Today I have been...
Reading the Unit 2 summary
Why?
Required
So What?
Unit 2 covered various ways to analyse the external environment.
Macro environment, STEP and 5F.
Impact of industry structure
Competitors
Strategic Groups & Space
The pace of change is increasing. You need to expand your imagination. Environmental changes can occur because of changes in technology and demand. It can affect the structure and boundaries of industries.
It is becoming harder to identify competitors. In fact the line between co-operation and competition is becoming harder to place. We may need other players in the industry to work with us.
How will I use it?
Lets re-visit the learning outcomes...
- Undertake environmental analysis - macro, industry, strategic group/space, competitor and evaluate opportunities and threats
- Understand the influence of key macro-economic variables on your strategy, the concepts behind 5F and basic game theory
- Industry dynamics, differences in the competitive dynamics, and structural dynamics eg changing industry boundaries
- Understand scenario planning and its uses
Tuesday 7 December 2010
Scenario Planning U2S7p87
Today I have been...
Reading about Scenario Planning
Why?
Required
So What?
Scenario planning is a way to strategically analyse the future, rather than just the current picture. They are a recognition of one or more possible outcomes, not a prediction.
It is particularly appropriate in a rapidly changing external environment. Extrapolation from the past and other traditional planning methods are not likely to produce a reliable forecast under conditions of uncertainty.
Advantages:-
Less subjectivity (than traditional methods)
Capturing detail
Accurate Prediction
How to do it. (Schoemaker (1995):-
(see p89)
Reading about Scenario Planning
Why?
Required
So What?
Scenario planning is a way to strategically analyse the future, rather than just the current picture. They are a recognition of one or more possible outcomes, not a prediction.
It is particularly appropriate in a rapidly changing external environment. Extrapolation from the past and other traditional planning methods are not likely to produce a reliable forecast under conditions of uncertainty.
Advantages:-
Less subjectivity (than traditional methods)
Capturing detail
Accurate Prediction
How to do it. (Schoemaker (1995):-
(see p89)
- Define the scope
- Identify key external drivers (maybe map on a 2x2 grid, certainty and importance)
- Construct initial scenarios (Schoemaker 1995 says 2 is suitable, though more can be used) - they should collectively bound the perceived range of possible futures, eg
- best & worst case
- extreme worlds
- Identify and develop scenario themes
- Further research
- Developing and evaluating strategies
- Relevance
- Internal consistency
- Archetypal (ie not variations on a theme, but unique future)
- Non-transient (scenario should describe a long-term state)
Game Theory u2s6.3 p78
Today I have been...
Reading about Game Theory
Why?
Required
So What?
Remember that if you are planning to enter a market, your expectations of how existing players will react could form an entry barrier in itself? It is important to consider how your strategy will impact on your competitors, and how they will respond.
Two types of game
Doing business is a complicated combination of both types.
Examples of this theory include the classic prisoners' dilemma, and the value net model.
Game theory is essentially about the interactions between the players. These interactions can be serial or parallel, sequential or simultaneous. With simultaneous maneuvering you have to imagine how the other player is playing, while you consider your moves! Putting yourself in the mind of the other players is called allocentrism.
Ways of resolving the prisoner dilemma:-
Taking advantage of ongoing relationships
Changing Payoffs
Changing the nature of the game
The Value Net is a way to examine all the interdependencies in the game, and therefore ways to change the nature of the game or the players taking part. Brandenburger and Nalebuff (1995).
Vertical axis: organisation's customers
Horizontal axis: players who we interact with but do not transact with (substituters & complementers)
At any one time, you will be attempting to build long-term value-generating relationships with some market participants whilst simultaneously targeting others for your short term gains.
A lot depends on the industry structure. Not all industries offer much scope for bountiful co-operative relationships. Some offer this in spades.
Reading about Game Theory
Why?
Required
So What?
Remember that if you are planning to enter a market, your expectations of how existing players will react could form an entry barrier in itself? It is important to consider how your strategy will impact on your competitors, and how they will respond.
Two types of game
- Players interact according to specific game rules (agreements, contracts etc)
- Players interact with no rules (no holds barred!)
Doing business is a complicated combination of both types.
Examples of this theory include the classic prisoners' dilemma, and the value net model.
Game theory is essentially about the interactions between the players. These interactions can be serial or parallel, sequential or simultaneous. With simultaneous maneuvering you have to imagine how the other player is playing, while you consider your moves! Putting yourself in the mind of the other players is called allocentrism.
Ways of resolving the prisoner dilemma:-
Taking advantage of ongoing relationships
Changing Payoffs
Changing the nature of the game
The Value Net is a way to examine all the interdependencies in the game, and therefore ways to change the nature of the game or the players taking part. Brandenburger and Nalebuff (1995).
Vertical axis: organisation's customers
Horizontal axis: players who we interact with but do not transact with (substituters & complementers)
At any one time, you will be attempting to build long-term value-generating relationships with some market participants whilst simultaneously targeting others for your short term gains.
A lot depends on the industry structure. Not all industries offer much scope for bountiful co-operative relationships. Some offer this in spades.
To compete or collaborate? (U2S6P75)
Today I have been...
Reading Section 6.
Why?
Required
So What?
How can you interact with other organisations in your industry?
Well you can choose to compete or co-operate.
Competition: zero-sum game
Collaboration: non-zero-sum game
And zero-sum game? A game where one player can only benefit at the expense of another player. Like chess! Or Poker!
Strategies for competition include
Joint ventures, outsourcing, product/brand licencing, joint resarch. "Collaboration is Competition in a different form" - paraphrased from Doz & Prahalad.
Hamel and Prahalad suggested that competition between coalitions will become more common. p77
Advantages of coalitions:-
They are a way to share risks
They can help assuage and assure polititians and regulatory bodies.
They give access to economies of scale and resources that one company alone could not manage.
Other properties of coalitions:-
They are not static. Early partnership will often turn into competitorship during the later stages of the product/market lifecycle.
How will I use it?
Reading Section 6.
Why?
Required
So What?
How can you interact with other organisations in your industry?
Well you can choose to compete or co-operate.
Competition: zero-sum game
Collaboration: non-zero-sum game
And zero-sum game? A game where one player can only benefit at the expense of another player. Like chess! Or Poker!
Strategies for competition include
- suprise - moving quickly and unexpectedly, sending out mixed messages to confuse competitors, acquire control of resources (eg Tesco buying up land).
- Timing
- Maximum use of resources (see p76)
- Vigour and skill
Joint ventures, outsourcing, product/brand licencing, joint resarch. "Collaboration is Competition in a different form" - paraphrased from Doz & Prahalad.
Hamel and Prahalad suggested that competition between coalitions will become more common. p77
Advantages of coalitions:-
They are a way to share risks
They can help assuage and assure polititians and regulatory bodies.
They give access to economies of scale and resources that one company alone could not manage.
Other properties of coalitions:-
They are not static. Early partnership will often turn into competitorship during the later stages of the product/market lifecycle.
How will I use it?
Sunday 5 December 2010
Competitor intentions and capabilities
Today I have been...
Reading about matching competitor intentions to capabilities (u2s5p69)
Why?
Required.
So What?
Steps to predict strategic behaviour:-
1. Understand your competitors' strategic intentions
2. Assess their capability to realise those intentions
Ways to understand intentions:-
By evaluating whether your competitor has the means to carry out its intentions you can assess the seriousness of those intentions. Don't forget to consider potential new entrants from outside traditional industry boundaries. (p70)
It is your capabilities that allow you to transform inputs into outputs in a productive and efficient way, and the same is true of your competitors. Your capabilities will also decide your ability to serve other segments and create new ways to compete.
Different Segments->Different Capabilities->Different organisations
Studying firms' capabilities can help form a view of strategic groups - firms with similar capabilities can form strategic groups. This can help you identify strategic spaces and who is capable of moving into that space.
Many firms are now basing their long-term strategies on their capabilities rather than their markets served (Grant, 1996). Some potential competitors may have the capabilities to change the rules of the game.
Competitor analysis is more straightforward in case studies with limited information than in "real life". A big problem there is that you may have too much info and you will have to decide on how to limit what you study.
Do you understand the roots of competitive advantage?
Can you identify what the industry KSFs are?
How are you and your rivals positions relative to the KSFs?
Checklist for your own organisation:-
What are their key capabilities?
Do they meet the KSFs?
Do they have the resources to meet their intentions?
How easy/difficult would it be for competitors to meet the resource & capability requirements to meet the intentions?
Think hard about how you identify your competitors.
Reading about matching competitor intentions to capabilities (u2s5p69)
Why?
Required.
So What?
Steps to predict strategic behaviour:-
1. Understand your competitors' strategic intentions
2. Assess their capability to realise those intentions
Ways to understand intentions:-
- Pay close attention to remarks of top people in rival firms, eg in media, online and in annual reports - particularly the statement at the start and company mission statements.
- Consider how they react to competitive challenges (aggressive, co-operative etc)
- Look at the types of strategic threats they notice.
By evaluating whether your competitor has the means to carry out its intentions you can assess the seriousness of those intentions. Don't forget to consider potential new entrants from outside traditional industry boundaries. (p70)
It is your capabilities that allow you to transform inputs into outputs in a productive and efficient way, and the same is true of your competitors. Your capabilities will also decide your ability to serve other segments and create new ways to compete.
Different Segments->Different Capabilities->Different organisations
Studying firms' capabilities can help form a view of strategic groups - firms with similar capabilities can form strategic groups. This can help you identify strategic spaces and who is capable of moving into that space.
Many firms are now basing their long-term strategies on their capabilities rather than their markets served (Grant, 1996). Some potential competitors may have the capabilities to change the rules of the game.
Competitor analysis is more straightforward in case studies with limited information than in "real life". A big problem there is that you may have too much info and you will have to decide on how to limit what you study.
Do you understand the roots of competitive advantage?
Can you identify what the industry KSFs are?
How are you and your rivals positions relative to the KSFs?
Checklist for your own organisation:-
- Identify competitors
- What are their market strategies?
- What are the market segments?
- Which are being served by your competitors?
- What are their broad goals and intentions?
- What is their strategic vision?
- What do they believe are their KSFs?
What are their key capabilities?
Do they meet the KSFs?
Do they have the resources to meet their intentions?
How easy/difficult would it be for competitors to meet the resource & capability requirements to meet the intentions?
Think hard about how you identify your competitors.
Generic Strategies: Focus
Today I have been...
Reading about focus. Customer focus. U2S5P68
Why?
Required!
So What?
To focus, broad or narrow?
Customer focus is related to the concept of specialisation as they both aim to service customers with specific requirements. It is possible to seek advantage from customer focus (choosing your customers to maximise competitive advantage).
How will I use it?
Thinking about my own organisation, they try to seek advantage through economies of scale that their competitors don't have, so that is a cost focus, however they also seek differentiation. And their targets are broad.
Reading about focus. Customer focus. U2S5P68
Why?
Required!
So What?
To focus, broad or narrow?
Customer focus is related to the concept of specialisation as they both aim to service customers with specific requirements. It is possible to seek advantage from customer focus (choosing your customers to maximise competitive advantage).
How will I use it?
Thinking about my own organisation, they try to seek advantage through economies of scale that their competitors don't have, so that is a cost focus, however they also seek differentiation. And their targets are broad.
Generic Strategies: Differentiation
Today I have been...
Reading about Differentiation (U2 S5 P66)
Why?
Required
So What?
The ways to differentiate differ dependent on the industry you're in. It may be based on the product itself, the marketing approach, the delivery system etc. You choose properties by which you can differentiate yourself which are different to your competitors. Examples:-
Brand (creating a competitive space for your image, eg designer clothing)
Specialised/skilled salesforce.
Dominating niche markets (differentiation focus)
Cultivating specialist knowledge/skills
Investing in I P
Creating exclusivity in your distro network (eg supplying fridges to shops on the condition they only stock your product in it)
A strategy which encompasses both cost and differentiation is a "hybrid" strategy.
Reading about Differentiation (U2 S5 P66)
Why?
Required
So What?
The ways to differentiate differ dependent on the industry you're in. It may be based on the product itself, the marketing approach, the delivery system etc. You choose properties by which you can differentiate yourself which are different to your competitors. Examples:-
Brand (creating a competitive space for your image, eg designer clothing)
Specialised/skilled salesforce.
Dominating niche markets (differentiation focus)
Cultivating specialist knowledge/skills
Investing in I P
Creating exclusivity in your distro network (eg supplying fridges to shops on the condition they only stock your product in it)
A strategy which encompasses both cost and differentiation is a "hybrid" strategy.
Generic Strategies: Cost
Today I have been...
Reading about one of Porter's generic strategies - cost.
Why?
Required
So What?
Low cost does not mean or imply low quality, or a competitive stance based on low price. We are talking cost, not price. Sustainable competitive advantage based on cost means leadership in your cost structure, delivering what your customers want at a cost to you that is lower than your competitors to deliver greater margins. It is up to you if you want to forego some of this margin to sell at a lower price.
One way to do this is through economies of scale. Your fixed costs can be spread across more sales, reducing costs per item sold. Another is through accumulation of experience (learning curve effects).
If you can call on both these advantages this can give a cost advantage that is very difficult for your competitors to match. Other routes to cost leadership include superior technology, superior logistics and a cost-cutting culture.
Reading about one of Porter's generic strategies - cost.
Why?
Required
So What?
Low cost does not mean or imply low quality, or a competitive stance based on low price. We are talking cost, not price. Sustainable competitive advantage based on cost means leadership in your cost structure, delivering what your customers want at a cost to you that is lower than your competitors to deliver greater margins. It is up to you if you want to forego some of this margin to sell at a lower price.
One way to do this is through economies of scale. Your fixed costs can be spread across more sales, reducing costs per item sold. Another is through accumulation of experience (learning curve effects).
If you can call on both these advantages this can give a cost advantage that is very difficult for your competitors to match. Other routes to cost leadership include superior technology, superior logistics and a cost-cutting culture.
Understanding your competitors (U2 S5 P63)
Today I have been...
Reading about competitor analysis
Why?
Required reading
So What?
So you know about your environment, your industry and its strategic groups. But what do you know about your competitors?
You need to consider other organisations in your industry, and look at the differences in the way they generate added value.
Who are your competitors? What do they (intend to) do?
Can you identify them and predict their behaviour?
Vague industry boundaries can make this more difficult. Consideration of existing products/service markets is insufficient. Don't forget to consider those who are capable of entering your strategic space.
Our old friend Michael Porter in Competitive Advantage (1985) argues that organisations compete either on the basis of cost or of differentiation. These are the basis of Porter's Generic Strategies. However what is also important is the competitive scope. Is it broad or narrow?
Examples:- Ford & Toyota have a broad competitive scope, BMW have a narrow scope. OU has a broad scope and goes for differentiation against other distance learning providers. Tesco goes for cost leadership, and Waitrose goes for differentiation focus but John Lewis as a whole is broad differentiation. See generic strategies diagram P64 or Powerpoint.
Reading about competitor analysis
Why?
Required reading
So What?
So you know about your environment, your industry and its strategic groups. But what do you know about your competitors?
You need to consider other organisations in your industry, and look at the differences in the way they generate added value.
Who are your competitors? What do they (intend to) do?
Can you identify them and predict their behaviour?
Vague industry boundaries can make this more difficult. Consideration of existing products/service markets is insufficient. Don't forget to consider those who are capable of entering your strategic space.
Our old friend Michael Porter in Competitive Advantage (1985) argues that organisations compete either on the basis of cost or of differentiation. These are the basis of Porter's Generic Strategies. However what is also important is the competitive scope. Is it broad or narrow?
Examples:- Ford & Toyota have a broad competitive scope, BMW have a narrow scope. OU has a broad scope and goes for differentiation against other distance learning providers. Tesco goes for cost leadership, and Waitrose goes for differentiation focus but John Lewis as a whole is broad differentiation. See generic strategies diagram P64 or Powerpoint.
Saturday 4 December 2010
Strategic Space
Today I have been...
Reading about the concept of Strategic Space
Why?
Required Reading
So What?
Strategic space is the application of the strategic group concept by mapping strategies against the moving target of changing industry structures. (McGee and Segal-Horn 1990, 1992). These spaces are areas of opportunity which are not yet available but whose potential under developing conditions becomes feasible.
You probably already concentrate on improving your competitive position within your current strategic group. But if you can figure out what factors affect buyers decisions to trade up and down strategic groups, you may have the key to create a new market space. The key success factors (Unit 2 S4 P59) that satisfy buyer demand in any market space are what customers expect you to meet as a minimum in respect of the characteristics of a product/service provider in that space, for example (but not limited to) price, functionality, quality, safety, delivery.
The KSFs are the minimum entry requirements to a particular market; "are those elements in the industry which are considered important by customers."
Grant (2005) Identifies KSFs by also considering competition in addition to assessing customer expectations. See diagram p60 U2S4 and also powerpoint.
Normally, the KSF change over the industry lifecycle. Many KSF may co-exist, where the KSF of the different market segments overlap.
A strategic groups map tells us which space in an industry map is occupied, but importantly it also shows which is empty. Each space can be thought of to show a possible alternative strategy utilising a possible alternative set of resources. With industry conditions in mind, you can consider if any of these alternative unoccupied spaces can be occupied.
The strategic groups map can be turned into a grid (p61 U2S4). Just because a space exists, it doesn't mean it is viable.
How will I use it?
Things to remember:-
A space may be unoccupied because it is not viable.
May be unoccupied for institutional, historical, cultural, structural, regulatory, market or technological reasons which may or may not still apply.
Reading about the concept of Strategic Space
Why?
Required Reading
So What?
Strategic space is the application of the strategic group concept by mapping strategies against the moving target of changing industry structures. (McGee and Segal-Horn 1990, 1992). These spaces are areas of opportunity which are not yet available but whose potential under developing conditions becomes feasible.
You probably already concentrate on improving your competitive position within your current strategic group. But if you can figure out what factors affect buyers decisions to trade up and down strategic groups, you may have the key to create a new market space. The key success factors (Unit 2 S4 P59) that satisfy buyer demand in any market space are what customers expect you to meet as a minimum in respect of the characteristics of a product/service provider in that space, for example (but not limited to) price, functionality, quality, safety, delivery.
The KSFs are the minimum entry requirements to a particular market; "are those elements in the industry which are considered important by customers."
Grant (2005) Identifies KSFs by also considering competition in addition to assessing customer expectations. See diagram p60 U2S4 and also powerpoint.
Normally, the KSF change over the industry lifecycle. Many KSF may co-exist, where the KSF of the different market segments overlap.
new strategic space can be created by considering whether the KSF of existing strategic groups are likely to change or whether new KSF could be created that have not been offered before
A strategic groups map tells us which space in an industry map is occupied, but importantly it also shows which is empty. Each space can be thought of to show a possible alternative strategy utilising a possible alternative set of resources. With industry conditions in mind, you can consider if any of these alternative unoccupied spaces can be occupied.
The strategic groups map can be turned into a grid (p61 U2S4). Just because a space exists, it doesn't mean it is viable.
How will I use it?
Things to remember:-
A space may be unoccupied because it is not viable.
May be unoccupied for institutional, historical, cultural, structural, regulatory, market or technological reasons which may or may not still apply.
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