Terms in this set (63)
Processing & Distributing
Porter Value Chain Definition
A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market.
Deals with core business processes
The level to construct a value chain is the Business unit (NOT division or corporate level)
Products pass through the chain in correct order, and at each level it gains value.
Value Chain (advanced)
-Marketing and sales
Value Chain (Example)
1) Technology support for resources management
2) Production(fish capture)
3) Collection from 1st producer
4) Preparation(value added)
Upstream is to suppliers
Downstream is towards customers.
Strategic managers must evaluate the Internal Environment of an organization by classifying variables as strengths or weaknesses.
From SWOT =
Strengths & Weaknesses
Strength= Factor thats Better than :
-Industry as whole
Weakness= Factor thats worse than:
-Industry as whole
Approaches for analyzing internal variables
-- Value Chain Analysis
--Core Competencies Analysis
Value Creation Variables and Equation
Cost of production
V= value to consumer
C= cost of production
V-P= consumer surplus
P-C= Profit Margin
Total Value System
There are value chains with in the industry as a whole.
--Our Firms (VC)
The basis for Differentiation:
To play a role in a Buyers(VC); Which creates value
The purchase of some or all of a value chain from a external supplier.
Because the speciality suppler can provide these needed functions more efficiently.
Strategic Rationales for Outsourcing
(Benefits of outsourcing)
* Improves Business Focus
-lets outside expert firms handle little operational details
*Provide Access to World-Class Capabilities
- W_C firms provide wider range of applications
* Accelerates Business ReEngineering benefits
-Achieves Re-engineering benefits more quickly by letting already equipped firms handle the extra processes
-Reduces Investment requirements and makes firms more flexible to changing opportunities
* Free resources for other purposes
-Allows firms to redirect efforts from non-core(outsourced) activities towards those that serve its customers better.
-- Should only outsource to firms whose main objective aligns with preforming the primary or support activity being outsourced
*Evaluating Resources and Capabilities
- Don't outsource activities in which the firm itself can create and capture value
*Environmental Threats and Ongoing tasks
-do not outsource primary and support activities that are used to neutralize environmental threats or complete necessary ongoing organizational tasks
*Nonstrategic Team of Resources
---do not outsource capabilities that are critical to firms success, even though the capabilities are not actual sources of competitive advantage
*Firm's Knowledge Base
-do not outsource activities that stimulate the development of new capabilities and competencies
company's unique characteristic or capability that provides a competitive advantage in the marketplace, delivers value to customers, and contributes to continued organizational growth
Revised Value Chain
-Technology trapping and commercialisation
-Basic Skills; Know-how; Technologies; Strategic assets;
-Technical Management; Marketing; Sales; Production
-Price, Place, Promotion, product, service,
-Customer satisfaction, Loyality
*Procurement & Supplier management
==Revenue; Profit; &
Components of Internal Analysis
Discovering Core Competencies
*Core Competencies == Capabilities== Resources(Tangible/intangible)
*Four Criteria of Sustainable Advantages==
Valuable/Rare/Costly to Imitate/Non-substitutable
*Value Chain Analysis =Outsource
*Competitive Advantage ==
(CoIA) Core Competencies
Resources and capabilities that serve as a source of a firm's competitive advantage:
**Distinguish a company competitively and reflect its personality
**Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities
**Activities that a firm performs especially well compared to competitors
**Activities through which the firm adds unique value to its goods or services over a long period of time
The foundation of many capabilities lies in:
______**The unique skills and knowledge of a firm's employees
_____**The functional expertise of those employees
** are often developed in specific functional areas or as part of a functional area
**Are the firm's capacity to deploy resources that have been purposely integrated to achieve a desired end state
**Emerge over time through complex interactions among tangible and intangible resources
**Often are based on developing, carrying and exchanging information and knowledge through the firm's human capital
(CoIA) What makes a Capability a Core Competence?
(Does it satisfy criteria of
Sustainable Competitive Advantage?)
YES= Core Competence
= Strategic Capability
= Non-Strategic Team or resource
(CoIA) The Four Criteria of Sustainable Competitive Advantage
Help a firm neutralize threats or exploit opportunities
Are not possessed by many others
-------Historical: A unique and a valuable organizational culture or brand name.
-------Ambiguous cause: The causes and uses of a competence are unclear.
---------Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers.
**Non-substitutable Capabilities: No strategic equivalent
(CoIA) VRIO Analysis
The Question of Value:
* Is the firm able to exploit an opportunity or neutralize an external threat with the resource/capability?
The Question of Rarity:
* Is control of the resource/capability in the hands of a relative few?
The Question of Imitability:
* Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain, develop, or duplicate the resource/capability?
The Question of Organization:
Is the firm organized, ready, and able to exploit the resource/capability?" "Is the firm organized to capture value?
(CoIA) VIRO Framework For (SCA)
No--> Competitive Parity
*Costly to imitate?
No--> Temp. Competitive Advantage
*Organized to capture value?
No--> Temp. Competitive Advantage
Yes to all 4---> Sustainable Competitive Advantage
What is Competitive advantage?
When two or more firms compete within the same market,
one firms possesses a competitive advantage over its rivals when it earns a persistently higher rate of profit (or has the potential to earn a persistently higher rate of profit)
Types of Competitive Advantages
*Similar Product/ Lower Cost
*Higher Price /Unique Product
Competitive Strategies (Porter)
Market v.s. Type of Competitive Advantage ( options)
Industry-wide + Low Cost
Industry-Wide + Differentiation
Focus With Low Cost=
Niche + Low Cost
Focus with Differentiation=
Or Hybrid Strategy= In the middle of the grid. * can be more effective
(ex: Toyota; Long Lasting and durable but low cost.
Cost Leadership Properties
-Design for low production cost
-Control of overheads and R&D
-Avoid marginal customers
What is meant by sustainable competitive advantage?
-Valuable to the firm
-Exploiting weaknesses and -neutralizing threats
-Difficult for competitors to imitate
-Not easily substitutable
How can competitive advantage be sustainable?
*The firm must offer competitive products
*The firm must seek competitive advantage in combining resources & capabilities:
- Develop resources and capabilities, which are rare, valuable, non-tradable
-Make those resulting competences sustainable by preventing imitation or substitution by competitors
Example of Sustainable CA
*Has dominated the chip industry
*Success is directly related to Intel's competitive strategy
*Strategy focuses on superior
value and product leadership
*Heavy focus on product and advertising innovation and R&D investments
*Changing market needs have challenged Intel to adapt
*Intel is capitalizing on the Internet now
1)The process of identifying key competitors;
2) Assessing competitors objectives, strategies, strengths and weaknesses, and reaction patterns;
3) Selecting which competitors to attack or avoid.
*Firms face a wide range of competition
*Be careful to avoid "competitor myopia(selling-short)"
*Methods of identifying competitors:
-Competitor circle maps can help
*Determining competitors' objectives
*Identifying competitors' strategies
*Assessing competitors' strengths and weaknesses
*Estimating competitors' reactions
Selecting Competitors to Attack or Avoid
*Strong or weak competitors
---Customer value analysis
*Close or distant competitors
------Most companies compete against close competitors
**"Good" or "Bad" competitors
--The existence of competitors offers several strategic benefits
Hypothetical Market Structure
Market leader 40%
Market Challengers 30%
Market Followers 20%
Market Nichers 10%
Market Leader (40%) share
*Expanding the total demand
-----Finding new users
-----Discovering and promoting new product uses
-----Encouraging greater product usage
*Protecting market share
*Expanding market share
-----Profitability rises with market share
*Option 1: challenge the market leader
------High-risk but high-gain
------Sustainable competitive advantage over the leader is key to success
*Option 2: challenge firms of the same size, smaller size or challenge regional or local firms
*Full frontal vs. indirect attacks
*Follow the market leader
-----Focus is on improving profit instead of market share
-----Learn from the market leader's experience
-----Copy or improve on the leader's offerings
*Serving market niches means targeting subsegments
*Good strategy for small firms with limited resources
*Offers high margins
*Specialization is key
-----By market, customer, product, or marketing mix lines
An arrangement in which the supply chain of a company is owned by that company.
*Usually each member of the supply chain produces a different product or (market-specific) service, and with VI, the products combine to satisfy a common need.
Benefits of vertical integration
Defensive Market Power
-Autonomy of Supply
-Less Knowledge Spillover risk
-High quality control
-High entry barriers
Offensive Market Power
-Entry in the new business (top or low entrance)
-Acquisition of market shares
Managerial and Organizational
-Higher control of different processes
-Exchange of information with external environment
-Lower relations with alternative external subjects simplify internal management and law procedures
Advantages of Vertical Integration
*Reduce transportation cost
*Improve supply chain coordination
*More opportunities to differentiate by means of increased control of inputs
*Capture upstream and downstream profits
Increase entry barriers to potential competitors
Disadvantages of Vertical Integration
*Capacity balancing: Making sure that inputs will match outputs at all levels
*Potentially higher cost due to the lack of supplier competition
*Developing new competencies may compromise existing competencies
*Increase bureaucratic costs
*Monopolization of markets
When is Vertical Integration More Attractive than Outsourcing?
Fewer companies in the market favors VI
Limited Information in the market favors VI (limits cheating)
Taxes and regulations in the market favors VI
Similarity of Companies favors VI
Predictable Market demand favors VI
Bureaucratic Costs and the Limits of Vertical Integration
*Bureaucratic costs reduce the value of vertical integration.
*The costs of running an organization rise with integration due to:
--The lack of an incentive for internal suppliers to reduce their operating costs.
--The lack of strategic flexibility in times of changing technology or uncertain demand.
Horizontal integration is the process of a company increasing production of goods or services at the same part of the supply chain.
A company may do this via internal expansion, acquisition or merger.
* The process can lead to monopoly if a company captures the vast majority of the market for that good or service.
A corporate strategy to enter into a new market or industry which the business is not currently in, whilst also creating a new product for that new market.
The Ansoff's Product/Market matrix
=Existing Markets & Products
=Existing Market+ New Products
= New Market + Existing Products
=New Products+ New Markets
Why firms Diversify
*To more fully utilize existing resources and capabilities.
*To escape from undesirable or unattractive industry environments.
*To make use of surplus cash flows.
Goal of diversification
Should be to create value or wealth in excess of what firms would enjoy without diversification.
The value of the combined firm after acquisition should be greater than the value of the two firms prior to acquisition.
How is Synergy obtained?
*By merging purchasing activities to gain supplier leverage
*Sharing Technology, Skills, and Resources & Development
*Combining Sales & Marketing activities;
--Using common distribution channels;
--Advantage of common brand name
--Combine after-sale services
Three Ways: Proper definition
*Exploiting economies of scale.
--Unit costs decline with increases in production.
*Exploiting economies of scope.
---Using the same resource to do different things.
*Efficient allocation of capital.
--Many assets in acquired firms are undervalued -- managers seek to exploit these opportunities and improve their operations and add value to their businesses.
Diversification through the Value Chain
*Sharing activities across business value chains
*Using knowladge and skills across units and value chains
**One-Time Savings are NOT enough
Crucial Role of Managers in Diversification
*Must have well-developed understandings of their firm's diversity and relatedness that define their companies.
*Must know how to coordinate the activities of businesses in order to achieve synergies.
*How to allocate resources to the various businesses in a diversified firm.
*Whether various functional activities such as engineering, finance and accounting, marketing and sales, production, and research and development should be centralized at the corporate HQ or be decentralized and operated by SBU managers.
*How to compensate and reward business unit managers so that their goals and objectives are best aligned with those of the organization.
Functions of Large Companies Corporate Management on Diversification
*Managing the Corporate Portfolio (Broad)
-Decisions over diversification, acquisition, divestment
-Resource allocation between businesses
*Managing the Individual Businesses (Medium)
-Business strategy formulation
-Monitoring and controlling business performance
*Managing linkages between
-Sharing and transferring resources and capabilities
The "Learning Hypothesis"
*Managers learn from trial and error.
----They evaluate success of past strategic decisions.
----These acquired beliefs become embedded in an organization's routine operating procedures.
---(Usually difficult for rivals to imitate.)
**By engaging in a number of acquisitions over time, managers can come to develop an expertise about how the acquisition process should be managed.
*Globalization drivers - Assess dual pressures:
Global efficiency =standardization
National/local responsiveness= adaptation
*Location/configuration of value-creating activities
*Integration/coordination of value-creating activities
*Strategy and entry
(Slogans; Measurements, L vs Gal)
Coca-Cola's Polar Bear= not attributed to any one country
*Big Mac vs McAlooTikki
*Barbie's Hair is covered in middle east.
*Asian Cadillac =Shorter closer pedals, Foldable mirrors
Value Chain Coordination for Globalization
*Geographic location of value chain activities
--Concentrated/centralized vs. dispersed/decentralized
*Coordination = Flows of:
-Product (finished and intermediate)
-Information (market data, strategic direction, etc.)
**Highly coordinated vs. only money flows
International Strategy Matrix
(Based off Value Chains)
Pressure for Global Efficiency vs
Pressures for Local Responsive
Export Strategy =(Low,Low)
All Value Chain In Home country
-Export Goods to other countries
Multi Domestic Strategy=(Low,Hi)
Complete Value Chains In Other countries.
Each Piece of the Value Chain is in different countries. Add up to 1 whole value chain.
Transnational Strategy= (Hi,Hi)
Parts of value chain are in different countries some activities are duplicated based off needs.
(ex: Airplane parts> assembled in Mexico but parts are made all around the world.)
Foreign Market Entry Modes
HQ based in country
*Wholly Owned Subsidiaries