1. MS4536 Business Strategy
Dr William Cooper

2. MS4536 Business Strategy Internal Resource-Based View…
Strategy is dictated by the firm’s unique resources and capabilities
The key is to find an environment in which to exploit these internal assets…

3. MS4536 Business Strategy Goals / Values Environment Resources /
Capabilities
Structure /
Systems
Environment
Competitors
Customers
Suppliers
Strategy

4. MS4536 Business Strategy Resources & Capabilities Physical Human
Financial
Intellectual
Competitive advantage…?
Profitability…?

5. MS4536 Business Strategy Internal Resources… Available Controllable
Strengths
Weaknesses

6. MS4536 Business Strategy Internal Resources… Tangibles Intangibles
Value Chain
Competencies
Capabilities
Efficiency
Effectiveness
Internal / External (alignment)

7. MS4536 Business Strategy Internal Relationships… Clients Employees
Unions
Suppliers
Investors

8. MS4536 Business Strategy Internal Relationships…
Combination of resources and relationships…
Differences in competitive performance…
Solve Problems
Meet Needs
Satisfy Wants

9. MS4536 Business Strategy Internal Competencies… Core business?
Core Competencies?
Outsource Non-Core?

10. MS4536 Business Strategy Assets (…including people)
Inputs (…into production process)
Capital
Equipment
Employees’ Skills
Finances
Managers’ Skills

11. MS4536 Business Strategy
Tangible…
Land
Buildings
Materials
Money

12. MS4536 Business Strategy Intangible… Relationships Customers Suppliers
Backers
Reputation
Brand recognition
Intellectual Property

13. MS4536 Business Strategy Intangible… Competencies Knowledge
Capabilities
Values (cultural)

14. MS4536 Business Strategy Competencies… Behaviours Technical Attributes
Competence is what the firm can do today

15. MS4536 Business Strategy Internal Resources & Strategy
In times of rapid change…
…internal resources / capabilities …
…more secure basis for strategy
…than market focus
Internal core competencies / external perspective (industry structure) …to derive strategy.

16. MS4536 Business Strategy Capabilities … Develop over time
Combined to create Core Competencies
Strategic Value
Competitive Advantage.
Interrelationships (tangible / intangible)
Development / sharing of knowledge / information by employees

17. MS4536 Business Strategy Competence… Knowledge Production Skills
Technology
Potential to access variety of markets
Contribution to end user value

18. MS4536 Business Strategy Capability
Ability to respond to opportunities and threats (future)
Encompasses entire value chain

19. MS4536 Business Strategy Capability Analyses VRIO… Value Rarity
Imitability
Organisation
… source of sustainable competitive advantage?

20. MS4536 Business Strategy Capability Analyses VRIO… Value …
Exploit Opportunity
Neutralize Threat
Rarity
Resources (used to make the products/services)
Product / Services

21. MS4536 Business Strategy Capability Analyses VRIO… Imitability
Difficult to imitate?
Cost disadvantage in obtaining or developing it?
Organization
Support the exploitation of its resources?

22. MS4536 Business Strategy Capability Analyses VRIO… Configuration…
Structure
Processes
Relationships
… should fit together and with key strategic challenges

23. MS4536 Business Strategy Configuration… Structure Roles,
Responsibilities
Lines of Reporting
Structural Design
Knowledge Management
Strategy Implementation
… good structure alone is not enough

24. MS4536 Business Strategy Configuration… Processes
Drive and support people
influence on success or failure
Can Define…
How strategies are made and controlled
Ways managers and other employees interact and implement strategy

25. MS4536 Business Strategy Configuration… Relationships
Organisational Units
Outsourcing
Strategic Alliances

26. MS4536 Business Strategy Benchmarking Compare resources…
Which resources are the most important in conferring sustainable competitive advantage to your industry?
What are your strengths and weaknesses as compared to your competitors?

27. MS4536 Business Strategy Benchmarking Four Stages:
Choose organisation to compare
Identify the relevant resources (tangible and intangible)
Assess the relative importance of your resources.
Assess relative strengths

28. MS4536 Business Strategy Value Chain Analysis…
Separates activities into a sequential value chain or ‘business system’
Physical, economic and social transactions between individuals & organisations engaged in raw material transformation into end products
Series of value-generating activities
Offer the customer a level of value that exceeds the cost of the activities, resulting in a profit margin

29. MS4536 Business Strategy
Value Chain…

30. MS4536 Business Strategy Primary… Inbound Logistics
Receive / store / distribute inputs to the organising system
Operations
Convert inputs into the final product / service of the organisation
Outbound Logistics
Collect / store / distribute product / service to the customer
Sales
Attract customer purchase

31. MS4536 Business Strategy Secondary (Support Systems)… Purchasing
Each primary activity obtains its own resources
Includes outsourcing and supply chain management
Information Communications Technology (ICT)
“Know How" and “Efficiency” Improvements
Improvement of each activity's own system outputs
Human Resource Management
Recruits / trains / develops /rewards those in primary and support activities
Management Systems
Finance / Planning / Control Systems (throughout the organisation)

32. MS4536 Business Strategy Secondary (Support Systems)…
Marketing Information Systems
gather intelligence
Customer Contact Management
acquire new customers / maintain loyalty
Fulfilment
outsourcing / channel management /returns

33. MS4536 Business Strategy Value Chains …
Break into key activities under each of the major headings in the model
Assess the potential for adding value via cost advantage or differentiation
Identify current activities where a business appears to be at a competitive disadvantage
Determine strategies built around focusing on activities where competitive advantage can be sustained

34. MS4536 Business Strategy Value Chains … Primary Activities
Creating and delivering a product (e.g. component assembly)
Support Activities
Not directly involved in production, may increase effectiveness or efficiency (e.g. R&D and Marketing).
Outsourcing some primary & support activities is common

35. MS4536 Business Strategy Key Questions…
How can an activity be performed differently or eliminated?
How can a group of linked value activities be regrouped or reordered?
How might supply chain relations with suppliers and buyers lower or eliminate costs?

36. MS4536 Business Strategy Value Chains…
Peng Figure 3.2 Global Strategy 2005

37. MS4536 Business Strategy
Value Losses in the Chain…

38. MS4536 Business Strategy Portfolio of Competencies
“What business am I in?”
“What business should I be in?”
Product Portfolios
Based on competencies (knowledge) not (process) technologies
Core Products
Physical embodiment of one or more core competencies.

39. MS4536 Business Strategy Most Important Resource…People?
Linking Strategy to Human Resource Management – investing in individual competencies
Acquisitions of new technologies or knowledge based capabilities
Strategic Alliances to access complementary technology or knowledge

40. MS4536 Business Strategy Value Based Capability - Assumptions…
Only value-adding resources can lead to competitive advantage
Non-value-adding capabilities may lead to competitive disadvantage
If firms do not shed (outsource) non-value-adding resources and capabilities, they are likely to suffer below-average performance or become extinct
Problem is measuring value based activity
There are measures of efficiency and of effectiveness
After Collins and Montgomery (1995)

41. MS4536 Business Strategy Efficiency Doing Things Right… Effectiveness
Doing The Right Thing…

42. MS4536 Business Strategy Internal Growth Strategies…
Pricing Structures
Costings
Supply Chain Management
Management Information Systems
Contracting in & out of Non-Core Operations
Innovation/R&D

43. MS4536 Business Strategy Efficiency Improvements…
Corporate Restructuring…
Dramatic Changes…
…Strategy
…Structure
Plant Closures
Outsourcing
Cuts in Administrative Staff
Redeployment of Resources

44. MS4536 Business Strategy Efficiency Improvements…
Business Process Re-engineering
Rethinking / Redesign of business processes
Improvements in performance
Several jobs combined into one
Steps of a process combined
Minimizing steps, controls, and reconciliation
Hybrid centralization/ decentralization

45. MS4536 Business Strategy Efficiency and Effectiveness Strategies…
Driving
costs
downwards
Doing
things
well
Effectiveness
Knowing what is
Important and unimportant to customers – make savings on latter
Building and Sustaining
unique ways of competing in specific market segments

46. MS4536 Business Strategy Strategic Analysis (TOWS) … Capability to…
Exploit present and future environmental opportunities
Withstand environmental threats
Ways resources might be changed to…
Create competitive advantage
Improve wealth producing capacity
Congruence… Environment, Values, Resources
Resources (Strengths / Weaknesses)
Environment (Opportunities / Threats)
(Thompson J, 2002)

47. MS4536 Business Strategy Resource Audit …
How productively are resources used?
How flexibly can we deploy our resources?
How balanced are our resources?
What is the nature of our (political) situation?
What is the extent of any "resource slack" ?
Which are our strengths, weaknesses and distinctive competencies?
Where and how can we add value to our organisation system?

48. MS4536 Business Strategy Internal Analysis …
Sources of competitive advantage supported by our organizational structure?
Structure and processes facilitate the development of strategies / provide flexibility to adapt to change?
Rewards and controls supporting static or innovative strategies / processes?
Constraints that may impede execution of strategy or change?
Organizational culture flexible / dynamic to allow for environmental / strategic shifts?

49. MS4536 Business Strategy Effectiveness… Extended decision action cycle
Boundaries can be fluid
Rules set outside of systems boundaries
Focus on…
Requisite capabilities and resources
Increasing variety and effectiveness
Trade off options for change
Relationships (People dominate problem)
Divergent thinking
Holism
Human activity systems

50. MS4536 Business Strategy Efficiency …
Here and now (today, hours and minutes)
Bounded
Defined rule set in operation
Transactional activities / processes
Focus on reducing variation
Focus on solutions
Task focus / analytical tools
Things dominate the problem / setting (machine paced line)
Convergent thinking
Reductionist

51. MS4536 Business Strategy Internal Analysis … Resource Based View
(Strategy linked to unique resources / capabilities)
Resources are Assets (people / equipment / processes / financials)
Competence (What the firm can do today)
Capability (What the firm could, if needed, do tomorrow)
Each firm has a unique combination of resources and capabilities… VRIO (value / rarity / imitability / organisation)

52. MS4536 Business Strategy Internal Analysis …
Value Chain Analysis - separates activities into primary and support
Core Competencies…
Identify Leakages
Build Portfolio
Consider Outsourcing (support activity)
Efficiency - resource based measure of doing things right
Effectiveness - doing the right thing – no matter what it takes
Corporate Restructuring and Business Process Re-engineering are two ways to achieve efficiency via cost leadership by driving costs down

53. MS4536 Business Strategy External Analysis… Starting points … SWOT
tends to match strengths to weaknesses
TOWS
tends to deal with external opportunities

54. MS4536 Business Strategy

55. MS4536 Business Strategy "Maxi-Maxi" Strategy (SO)
strengths to take advantage of opportunities
competitively aggressive strategy
based on differentiation
customer focus / innovation …“risky”

56. MS4536 Business Strategy "Maxi-Mini" Strategy (ST)
strengths to minimize external threats
used to defend a market position against a new entrant

57. MS4536 Business Strategy "Mini-Maxi" Strategy (WO)
external opportunities used to minimize internal weaknesses
reposition the company
e.g. outsourcing to keep cost base low /increase competitiveness

58. MS4536 Business Strategy "Mini-Mini" Strategy (WT)
minimise company's weaknesses / prevent external threats
retrenchment strategy
build up their strengths
e.g. merger to protect operations from a rival… weaker companies will go into a slow decline

59. TOWS Matrix --- Situational Analysis
MS4536 Business Strategy
TOWS Matrix --- Situational Analysis
Weihrich 1982

60. From macro to micro analyses
MS4536 Business Strategy
From macro to micro analyses

61. MS4536 Business Strategy Macro is the big “political” picture (PESTEL)
scanning macro-environments
warning signs
possible environmental changes
Monitoring for trends / patterns
Forecasting directions of changes
Assessing
Potential effects on the markets / business
Institutional Barriers
introduced by governments
trading blocks or cartels

62. MS4536 Business Strategy
Johnson, G, Scholes K, 2002, Exploring Corporate Strategy, Pearson, p102

63. MS4536 Business Strategy
Macro-level analysis to set the scene / understand industry level…
Industry level to understand strategic groups…
Strategic group to understand business level options…

64. The national/ international economy
MS4536 Business Strategy
Industry level analysis...
The natural environment
The national/ international economy
THE INDUSTRY ENVIRONMENT
Suppliers
Competitors
Customers
Demographic
structure
Technology
Government
& Politics
Social structure
The Macro Environment impacts the firm through its effect on the Industry Environment.

65. MS4536 Business Strategy Porter’s 5 Forces… SUPPLIERS BUYERS
The collective strength of these forces determines the profit potential in the industry (Porter, 1980).
SUPPLIERS
Bargaining power
of suppliers
INDUSTRY COMPETITORS
POTENTIAL ENTRANTS
Threat of
Threat of
SUBSTITUTES
substitutes
new entrants
Rivalry among
existing firms
Bargaining power
of buyers
BUYERS

66. MS4536 Business Strategy Threat of Entry…
Dependent on barriers to entry such as:
Economies of scale
Capital requirements of entry
Access to distribution channels
Cost advantages independent of size
(e.g. the “experience curve”)
Expected retaliation
Legislation / Government Action
Differentiation

67. MS4536 Business Strategy Buyer Power… Concentration of buyers
Many small operators in the supplying industry
(alternative sources of supply)
Materials are a high percentage of cost to the buyer
(leading to “shopping around”)
Switching costs are low

68. MS4536 Business Strategy Supplier Power… Concentration of suppliers
Switching costs are high
Supplier brand is powerful
Customers are fragmented and bargaining power low

69. MS4536 Business Strategy Threat of substitutes:
Substitutes take different forms:
Product substitution
Substitution of need
Generic substitution
Doing without

70. MS4536 Business Strategy Competitive Rivalry high when Entry is likely
Substitutes threaten
Buyers or suppliers exercise control
Competitors are in balance
There is slow market growth
Global customers increase competition
There are high fixed costs in an industry
Markets are undifferentiated
There are high exit barriers

71. MS4536 Business Strategy Limits of 5 Forces
Best used at SBU – not across whole organisation
Should Not be used as snapshop – use it to understand options.
Use it to look for continuities (steady changes) & discontinuities (shock).
In the real world players will act to disrupt by providing false information (disinformation).
Buyers and suppliers are linked together.
Big limitations of Porters 5 Forces
Poorly suited to knowledge-intensive or rapidly changing sectors because of speed of change.
Assumes openly competitive landscape and not all economies have those.

72. MS4536 Business Strategy
Doyle Figure Organisational attributes

73. MS4536 Business Strategy
A strategic group is a group of firms in an industry following the same or similar strategy.
Linkages mean:
When one bank fails the rest follow.
When one Energy supply company increases it prices other follow. When one European economy falters, other follows.
One mobile phone company offers the same as others.

74. MS4536 Business Strategy Identifying Strategic Groups:
Identify strategic variables which distinguish firms.
Position each firm in relation to these variables.
Benchmarking (against best in class)
Identify clusters to find Key Success Factors (KSF).

75. MS4536 Business Strategy
Types of competitor
Figure 4.12 Doole

76. MS4536 Business Strategy Re-positioning
Takes the structure of industry as given and matches company’s strengths & weaknesses to it
Influencing the balance
Devise a strategy to alter rather than cope with competitive forces
Exploiting change
Matching industry evolution with changes in structure
Diversification strategy
Moving into a sector before the competition
Source: Porter, 1980, Competitive Strategy, Collins Macmillan, pp29 – 33,

77. MS4536 Business Strategy Identifying a strategic group...
Product diversity
Geographical coverage
Market segments
Distribution channels
Vertical Integration
Technology leadership
Size of organisation
Barriers to entry

78. MS4536 Business Strategy Lock-in
Where one firm becomes the proprietary standard against which all others must compete.
Dominant Strategy
The one strategy that outperforms all others.
Equilibrium
Each competitor has an established market position and protects this from new entrants.
(Johnson & Scholes 2011)

79. MS4536 Business Strategy Porter and other frameworks assume…
Industry structure drives competitive behaviour
Industry structure is stable
But….
Competition may change industry structure…
Innovation may overthrow established market leaders…

80. MS4536 Business Strategy Business Level Strategy…
Firm-specific strategy for gaining competitive advantage into a specific market
Potential for change in market differentiation /customers
How the business can out-position rival firms in the market
Focus on response / output not analysis
Competitive positioning

81. MS4536 Business Strategy Strategies (Business Level)…
Overall Cost Leadership
Cost reductions / overhead control
Differentiation
Uniqueness through design
Brand differs from the competitors
Focus
Buyer / segments / products or geography
Focused Differentiation
Perceived benefits / substantial price premium
Source: Competitive Strategy, Porter, Collins Macmillan, pp

82. MS4536 Business Strategy Business level: Key Success Factors (KSF)
What do our customers want?
How does the firm survive competition
Analysis of competition
What drives competition?
What are the main dimensions of competition?
•How intense is competition?
•How can we obtain a superior
competitive position?
Analysis of demand
Who are our customer
segments?
How is demand changing?
What do they want from us?
KEY SUCCESS FACTORS 82

83. MS4536 Business Strategy
Combining industry & business level strategies

84. MS4536 Business Strategy
Markets evolve through changes in demand and customer expectation
This is the product life cycle of high- growth / mature / decline
New entrants means incumbents need to defend their position
Porter identifies the strategies of:
Leadership
Niche
Harvest
Divest

85. MS4536 Business Strategy Markets – Core Aspects
The forces of the environment: macro and micro, impact on the company and its customers
Dibbs FIGURE 3.3 p103

86. MS4536 Business Strategy What groups of customers are most important?
Will the competition be a threat?
What promotions will you use to persuade them?
How do you expect to overcome buyer resistance?
What benefits do you intend to sell to them?
What resource constraints do have and how will you overcome them (financial, budget and managerial)?
What internal strengths does your company have?
What operating weaknesses do you need to overcome?

87. MS4536 Business Strategy Generic objectives might include…
Withdraw from the market territory (retreat - divestment)
Maintain current position (hold-tracking)
Improve cash flow (harvest - milk)
Increase market share (investment - power)
Enter new territory with new products and markets
(imitation - leadership)

88. MS4536 Business Strategy See: Lynch, Chapter 3
Environment basics
Customer analysis
Degree of turbulence
Green strategy
Competitor analysis
Company or public sector organisation
PESTEL
analysis
Four Links
analysis
Industry life cycle
Five Forces analysis
Key factors for success
Richard Lynch, Strategic Management
6th Edition, © Richard Lynch 2012

89. MS4536 Business Strategy Environmental Analyses / Key Questions…
Nature / extent of our "strategic standing“?
Key forces at work in the competitive environment?
Key forces affecting (customer) demand?
Institutional / conformity barriers to entry?
Unfair competitive rivalry?
How might competitor / institutional /customer driven factors change and create opportunities?

90. MS4536 Business Strategy Use environmental analysis to…
Identify Opportunities / Threats - potential impact on future business
Identify Resourses Needed
Business-level analysis is more useful than an industry level analysis
Industry level analysis
Strategic group benchmarking
Five Forces industry analysis
Strategy is about looking forward…
Markets and competitive environments constantly change…

91. MS4536 Business Strategy References
Johnson & Scholes, (2011) Exploring Corporate Strategy Ch 4; Strategic Capability.
Lynch (2012) Ch 4, Strategic Resources and Capabilities section 4.3
Thompson J (2002) Strategic Management, Ch9, “Strategic Resources”, pp
Sources
Barney J B & Arikan A M 2001 The Resource-based View: Origins and Implications in Hitt M A et al (eds.) Handbook of Strategic Management Blackwell publishers
Hamel G & Prahalad C K 1994 Competing for the Future Boston, Harvard Business School Press.
Collins, D.J., Montgomery, C. (1995), "Competing on resources: strategy in the 1990s", Harvard Business Review, pp
Pradeep, CK, Hamel , G (1990) The Core competency of the Corporation, Harvard Business Review, May/June
Stacey, R.D. (1993), Strategic Management and Organisational Dynamics, Pitman, London,
Stalk, G , Evans, P. and Schulman, LE "Competing on capabilities: the new rules of corporate strategy". Harvard Business Review, Vol.70, No. 2, March-April, pp
Wilson, Gilligan, (1992) Strategic Marketing Management, Pearson, p 18, CIM Series