AEM1200_1020ToPost - AEM1200, Introduction to Business...

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Unformatted text preview: AEM1200, Introduction to Business Management. AEM1200, Monday 10/20 Strategic Management Strategy and difference Frameworks for strategic management Planning: 5F’s, SWOT Organizing: core competencies and the BCG product Organizing: portfolio matrix portfolio Leading: generic strategies, exploration and Leading: exploitation, mergers and acquisitions exploitation, Controlling: organizational vision, mission, and culture Strategy Strategy “Competitive strategy is about being Competitive different. It means deliberately choosing a different set of activities to deliver a unique mix of value” deliver Michael Porter, “What is strategy?”, HBR, Nov-Dec 1996 Defining competitive advantage Defining A firm is said to have a sustained competitive firm advantage when it is implementing a value creating strategy not simultaneously being implemented by strategy any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy (Barney, 1991) (Barney, An enterprise has a Competitive Advantage if it is able An to create more economic value than the marginal (breakeven) competitor in its product market. The Economic Value created by an enterprise in the course of providing a good or service is the difference between the perceived benefits gained by the purchasers of the good and the economic cost to the enterprise. (Peteraf and Barney, 2003) (Peteraf Some Elements of Strategic Management Some Planning Michael Porter’s Five Forces Analysis SWOT Analysis Organizing Core competencies Leading Corporate vision Controlling Corporate culture The DuPont model SWOT Analysis SWOT Strengths Weaknesses Unique or distinct advantages Unique that make your organization stand out in the crowd; stand What makes the customers What choose your organization over the competition; the Products or services which Products your competition cannot imitate (now and in the future). (now Operations or procedures Operations in need of streamlining; in Areas in which competitors Areas are better, how and why. are Areas that you or your Areas organization may be avoiding; avoiding; Market segments from Market which your organization is shut-out. shut-out. Areas in which competition Areas is forcing action that is harmful to the organization; harmful Changes in customer Changes demand; demand; Changes in technology. Opportunities Threats Attractive choices within your Attractive marketplace: where and what; marketplace: Emerging trends; Potential new products and Potential capabilities. capabilities. Conceptual Structure of the SWOT Framework Framework Internal Factors External Factors Favorable Factors Strengths Opportunities Unfavorable Factors Weaknesses Threats Conceptual Structure of the SWOT Framework - Toyota Toyota Internal Factors Favorable Favorable Factors Factors Strengths New investment by Toyota in factories in the US and China saw 2005 profits rise, New against the worldwide motor industry trend. Net profits rose 0.8% to 1.17 trillion yen ($11bn; £5.85bn), while sales were 7.3% higher at 18.55 trillion yen. Commentators argue that this is because the company has the right mix of products for the markets that it serves. This is an example of very focused segmentation, targeting and positioning in a number of countries. In 2003 Toyota knocked its rivals Ford into third spot, to become the World's second largest carmaker with 6.78 million units. The company is still behind rivals General Motors with 8.59 million units in the same period. Its strong industry position is based upon a number of factors including a diversified product range, highly targeted marketing and a commitment to lean manufacturing and quality. The company makes a large range of vehicles for both private customers and commercial organizations, from the small Yaris to large trucks. The company uses marketing techniques to identify and satisfy customer needs. Its brand is a household name. The company also maximizes profit through efficient manufacturing approaches (e.g. Total Quality Management). manufacturing External Factors Opportunities Opportunities Lexus and Toyota now have a reputation for manufacturing Lexus environmentally friendly vehicles. Lexus has RX 400h hybrid, and Toyota has it Prius. Both are based upon advance technologies developed by the organization. Rocketing oil prices have seen sales of the new hybrid vehicles increase. Toyota has also sold on its technology to other motor manufacturers, for example Ford has bought into the technology for its new Explorer SUV Hybrid. Such moves can only firm up Toyota's interest and investment in hybrid R&D. Toyota is to target the 'urban youth' market. The company has launched its new Aygo, which is targeted at the streetwise youth market and captures (or attempts to) the nature of dance and DJ culture in a very competitive segment. The vehicle itself is a unique convertible, with models extending at their rear! The narrow segment is notorious for it narrow margins and difficulties for branding. Unfavorable Factors Factors Weaknesses Being big has its own problems. The World market for cars is in a condition of Being over supply and so car manufacturers need to make sure that it is their models that consumers want. Toyota markets most of its products in the US and in Japan. Therefore it is exposed to fluctuating economic and political conditions those markets. Perhaps that is why the company is beginning to shift its attentions to the emerging Chinese market. Movements in exchange rates could see the already narrow margins in the car market being reduced. The company needs to keep producing cars in order to retain its operational efficiency. Car plants represent a huge investment in expensive fixed costs, as well as the high costs of training and retaining labour. So if the car market experiences a down turn, the company could see over capapacity. If on the other hand the car market experiences an upturn, then the company may miss out on potential sales due to under capacity i.e. it takes time to accommodate. This is a typical problem with high volume car manufacturing. Threats Threats Product recalls are always a problem for vehicle Product manufacturers. In 2005 the company had to recall 880,00 sports utility vehicles and pick up trucks due to faulty front suspension systems. Toyota did not g ive details of how much the recall would cost. The majority of affected vehicles were sold in the US, while the rest were sold in Japan, Europe and Australia. As with any car manufacturer, Toyota faces tremendous competitive rivalry in the car market. Competition is increasing almost daily, with new entrants coming into the market from China, South Korea and new plants in Eastern Europe. The company is also exposed to any movement in the price of raw materials such as rubber, steel and fuel. The key economies in the Pacific, the US and Europe also experience slow downs. These economic factors are potential threats for Toyota. threats Core Competencies Core Bundle of skills and technologies that enables a Bundle company to provide a particular benefit to customers; company Examples Sony, “pocketability” and miniaturization; FedEx, on-time delivery and logistics management; Wal-Mart, the choice-availability-value trilogy and logistics Wal-Mart, management. management. Tangible and Intangible Resources Tangible Financial resources Organizational resources Cash Access to financial Access markets markets Facilities Equipment Access to raw materials Patents Trademarks Employees’ individual Employees’ expertise and skill expertise Physical resources Culture Shared visions and values Routines Working relationships Customer and competitor Customer information information Strategic alliances Relations with stakeholders Brands Informational resources Legal resources Relational Reputational resources Human resources BCG Product Matrix - Definitions BCG Stars Stars are high growth businesses or products competing in markets where they Stars are relatively strong compared with the competition. Often they need heavy investment to sustain their growth. Eventually their growth will slow and, assuming they maintain their relative market share, will become cash cows. assuming Cash cows are low-growth businesses or products with a relatively high market Cash share. These are mature, successful businesses with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars. to Question marks are businesses or products with low market share but which Question operate in higher growth markets. This suggests that they have potential, but may require substantial investment in order to grow market share at the expense of more powerful competitors. Management have to think hard about "question marks" - which ones should they invest in? Which ones should they allow to fail or shrink? or Unsurprisingly, the term "dogs" refers to businesses or products that have low Unsurprisingly, relative share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in. cash Cash Cows Question marks Dogs Two Fundamental Competitive Stances Two Exploration Developing new knowledge, experimentation with Developing alternatives; alternatives; Associated with weak-tie partners, organic structures, Associated chaotic culture and autonomy; chaotic Apple? Refinement, extension and exploitation of existing Refinement, competencies; competencies; Associated with mechanistic structures, tightly Associated controlled systems, organizational memory, bureaucracy and stable markets; bureaucracy Microsoft? Exploitation Porter’s Generic Competitive Strategies Porter’s For example For Differentiation Porsche Mercedes-Benz (BMW) Toyota (Volkswagen) Broad Cost Honda Focus External Corporate Growth External Merger/Acquisition Horizontal: XM/Sirius (J.P. Morgan/Bear Stearns?) Horizontal: (J.P. Vertical: Microsoft/Yahoo (Bank of America / Merrill Lynch) Vertical: (Bank Conglomerate: Tata Group (Tetley , Corus Steel, Conglomerate: Jaguar/LandRover) Jaguar/LandRover) Leveraged Buyout (LBO) An attempt by employees, management, or a group of investors An to purchase an organization primarily through borrowing. to KKR / RJR-Nabisco (Barbarians at the Gates) KKR (Barbarians Clear Channel Communications Inc. Mergers and Acquisitions: Why? Why Not? Mergers Entering a new market Entering or business or Consolidating an Consolidating industry industry Speeding the Speeding development of a new product or service. product High expenditure, of High money and time; money Legal and tax Legal complications; complications; Difficulties in merging Difficulties two very different cultures. cultures. Making a Merger Work Making Due diligence Clear strategy and vision Quick and through planning and implementation “Chemistry” at the top Corporate Culture Corporate The moral, social, and behavioral norms of an The organization based on the beliefs, attitudes, and priorities of its members. priorities Example: “The HP Way” Respect for others Sense of community Plain hard work Stories Heroes Enactments Communication is critical Types of Organizational Control Types Market based Uses external market mechanisms, such as price Uses competition and relative market share, to establish standards used in the system; standards Relies on administrative and hierarchical mechanisms Relies (rules, regulations, procedures, policies, standardization, and budgets) to ensure that employees exhibit appropriate behaviors and meet performance standards; performance Regulates employee behavior by the shared values, Regulates norms, traditions, rituals, beliefs and other aspects of the organizations’ culture. the Bureaucracy based Clan based Corporate Culture and Control Corporate “Without exception, the dominance and coherence Without of culture proved to be an essential quality of the excellent companies. Moreover, the stronger the culture and the more it was directed towards the marketplace, the less need was there for policy manuals, organization charts, or detailed procedures and rules. In these companies, people way down the line know what they are sopposed to do in most situations because the handful of guiding values is crystal clear.” handful Peters and Waterman, “In Search of Excellence” Take-aways Take-aways Strategy is about uniqueness; Uniqueness is achieved through the Uniqueness development of core competencies and unique combinations of opportunities and capabilities; combinations Leadership and control are best achieved Leadership through socialization and creation of a community. This also helps to stimulate performance and flexibility. performance ...
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This note was uploaded on 11/12/2009 for the course AEM 1200 at Cornell University (Engineering School).

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