Michael Porter’s Basics of Strategy, SWOT Analysis and Differentiating Factors Website:

2 Sources of Competitiveness Find a Unique Niche Stay Focused - don’t diversify, outsource non-core activities Use Resources Productively Enhance/Use Clusters (Co-Operation)  A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementaries Company Operations and Strategy Quality of National Business Environment InternalExternal

3 What is Strategy? Strategy is a race to one ideal position Strategy is the creation of a unique and valuable position, involving a different set of activities (true sustainability arises when competitors do not want to imitate because of tradeoffs - i.e. Incompatibilities between positions that create the need for choice) Strategy is making tradeoffs in competing and choosing what not to do

4 The Fundamentals of Competitive Strategy The central goal of a firm must be superior long-term risk-adjusted return on investment (our employees’ pay is tied to value creation) The fundamental unit of strategic analysis is the industry Company economic performance results from two distinct causes: Strategy must encompass both Industry Structure Relative Position Within the Industry Rules of CompetitionSources of Competitive Advantage XXX is focused on the lucrative XXX industry We have positioned ourselves as a XXX specifically focusing on XXX

5 Strategy What is a Strategy? Unique Position  What do we do differently? Tailored Activities  We focus on… Activities fit together in an integrated system  It all comes together Clear Tradeoffs  What do we give that increases a customer’s switching costs? Continuity of position but consistent improvement What is not a Strategy? Best Practice Improvement A Vision Learning Agility Flexibility Innovation Restructuring Merger / Consolidation Alliances / Partnering IT / The Internet

6 SWOT Analysis Strengths  What are we good at? Weaknesses  Where do we need improvement? Opportunities  Where/What is the next big thing? Threats  What can kill us?

7 Target Customers ??? Why them?

8 Differentiators - Skills retention Focus on promoting team work Creating challenging environment with promised growth, i.e. there must be rotation of job/section/environment On-going internal and external training  Up to date subscriptions  Sharing of information  In-house training on IT as well as developing business acumen Performance recognition through bonuses and prizes (travel) Frequent “open door” communication with transparency Being empowered to make decisions Juniors & trainees require 70% development and growth while seniors & specialists require 60% incentives

9 Competitive Advantage Through Transfer of Skills Activities involved must be similar enough that sharing expertise is meaningful  That’s why we focus on XXX Skills must involve activities important to competitive advantage  Our core, in-house skills are critical to achieving our strategy Skills transferred must represent a significant source of competitive advantage for the receiving unit  Strategy-specific skills tend to be more valuable than those relating solely to operational effectiveness Mechanisms must be put in place so that skills transfer actually occurs  Initial  Ongoing

10 Differentiators - General What are they?