differentiated inputs of supplier makes its products better
àÊ Ñew suppliers
àÊ Threat of integrating forward

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àÊ Switching costs low

àÊ Buy in large quantities
àÊ Buyer demand weak or declining (recession)
àÊ Identity of buyer adds prestige to seller
àÊ Buyer very well informed
àÊ Threat of integrating backward


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-Ê Industry driving forces:

àÊ Long term growth rate
àÊ Globalization
àÊ Technology / internet
àÊ Product & market innovation
àÊ Leaps in manufacturing ability
àÊ Entry / exit of new firms
àÊ Diffusion of technical know-how
-Ê Most important aspect ʹ determine increase or decrease in demand, make competition more or less intense,
higher or lower industry profitability



-Ê Strategic group reveals who are close competitors͙ also affected by driving forces in different ways.
-Ê -SÑs:

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Resource based view: Looks at firm͛s 
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as basis for competitive advantage and
strategy formulation. Expert knowledge and a strong code base is a resource, but being able to deliver
quality software within budget and time is a capability ʹ a ͞rollup͟ of resources. Second step is to think of
the industry to apply the abilities in and the strategy that is needed to best exploit firm͛s resources and
capabilities.

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 Can use to outperform competitors or reduce weaknesses.

×  Closely linked to its value ʹ if everyone has one, it doesn͛t offer a competitive advantage.
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 Even better if there is causal ambiguity ʹ people do not understand the resource fully,
like Toyota Production System & lean manufacturing.

 

  
If competitors can substitute with a better and/or cheaper substitute or replicate the
abilities using the substitute, then the competitive advantage the resource offers is lost.

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ʹ Capitalize on company͛s resource strengths in terms of strategy
  


ʹ How much do they matter in the market place, and do strengths make up for them
 
ʹ Ñocus on capturing rival͛s best opportunities, and those that align with key resources and
capabilities of the firm
  
ʹ Defending against them from rivals if they are substantial and can be exploited


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, otherwise they run risk of a price war they cannot
compete in. Two ways to assess firm͛s cost structure relative to rivals:  m    
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 Value chain: mixture of primary and secondary activities involved in the production of the goods &
services for the firm. In a software business its requirements gathering, analysis, design, spec͛ing, coding,
quality assurance, delivery and support.

Secondary activities are HR, finance, R&D

Important in strategy as the cost of the value chain needs to be made up for by the value it supplies to
customers, which is reflected by the revenue generated and the costs to generate that revenue. Business
cannot survive if value chain costs more than it generates in revenue.

Outside entities also important, like how car manufacturer relies on dealers for repairs and sales ʹ must
make sure  
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 is considered.

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Instead of competing in heavily contested ͞red oceans͟ where incumbent firms have already positioned
themselves attractively or have m     
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 and where rules of the game are well understood and 
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rather go for ͞blue oceans͟ ʹ uncontested new industries or market segments.

Blue oceans don͛t really exist yet or are   
m ʹ can create new demand and leads to
rapid and profitable growth.


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Vertical integretation: Extending firm͛s operating and competitive scope by expanding its value chain
forwards (towards buyers) or backwards (towards suppliers) in the same industry. Can be full integration
 (participating in all stages of value chain of next or previous link) or partial integration (only some value
chain activities expanded into).

Do this to increase competitiveness & profitability. One reason to do this is if suppliers are holding you to
ransom and resulting in your profitability being eroded due to high input costs ʹ backwards integration is
useful to keep costs down. If your resources, capabilities and competitive strengths synergize lend itself to
this integration then forward or backwards integration should be considered.

However m 

m


m
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m  m 
given demand for that which you are integrating into ʹ if you only need 50,000 widgets and it will take a
plant making 1 million widgets to do so profitably, it is  
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Also increases firm͛s
capital investment in an industry, making it hard to exit or to refurbish equipment and plants.

 
 m has advantages like being able to do things more cheaply (economies of scale / production
efficiencies) and reduces 
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ʹ supplying / buying firm has to take the knock if tech
changes are needed.

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DS is spreading your company across multiple industries, so as to 

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 (for unrelated
businesses) or to m
   
m    
 m due to synergistic
value chain activities, resources, and capabilities.

Can expand into related or unrelated businesses:

×
 Value chain matchups / synergies mean competitive advantage through strategic fit between the
firms. Sharing of resources, capabilities, technology. The greater the economies of scope and scale between
related businesses, the higher the m mm

m   

.

àÊ wm 

m Cost reductions that result from operating in multiple businesses, like having a
shared manufacturing plant or a shared finance / HR function across businesses, due to strategic fit
between value chain activities of different businesses.
àÊ wm 

m
 Cost reductions due to the size of the operation. Larger plants and higher
production volumes lead to lower variable costs, more buying power with suppliers due to large
purchases.


Diversification means

  
 
 

and  m

 m
m  

  
 ʹ like seeing struggling business with high profit potential, buying it, using parent company
management know how to turn it around and then get big profits. Very difficult to achieve 1 + 1 = 3 due to
differences.

Three tests to see if diversifying is suitable:

oÊ Industry attractiveness test. Is nature of industry going to lead to better profits than current industries !
eighted industry attractiveness score.
oÊ Cost of entry test. Is cost of entry worth the projected profits. High barriers to entry normally mean
better profits, but if lots of capital needs to be spent to scale then profits are eroded, e.g. $1 mill
revenue gives $200- profit, but to get to $3 mill revenue and $600- profit you need to spend $1 mill.
oÊ Better off test. Two firms joining need to create more value than each individually, due to competitive
advantage stemming from strategic fit between their value chain activities. E.g. If A + B doesn͛t create
 more value than each on its own, shareholders might have well bought stock in each firm separately. (1
+1 = 3). Unrelated: parent management provides expertise.

×
 m when businesses add to overall firm͛s resource strengths and firm has adequate resources to
support all its businesses without spreading itself too thin.

Ñ m

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!m
m
 Use cash cows (low growth but good industry position and
profitability) to finance promising cash hogs in high growth industries with attractive future profit prospects.


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  m

 m Can company develop resourc e strengths na competitive capabilities it needs in
each of its businesses " (like managerial competence) ʹ and is it stretched too thin by requirements of one of
its businesses " (acquisition spree, management needs to oversee large number of smaller businesses)

 Most resources should go to business with good:

àÊ Profit & growth prospects

àÊ Position in 9 cell matrix (industry attractiveness vs. market position)
àÊ Strategic & resource fit
àÊ Past performance financially


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