AEM2200-1021ToPost

AEM2200-1021ToPost - AEM1200 Introduction to Business...

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Unformatted text preview: AEM1200, Introduction to Business Management. AEM1200, Friday 10/21 Strategic Management Strategy and difference Frameworks for strategic management Five Forces Analysis SWOT Analysis Positioning strategies 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 Sustainable Competitive Advantage The provision of greater value for customers than competitors through means that other companies have tried unsuccessfully to duplicate and have, for the moment, stopped trying to duplicate. Valuable resources Rare resources Imperfectly imitable resources Nonsubstitutable resources Porter’s Five Industry Forces Competitive Rivalry A measure of the intensity of competitive behavior between companies in an industry Threat of New Entrants A measure of the degree to which barriers to entry make it easy or difficult for new companies to get started in an industry Threat of Substitute Products A measure of the ease with which customers can find substituted for an industry’s products Bargaining Power of Suppliers A measure of the influence that suppliers of parts, materials, and services to firms in an industry have on the prices of these inputs Bargaining Power of Buyers A measure of the influence that customers have on a firm’s prices For Example (from “Credit Card Companies Become Dead-Beats”, David MacDougall, TheStreet.com, 9/1/2009 Degree of Rivalry The level of competition in the credit-card industry can be viewed by watching TV. In one commercial break, you may see unwashed Vikings pitching Capital One cards, Ellen DeGeneres talking about her American Express(AXP) card, and a MasterCard(MC) spot sporting its touchy-feely "priceless" slogan. Those companies dish out big bucks for primetime exposure not only to entice new customers, but to get existing card members to choose their card when at the cash register. That's the reason certain cards offer cash back, airline miles and other swag. The better you feel about using that card, the higher your balance will be, and the more companies will make from fees and interest. A more subtle tactic is Capital One's feature of uploading a personal picture on to your card, the idea being that, if you see your son covered in spaghetti on a card when you open your wallet, you will be more likely to use that card. Credit-card companies fight tooth and nail for every dollar of charges, ultimately making it a hotly contested and, therefore, volatile industry. Bargaining Power of the Customer According to a 2007 study by the consumer-credit-rating company Experian(EXPN), 14% of Americans carry 10 credit cards or more while the average American holds four. The buffet of card choices gives the customer great power. Now, with the addition of the Internet, customers can quickly compare rates, fees, rewards programs and other card features, making it more important for credit-card companies to sweeten the pot for customers to win business. An industry that offers so much choice, creating fickle customers, is hardly ideal. Many companies will go wanting, due to slightly lower rewards or any number of reasons, increasing the pressure to make their card appealing. Bargaining Power of the Suppliers Suppliers for credit cards infuse companies with cash through the process of securitizing credit-card receivables into a much discussed vehicle known as a collateralized debt obligations. Credit-card companies avoid some risk inherent in lending by transferring it to external investors through collateralized debt obligations. However, if the products sold perform poorly due to loose lending standards, investors can quickly take the companies to their knees by refusing to purchase future securitizations, effectively shutting off the tap to fresh cash. In the credit crisis, standards skyrocketed because investors refused to purchase anything that wasn't ultra secure. Investors have plenty of options when it comes to places to put their money, so when they say "jump," credit-card companies must ask "how high?" Threat of New Entrants The credit-card game isn't difficult to get into. Any company with a finance arm and cash to lend can start issuing cards. As so-called "micro finance" becomes more common, expect the old guard of Visa(V), MasterCard and American Express to compete against low-cost alternatives, which will erode profit margins. Threat of Substitutes As the savings rate is edging up, there may be a move away from credit spending and back toward cash purchases using debit cards. Many people have become gun shy from debt problems experienced during the crisis, leading them to pay down balances and living within their means. While plenty of people will still be charging purchases, the days of four credit cards per person may be coming to an end. SWOT Analysis SWOT Strengths 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 Opportunities Attractive choices within your Attractive marketplace: where and what; marketplace: Emerging trends; Potential new products and Potential capabilities. capabilities. Weaknesses 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. Threats Areas in which competition Areas is forcing action that is harmful to the organization; harmful Changes in customer Changes demand; demand; Changes in technology. Conceptual Structure of the SWOT Framework Framework Internal Factors Favorable Factors External Factors Strengths Opportunities Unfavorable Factors Weaknesses Threats Conceptual Structure of the SWOT Framework - Toyota Toyota Internal Factors Favorable Favorable Factors Factors External 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. 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. 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). through 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. potential Core Competencies Core Bundle of skills and technologies that enables a Bundle company to provide a particular benefit to customers; company Examples Apple, “pocketability”, ease of use, design; FedEx, on-time delivery and logistics management; Wal-Mart, the choice-availability-value trilogy and logistics Wal-Mart, management. management. 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 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 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 Dogs 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 Porter’s Generic Competitive Strategies Porter’s For example For Differentiation Porsche Whole Foods, Whole Trader Joe Trader Mercedes-Benz (BMW) Wegmans, Publix Cost Honda Aldi Toyota (Volkswagen) WalMart Focus Broad 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 Uniqueness has to be deployed appropriately 5F and SWOT analysis Positioning ...
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This note was uploaded on 10/21/2011 for the course AEM 2200 taught by Professor Perez,p.d. during the Spring '07 term at Cornell.

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