Twenty-First Century Competition

Today's competitive markets

• Globalization - Globalization refers to the increasing interconnectedness and interdependence of
economies and cultures across the world.
• Rapid Technological Change - Rapid technological change involves the swift development and adoption
of new technologies across various industries.
• The global economy - The global economy encompasses the interconnected economies of all countries,
creating a network of economic relationships and dependencies.
• Increasing importance of Knowledge and people - In the modern business landscape, knowledge and
human capital play a crucial role in driving innovation, productivity, and overall success.
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The Global Competitive Landscape
Increasing
• Market volatility and instability due to the rapid pace of change in markets
• Blurring of market boundaries
• Globalized flow of financial capital
• Need for flexibility, speed, innovation, and integration in the use of technology
• Strategic and operational complexity of global-scale competition
• Rising product quality standards
Decreasing
• Traditional time for adapting to change
• Traditional sources of competitive advantage
• Traditional managerial mindset
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Hypercompetition
Strategic options in hypercompetitive environments
• Global economy
• Use of price-quality positioning to build market presence
• Creation of new know-how and use of first-mover advantage
• Protection of invasion of established geographic or product markets
• Technology
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Competitive Succes Factors
Top Corporate performers
• Are market/ customer-needs oriented
• Make effective use of valuable competencies
• Have an entrepreneurial/ opportunistic mindset
• Offer new and innovative products and services
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Technology and Technological Changes
Technology trends impacting the global competitive environment
• Increasing rate of technology diffusion and the emergence of disruptive technologies
• The information age: Internet and the global proliferation of low-cost computing power
• Increasing knowledge intensity as an intangible source of competitive advantage
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Strategic Flexibility
• Involves coping with the uncertainty and risks of hypercompetitive environments.
• Must first overcome built-up organizational inertia.
• Requires developing the capacity for continuous learning and applying the new and updated skills sets
and competencies to the firm's competitive advantage.
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Strategic Choice
The firm's strategic choices
• Diversification - Diversification involves expanding a firm's business activities into new products,
services, or markets that are different from its current offerings.
• Product differentiation - Product differentiation is the strategy of creating unique and distinctive
products or services that stand out from competitors.
• Barriers to market entry - Barriers to market entry are obstacles that make it difficult for new
competitors to enter a market and compete with existing firms.
• Economies of scale - Economies of scale refer to the cost advantages that a firm can achieve by
increasing the scale of production or operation.
• Industry concentration - Industry concentration measures the extent to which a market is dominated by
a small number of large firms.
• Market frictions - Market frictions refer to obstacles, inefficiencies, or imperfections in the market that
can affect the smooth operation of buying and selling.
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The Industry Organisation (I/O) model of Above-Average Returns (*IMP*)

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Five Forces Model of Competition (Industry Rivalry) (*IMP*)
• Buyers - Buyers refer to the customers or clients who purchase the products or services of companies within
the industry. The power of buyers is high when they have many choices, low switching costs between
products, and the ability to demand lower prices or higher quality. A strong bargaining position of buyers can
exert pressure on companies to improve their offerings or reduce prices.
• Suppliers - Suppliers are entities that provide the inputs (raw materials, components, etc.) necessary for the
production of goods or services. The power of suppliers is high when there are few alternative sources for
inputs, and suppliers can dictate prices or terms. Companies are vulnerable if they rely on a small number of
suppliers or if the input is critical to the final product.
• Substitutes - Substitutes are products or services from different industries that can fulfil a similar need or
serve the same purpose. The threat of substitutes is high when there are readily available alternatives.
Companies face increased competition and pressure to differentiate their offerings when viable substitutes
exist.
• Industry rivalry - Industry rivalry pertains to the level of competition among existing firms within the
industry. Factors such as the number of competitors, rate of industry growth, and intensity of competition
influence industry rivalry. High rivalry can lead to price wars, increased marketing expenses, and a focus on
cost-cutting to gain a competitive advantage.
• Potential entrants - Potential entrants are new companies that could enter the industry. The threat of new
entrants is high when barriers to entry are low. Barriers can include high startup costs, economies of scale
enjoyed by existing firms, strong brand loyalty, and government regulations. High barriers deter new entrants
and contribute to the stability of existing firms.
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The Resource-Based Model of Above-Average Returns
Building Competitive Advantage
• Resources - Physical, human, and organizational capital (tangible and intangible)
• Capability - An integrated set of resources
• Core Competence - A source of competitive advantage
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Resources As Core Competencies
How resources become core competencies
• Rare - A resource is considered rare when it is not commonly possessed or easily acquired by competing
firms. If a resource is unique or in limited supply, it can provide a competitive advantage. Rare resources
are valuable because they are not easily accessible to all players in the industry.
• Costly to imitate - For a resource to become a core competency, it should be difficult or costly for other
firms to imitate or replicate. This could be due to factors such as proprietary technology, exclusive access
to key inputs, complex organizational processes, or unique capabilities that are hard for competitors to
duplicate. If a resource is easily imitable, it is less likely to confer a sustained advantage.
• No substitutable - A core competency should lack direct substitutes or alternatives that can perform the
same function with similar effectiveness. If there are readily available substitutes for a particular
resource or capability, it diminishes the uniqueness and competitive advantage it provides.
• Valuable - The resource must add significant value to the firm and contribute to its competitive position.
This value can manifest in various ways, such as increased efficiency, enhanced product quality, improved
customer satisfaction, or innovative product features. The resource's value should align with the strategic
objectives of the company.
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The Resource-Based Model of Above-Average Returns (*IMP*)

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Strategic Decision Making
Competitive strategy decision
• Industry organization (I/O) model
Focus: The I/O model, developed by Michael Porter, emphasizes the external environment as the primary
driver of a firm's strategy.
Assumptions:
▪ External factors, such as industry structure, determine a firm's success.
▪ Strategic decisions are made in response to external pressures and constraints.
▪ Firms in the same industry possess similar strategically relevant resources.
▪ Resource differences among competitors are short-lived due to resource mobility.
▪ Strategic decision-makers are rational and engage in profit-maximizing behaviours.

Key Concepts:
▪ Five Forces Framework: Analyses five competitive forces buyers, suppliers, substitutes
▪ industry rivalry and potential entrants to determine industry attractiveness.
▪ Strategic Groups: Groups of companies within an industry that pursue similar strategies.

Decision Implications:
▪ Companies seek to position themselves favourably within their industry by understanding and
responding to competitive forces.
 ▪ Strategies are often based on cost leadership, differentiation, or focus within a particular market
segment.
• Resource-based model
Focus: The Resource-Based Model emphasizes the internal capabilities and resources of a firm as the key
determinants of its competitive advantage.
Assumptions:
▪ Resources vary across firms and can lead to sustained competitive advantage.
▪ Resources must be valuable, rare, inimitable, and non-substitutable (VRIN) to be a source of
competitive advantage.
▪ Differences in resources and capabilities among firms are critical for success.
Key Concepts:
▪ Resource Identification: Identifying and assessing a firm's unique resources and capabilities.
▪ VRIN Criteria: Resources must be valuable, rare, costly to imitate, and non-substitutable to be a
source of competitive advantage.
Decision Implications:
▪ Companies focus on building and leveraging unique resources and capabilities that competitors
find difficult to replicate.
▪ Strategies often involve differentiation through unique products, technologies, or processes, or
cost leadership achieved through superior efficiency.
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Vision Statement
A Successful Vision:
• is an enduring word picture of what the firm wants to be and expects to achieve in the future.
• stretches and challenges its people.
• reflects the firm’s values and aspirations.
• is most effective when its development includes all stakeholders.
• recognizes the firm’s internal and external competitive environments.
• is supported by upper management decisions and actions.

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Mission Statement
An Effective Mission:
• specifies the present business or businesses in which the firm intends to compete and customers it
intends to serve.
• has a more concrete, near-term focus on current product markets and customers than the firm’s vision.
• should be inspiring and relevant to all stakeholders.

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Stakeholders
Primary stakeholders (individuals, groups and organizations)
• Can affect development of the firm's vision and mission
• Are affected by the strategic outcomes achieved by the firm
• Can have enforceable claims on the firm's performance
• Are influential when in control of critical or valued resources

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Classification of Stakeholders
Categories of stakeholders
• Capital market stakeholders - Capital market stakeholders are those individuals or entities that have a
financial interest in the organization. They include shareholders, bondholders, and other investors who
provide capital to the company in exchange for ownership or debt securities.
 • Product market stakeholders - Product market stakeholders are those who are directly involved in or
affected by the organization's product or service transactions. This category includes customers,
suppliers, distributors, and competitors.
• Organizational stakeholders - Organizational stakeholders include individuals or groups within the
organization itself who have a vested interest in its success. This category encompasses employees,
management, and sometimes unions or employee associations.

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The Work of Effective Strategic Leaders
Strategic Leaders:
• have a strong strategic orientation that relies on thorough analysis when taking action.
• are located at various levels throughout the firm.
• want the firm and its people to accomplish more.
• are innovative thinkers who promote innovation.
• can leverage relationships with external parties while simultaneously promoting exploratory learning.
• have an ambicultural (global mindset) approach to management.

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The External Environment
• Demographic
▪ Age structure - Age structure refers to the distribution of individuals across different age groups
within a population. It helps businesses understand the composition of their target audience
and design products or services that cater to specific age demographics.
▪ Population size - Population size is the total number of people in a given area. It is a
fundamental demographic factor that influences the overall market potential for a product or
service. Larger populations often indicate broader market opportunities.
▪ Geographic distribution - Geographic distribution refers to how the population is spread across
different regions or locations. Businesses consider this factor to optimize their marketing and
distribution strategies based on regional preferences, needs, and trends.
▪ Ethnic mix - Ethnic mix pertains to the diversity of ethnic or cultural groups within a population.
Businesses need to be aware of cultural differences and preferences to tailor their products,
marketing messages, and customer experiences accordingly.
▪ Income distribution - Income distribution examines how income is spread among individuals in
a population. It helps businesses gauge the purchasing power of different segments and target
their products or services to specific income groups.
• Economic
▪ Market growth rates
▪ Consumer demand
▪ Inflation and interest rates
▪ Trade deficits or surpluses
▪ Budget deficits or surpluses
▪ Personal and business savings rates
▪ Gross domestic product
• Political/Legal
▪ Regulations
▪ Consumer privacy laws
▪ Lobbying
▪ Antitrust, deregulation laws
▪ Taxation
• Sociocultural
▪ Attitudes and approaches to health care
 ▪ Attitudes about quality of work life
▪ Diverse and aging workforce
▪ Women in the workplace
▪ Concerns about environment
▪ Shifts in work and career preferences
▪ Shifts in product and service preferences
• Technological
▪ Product innovations
▪ Rapid technological change and the risk of disruption
▪ Knowledge application
▪ Growth of the Internet
▪ New communication technologies
• Global
▪ Important geopolitical trends
▪ Growth of the informal economy
▪ Critical global niche markets
▪ Different cultural and institutional attributes
• Physical
▪ Emerging trends oriented to sustaining the world’s physical environment
▪ Recognition of the interactive influence of ecological, social, and economic systems
▪ Growing concerns for sustainable industry development and increased corporate social
responsibility for the future effects of globalized operations

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External Environmental Analysis
• General Environment
o Focused on the future
• Industry Environment
o Focused on factors and conditions influencing a firm’s profitability within an industry
• Competitor Environment
o Focused on predicting the dynamics of competitors’ actions, responses and intentions

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Components of the External Environmental Analysis

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The Five Forces of Competition Model
• Threat of New Entrants:
o This force assesses the ease with which new competitors can enter an industry and compete
with existing firms.
o Factors to Consider: Barriers to entry, including capital requirements, economies of scale, brand
loyalty, access to distribution channels, and government regulations.
 • Bargaining Power of Buyers:
o The bargaining power of buyers refers to the influence that customers have on the prices and
terms of the products or services they purchase.
o Factors to Consider: The number of buyers, the size of each buyer's order, the availability of
alternative products or services, and the importance of each buyer to the seller.
• Bargaining Power of Suppliers:
o This force assesses the influence that suppliers have on the prices and terms of inputs they
provide to businesses.
o Factors to Consider: The concentration of suppliers, the availability of substitute inputs, the
importance of each supplier to the buyer, and the uniqueness of the supplied inputs.
• Threat of Substitute Products or Services:
o The threat of substitutes examines the availability of alternative products or services that could
fulfil the same need as those offered by existing firms.
o Factors to Consider: The presence of close substitutes, the price-performance trade-offs, and the
willingness of buyers to switch to alternatives.
• Intensity of Competitive Rivalry:
o Competitive rivalry assesses the degree of competition among existing firms in the industry.
o Factors to Consider: The number and strength of competitors, industry growth rate, product
differentiation, exit barriers, and competitive strategies pursued by firms.

Implications for Strategy:

Low Overall Industry Attractiveness: If the combined impact of the five forces results in low industry
attractiveness, firms may find it challenging to generate sustainable profits.
Competitive Advantage: Strategies that help mitigate the forces or leverage opportunities within them can lead
to a competitive advantage.
Dynamic Nature: The forces are not static and can change over time due to shifts in market conditions,
technological advancements, or changes in regulatory environments.

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Strategic Management Process (*IMP*)
Components of an Internal Analysis (*IMP*)

1. Resources
A firm’s assets, including people and the value of its brand name, that represent inputs into a firm’s
production process:
• capital equipment
• skills of employees
• brand names
• financial resources
• talented managers
➢ Types of Resources
• Tangible resources:
• Financial –
• The firm's capacity to borrow
• The firm's ability to generate funds through internal operations
• Physical –
• The sophistication of a firm's plant and equipment and the attractiveness of its
location
• Distribution facilities
• Product inventory
• Technological –
• Availability of technology-related resources such as copyrights, patents, trademarks,
and trade secrets
• Organizational –
• Formal reporting structures
• Intangible resources:
• Human –
• Knowledge
• Trust
 • Skills
• Abilities to collaborate with others
• Innovation –
• Ideas
• Scientific capabilities
• Capacity to innovate
• Reputation –
• Brand name
• Perceptions of product quality, durability, and reliability
• Positive reputation with stakeholders such as suppliers and customers
2. Capabilities
• represent the 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.
• composed of the unique skills and knowledge of a firm’s employees.
• include functional expertise of employees.
• often developed in specific functional areas or as part of a functional area.
• The four criteria for determining strategic capabilities:
• value
• Rarity
• costly-to-imitate
• non-substitutability
3. Core Competencies / Discovering Core Competencies / Four Criteria of sustainable Advantage
• Resources and capabilities that are the sources of a firm’s competitive advantage that:
• distinguish a firm 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.
• Four Criteria of sustainable Advantage
• value –
✓ Help a firm neutralize threats or exploit opportunities
• Rarity –
✓ Are not possessed by many others
• costly-to-imitate –
✓ 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-substitutability –
✓ No strategic equivalent
4. Value Chain Analysis / Outsourcing

Value chain analysis is a means of evaluating each of the activities in a company’s value chain to understand where
opportunities for improvement lie.
Conducting a value chain analysis prompts you to consider how each step adds or subtracts value from your final
product or service. This, in turn, can help you realize some form of competitive advantage, such as:
• Cost reduction, by making each activity in the value chain more efficient and, therefore, less expensive
• Product differentiation, by investing more time and resources into activities like research and
development, design, or marketing that can help your product stand out
Primary activities are those that go directly into the creation of a product or the execution of a service, including:
• Inbound logistics: Activities related to receiving, warehousing, and inventory management of source
materials and components
• Operations: Activities related to turning raw materials and components into a finished product
• Outbound logistics: Activities related to distribution, including packaging, sorting, and shipping
• Marketing and sales: Activities related to the marketing and sale of a product or service, including
promotion, advertising, and pricing strategy
• After-sales services: Activities that take place after a sale has been finalized, including installation,
training, quality assurance, repair, and customer service
Secondary activities help primary activities become more efficient—effectively creating a competitive advantage—
and are broken down into:
• Procurement: Activities related to the sourcing of raw materials, components, equipment, and services
• Technological development: Activities related to research and development, including product
design, market research, and process development
• Human resources management: Activities related to the recruitment, hiring, training, development,
retention, and compensation of employees
• Infrastructure: Activities related to the company’s overhead and management, including financing and
planning.
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Competencies, Strengths, Weaknesses, and Strategic Decisions (*IMP*)
• Cautions and Reminders
✓ Never take for granted that core competencies will continue to provide a source of competitive
advantage.
✓ All core competencies have the potential to become core rigidities – former core competencies that now
generate inertia and stifle innovation.
✓ Determining what the firm can do through continuous and effective analyses of its internal environment
will increase the likelihood of long-term competitive success.
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Market Segmentation
• Consumer Markets
✓ Demographic factors (age, income, sex. etc.)
✓ Socioeconomic factors (social Class, Stage in the family life cycle)
✓ Geographic factors (cultural, regional, and national differences)
✓ Psychological factors (lifestyle, personality traits)
✓ Consumption patterns (heavy, moderate, and light users)
✓ Perceptual factors (benefit segmentation, perceptual mapping)
• Industrial Markets
✓ End-use segments (identified by Standard Industrial Classification (SICI code)
✓ Product segments (based on technological differences or production economics)
✓ Geographic segments (defined by boundaries between countries or by regional differences within
them)
✓ Common buying factor segments (cut across product market and geographic segments)
✓ Customer size segments
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Business-Level Strategy
✓ An integrated and coordinated set of commitments and actions the firm uses to gain a competitive
advantage by exploiting core competencies in specific product markets.
Purpose of Business Level Strategy
• Business-Level Strategies:
– are intended to create differences between the firm’s competitive position and those of its
competitors.
• To position itself, the firm must decide whether it intends to:
– perform activities differently or
– perform different activities as compared to its rivals.
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Cost Leadership Strategy
• An integrated set of actions taken to produce goods or services with features that are acceptable to
customers at the lowest cost, relative to that of competitors.
• Product Characteristics
– Relatively standardized (commoditized) products
– Features broadly acceptable to many customers
– Lowest competitive price
• Cost saving actions required by this strategy
– Building efficient scale facilities
– Tightly controlling production costs and overhead
– Minimizing costs of sales, R&D and service
– Building efficient manufacturing facilities
– Monitoring costs of activities provided by outsiders
– Simplifying production processes
 • Competitive Risks
– Processes used to produce and distribute good or service may become obsolete due to competitors’
innovations.
– Too much focus on cost reductions may occur at expense of customers’ perceptions of
differentiation.
– Competitors, using their own core competencies, may successfully imitate the cost leader’s strategy.
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Differentiation Strategy (*IMP*)
• An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers
perceive as being different in ways that are important to them.
– Focus is on non-standardized products
– Appropriate when customers value differentiated features more than they value low cost
• Competitive Risk
• The price differential between the differentiator’s product and the cost leader’s product becomes too
large.
• Differentiation ceases to provide value for which customers are willing to pay.
• Experience narrows customers’ perceptions of the value of differentiated features.
• Counterfeit goods replicate the differentiated features of the firm’s products.
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Competitors:
– are firms operating in the same market, offering similar products, and targeting similar customers.
Competitive Rivalry:
– is the ongoing set of competitive actions and responses occurring between competitors.
– influences an individual firm’s ability to gain and sustain competitive advantages.
Competitive Behavior
– The set of competitive actions and competitive responses the firm takes to build or defend its
competitive advantages and to improve its market position.
Multimarket Competition
– Firms competing against each other in several product or geographic markets.
Competitive Dynamics
– The total set of actions and responses taken by all firms competing within a market.
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Competitive Dynamics
Slow-cycle Markets
• Competitive advantages are shielded from imitation for long periods of time and imitation is costly.
• Competitive advantages are sustainable in slow-cycle markets.
All firms concentrate on competitive actions and responses to protect, maintain and extend proprietary competitive
advantage.
Fast-cycle Markets
• The firm’s competitive advantages aren’t shielded from imitation.
• Imitation happens rapidly and is inexpensive.
• Competitive advantages are not sustainable.
– Competitors use reverse engineering to quickly imitate or improve on the firm’s products.
• Non-proprietary technology is diffused rapidly.

Standard-cycle Markets
• Moderate cost of imitation may shield competitive advantages.
• Competitive advantages are partially sustainable if their quality is continuously upgraded.
• Firms:
– seek large market shares
– gain customer loyalty through brand names
– carefully control operations
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Portfolio Matrix (BCG Matrix) (*IMP*)
 1. Stars (High Growth, High Market Share):
• Products/business units with high growth potential and a strong market position.
• Strategy: Invest resources to maintain and enhance market share. As the market grows, stars may
become cash cows.

2. Cash Cows (Low Growth, High Market Share):

• Products/business units with low growth potential but a dominant market share.
• Strategy: Harvest profits and maintain market share. These products generate cash that can be invested
in stars or question marks.

3. Question Marks or Problem Children (High Growth, Low Market Share):

• Products/business units with high growth potential but a low market share.
• Strategy: Consider investing to increase market share or divesting if growth prospects are poor.

4. Dogs (Low Growth, Low Market Share):

• Products/business units with low growth potential and a weak market position.
• Strategy: Minimize investment and consider divestment if they don't contribute to overall objectives.
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GE 9 Cell Matrix (*IMP*)

Market Attractiveness (Vertical Axis):

High: The market for this toy/business is great.
Medium: The market is okay.
Low: The market is not so good.

Business Unit Strength (Horizontal Axis):

Strong: Your toy/business is doing really well.
Medium: It's doing okay.
Weak: It's not doing so great.
The 9 Cells in the Matrix:

1. High Market Attractiveness, Strong Competitive Position (Top Left Cell):

• Example (Hypothetical): Amazon Web Services (AWS) - It's a highly attractive market (growing cloud
services) and Amazon has a strong competitive position.
• In Easy Words: AWS is in a great spot. It's in a popular market, and Amazon is doing really well against
competitors.

2. Medium Market Attractiveness, Strong Competitive Position (Top Middle Cell):

• Example (Hypothetical): Amazon Prime - It's a solid market (online streaming and fast shipping), and
Amazon is a leader here.
• In Easy Words: Prime is doing well. People like it, and Amazon is strong in this market.

3. Low Market Attractiveness, Strong Competitive Position (Top Right Cell):

• Example (Hypothetical): Amazon Marketplace - It's a bit of a saturated market (many sellers), but
Amazon is still a dominant player.
• In Easy Words: Lots of sellers, but Amazon is still the go-to place. It's doing fine, even though the market
is not super exciting.

High Market Attractiveness, Medium Competitive Position (Middle Left Cell):

• Example (Hypothetical): Amazon Fresh (Grocery Delivery) - The grocery market is attractive, but Amazon
is still establishing a strong position.
• In Easy Words: Grocery delivery is interesting, and Amazon is working on it. It's not the strongest yet, but
there's potential.

4. Medium Market Attractiveness, Medium Competitive Position (Middle Cell):

• Example (Hypothetical): Amazon Music - It's a decent market (music streaming), and Amazon is a player,
but not a leader.
• In Easy Words: Music is okay, Amazon is in the game, but it's not the top choice for everyone.

5. Low Market Attractiveness, Medium Competitive Position (Middle Right Cell):

• Example (Hypothetical): Amazon Pantry (Grocery Delivery) - The market isn't super attractive, and
Amazon is still working on its position.
• In Easy Words: Grocery delivery is not super exciting, and Amazon is figuring out how to do better.

6. High Market Attractiveness, Weak Competitive Position (Bottom Left Cell):

• Example (Hypothetical): Amazon Pharmacy - Healthcare is a growing market, but Amazon is still
establishing its presence.
• In Easy Words: Healthcare is a big deal, but Amazon is just getting started. It's not super strong in this
area yet.

7. Medium Market Attractiveness, Weak Competitive Position (Bottom Middle Cell):

• Example (Hypothetical): Amazon Fashion - It's a decent market (online fashion), but Amazon is not the
go-to place for fashionistas.
• In Easy Words: Fashion is okay, but Amazon is not the top choice for trendy clothes.

8. Low Market Attractiveness, Weak Competitive Position (Bottom Right Cell):

• Example (Hypothetical): Amazon Local (Local Services) - Local services are not the hottest market, and
Amazon is still figuring out how to compete.
• In Easy Words: Local services are not a big deal, and Amazon is not the leader in this area.
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Value-Creating Strategies of Diversification

Related Diversification (HIGH HIGH)

• Firms create value by building upon or extending:
– resources
– capabilities
– core competencies
• Market power exists when a firm can:
– sell its products above the existing competitive level and/or
– reduce the costs of its primary and support activities below the competitive level.
• Multipoint Competition
– Two or more diversified firms simultaneously compete in the same product areas or geographic
markets.
• Vertical Integration
– Backward integration — a firm produces its own inputs.
– Forward integration — a firm operates its own distribution system for delivering its outputs.

Unrelated Diversification (LOW HIGH)

• Financial Economies:
– are cost savings realized through improved allocations of financial resources.
• Based on investments inside or outside the firm
– create value through two types of financial economies:
• Efficient internal capital allocations
• Purchase of other corporations and the restructuring their assets
• Efficient Internal Capital Market Allocation
– Corporate office distributes capital to business divisions to create value for overall company.
• Corporate office gains access to information about those businesses’ actual and prospective
performance.
– Conglomerate life cycles are fairly short life cycle because financial economies are more easily
duplicated by competitors than are gains from operational and corporate relatedness.
Both Operational and corporate Relatedness (HIGH LOW)
Operational Relatedness:
Operational relatedness refers to the sharing of activities, processes, and resources across different business units.
When operational activities are closely aligned, it can lead to synergies, cost savings, and improved efficiency. Here
are some operational relatedness strategies:

1. Economies of Scale:
• Producing more units of a product can lead to lower average costs per unit.
2. Shared Distribution Channels:
• Utilizing the same distribution network for multiple products or services.
3. Common Technologies:
• Leveraging similar technologies across different business units.
4. Joint Research and Development:
• Collaborating on research and development efforts to create innovative solutions that benefit multiple
business units.

Corporate Relatedness:
Corporate relatedness involves strategic linkages between different business units at the corporate level. It
goes beyond operational synergies and focuses on how diverse businesses within a company can
complement each other in the overall corporate strategy. Here are some corporate relatedness strategies:

1. Market Power:
• Using the combined market power of different business units to negotiate better terms with suppliers or
exert influence in the market.
2. Brand Synergy:
• Leveraging a strong brand from one business unit to enhance the reputation of another.
3. Financial Synergies:
• Using the financial strength of one business unit to support the growth or stability of another.
4. Strategic Fit:
• Ensuring that different business units contribute to the overall strategic objectives of the company.

Key Considerations:
1. Strategic Alignment: Ensure that the diversification strategy aligns with the overall corporate strategy and
goals.
2. Resource Sharing: Identify opportunities for sharing resources, technologies, and expertise across business
units.
3. Risk Management: Evaluate the potential risks and uncertainties associated with diversification and develop
effective risk management strategies.
4. Flexibility: Be adaptable to changing market conditions and be ready to adjust diversification strategies as
needed.

Related Linked Diversification (LOW LOW)

• Economies of Scope
– Cost savings that occur when a firm transfers capabilities and competencies developed in one of its
businesses to another of its businesses.
• Value is created from economies of scope through:
– operational relatedness in sharing activities.
– corporate relatedness in transferring skills or corporate core competencies among units.
• The difference between sharing activities and transferring competencies is based on how the resources are
jointly used to create economies of scope.
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Corporate Relatedness
• Creates value in two ways:
– eliminates resource duplication in the need to allocate resources for a second unit to develop a
competence that already exists in another unit.
– provides intangible resources (resource intangibility) that are difficult for competitors to understand
and imitate.
• A transferred intangible resource gives the unit receiving it an immediate competitive
advantage over its rivals.
• Multipoint Competition
– Two or more diversified firms simultaneously compete in the same product areas or geographic
markets.
• Vertical Integration
– Backward integration — a firm produces its own inputs.
– Forward integration — a firm operates its own distribution system for delivering its outputs.
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Merger
• Two firms agree to integrate their operations on a relatively co-equal basis.
Acquisition
• One firm buys a controlling, or 100%, interest in another firm with the intent of making the acquired firm a
subsidiary business within its portfolio.
Takeover
• An acquisition in which the target firm did not solicit the acquiring firm’s bid for outright ownership.
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Effective Acquisitions
1. Complementary Assets Resources:
o Buying firms with assets that meet current needs to build competitiveness.
2. Friendly Acquisitions:
o Friendly deals make integration go more smoothly.
3. Careful Selection Process:
o Deliberate evaluation and negotiations are more likely to lead to easy integration and building
synergies.
4. Maintain Financial Slack:
o Provide enough additional financial resources so that profitable projects would not be foregone.
Attributes of Effective Acquisitions
1. Low-to-Moderate Debt:
o Merged firm maintains financial flexibility
2. Sustained Emphasis on Innovation:
o Continue to invest in R&D as part of the firm's overall strategy
3. Flexibility:
o Has experience at managing change and is flexible and adaptable
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Restructuring
• A strategy through which a firm changes its set of businesses or financial structure.
– Failure of an acquisition strategy often precedes a restructuring strategy.
– Restructuring may occur because of changes in the external or internal environments.
• Restructuring strategies
– Downsizing
• A reduction in the number of a firm’s employees and sometimes in the number of its
operating units.
• May or may not change the composition of businesses in the firm’s portfolio.
• Typical reasons for downsizing:
• Expectation of improved profitability from cost reductions
 • Desire or necessity for more efficient operations
– Downscoping
• A divestiture, spin-off or other means of eliminating businesses unrelated to a firm’s core
businesses.
• A set of actions that causes a firm to strategically refocus on its core businesses.
• May be accompanied by downsizing, but not the elimination of key employees from
its primary businesses.
• Results in a smaller firm that can be more effectively managed by the top
management team.
– Leveraged buyouts
• A restructuring strategy whereby a party buys all of a firm’s assets in order to take the firm
private.
• Significant amounts of debt may be incurred to finance the buyout, followed by an
immediate sale of non-core assets to pare down debt.
• Can correct for managerial mistakes
• Managers making decisions that serve their own interests rather than those of
shareholders
• Can facilitate entrepreneurial efforts and strategic growth
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Learning and Developing New Capabilities
• An acquiring firm can gain capabilities that
the firm does not currently possess:
– special technological capability
– a broader knowledge base
– reduced inertia
• Firms should acquire other firms with different but related and complementary capabilities in order to build
their own knowledge base.
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International Strategy
– A strategy through which the firm sells its goods or services outside its domestic market.
Incentives to use international strategy
– New market expansion extends product life cycle
– Gain access to materials and resources
– Integration of operations on a global scale
– Better use of rapidly developing technologies
– International markets yield potential new opportunities
International Strategy Benefits
• Increased Market Size
– Domestic market may lack the size to support efficient scale manufacturing facilities.
• Economies of Scale (or Learning)
– Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as
marketing, R&D or distribution.
– Can spread costs over a larger sales base
– Can increase profit per unit
• Location Advantages
– Low cost markets aid in developing competitive advantage by providing access to:
• raw materials
• transportation
• lower costs for labor
• key customers
• energy
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Determinants of National Advantage

Factors of production
– The inputs necessary to compete in any industry.
• Labor
• Land
• Capital
• Infrastructure
• Natural Resources
• Basic factors
– Natural and labor resources
• Advanced factors
– Digital communication systems
– Educated workforce
Demand Conditions
– Characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or
services.
• Size of the market segment can lead to scale-efficient facilities.
• Efficiency can lead to domination of the industry in other countries.
• Specialized demand may create opportunities beyond national boundaries.
Related and Supporting Industries
– Supporting services, facilities, suppliers, etc.
• Support in design
• Support in distribution
• Related industries as suppliers and buyers
Firm Strategy, Structure and Rivalry
– The pattern of strategy, structure, and rivalry among firms.
• Common technical training
• Methodological product and process improvement
• Cooperative and competitive systems
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International Corporate-Level Strategy
• Focuses on the scope of operations
– Product diversification
– Geographic diversification
• Required when the firm operates in:
– multiple industries
– multiple countries or regions
• Headquarters unit guides the strategy,
– but business or country-level managers can have substantial strategic input.
Selecting an International Corporate-Level Strategy
• The type of corporate strategy selected will have an impact on the selection and implementation of the
business-level strategies.
– Some strategies provide individual country units with the flexibility to choose their own strategies.
– Other strategies dictate business-level strategies from the home office and coordinate resource
sharing across units.
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International Corporate-Level Strategy

Multidomestic Strategy (IMP)

• Strategy and operating decisions are decentralized to strategic business units (SBU) in each country.
• Products and services are tailored to local markets.
• Business units in one country are independent of each other.
• Assumes markets differ by country or regions.
• Focus on competition in each market.
• Prominent strategy among European firms due to broad variety of cultures and markets in Europe.
Global Strategy
• Products are standardized across national markets.
• Business-level strategic decisions are centralized in the home office.
• Strategic business units (SBUs) are assumed to be interdependent.
• Emphasizes economies of scale.
• Often lacks responsiveness to local markets.
• Requires resource sharing and coordination across borders (hard to manage).
Transnational Strategy
• Seeks to achieve both global efficiency and local responsiveness.
• Difficult to achieve because of simultaneous requirements for:
– strong central control and coordination to achieve efficiency.
– decentralization to achieve local market responsiveness.
– pursuit of organizational learning to achieve competitive advantage.
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Risks in an International Environment
• Political Risks
– Instability in national governments
– War, both civil and international
– Potential nationalization of a firm’s resources
• Economic Risks
– Differences and fluctuations in the value of different currencies
– Differences in prevailing wage rates
– Difficulties in enforcing property rights
– Unemployment
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Limits to International Expansion
• Management Problems
– Cost of coordination across diverse geographical business units
– Institutional and cultural barriers
– Understanding strategic intent of competitors
– The overall complexity of competition
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Cooperative Strategy
• Cooperative Strategy
– A strategy in which firms work together to achieve a shared objective.
• Cooperating with other firms is a strategy that:
– creates value for a customer.
– exceeds the cost of constructing customer value in other ways.
– establishes a favorable position relative to competitors.
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Strategic Alliance
• A primary type of cooperative strategy in which firms combine some of their resources and capabilities to
create a mutual competitive advantage.
– Involves the exchange and sharing of resources and capabilities to co-develop or distribute goods
and services.
– Requires cooperative behavior from all partners.
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Three Types of Strategic Alliances
• Joint Ventures:
o In a joint venture, two or more companies create a new, independent entity to pursue a specific
business opportunity or project. The partners typically contribute resources, capital, and expertise to
the joint venture.
▪ Key Characteristics:
• Shared ownership and control.
• Joint decision-making.
• Shared risks and rewards.
o Example: Sony Ericsson, a joint venture between Sony and Ericsson, collaborated on the
development and marketing of mobile phones.
 • Equity Strategic Alliances:
o Equity alliances involve one company acquiring an ownership stake in another company, creating a
strategic investment relationship. The level of equity ownership can vary, and the invested company
may or may not become a subsidiary.
▪ Key Characteristics:
• Ownership stake in the partner company.
• Exchange of resources, technology, or expertise.
• Shared risks and benefits.
o Example: When Microsoft invested in Facebook in 2007, it resulted in a strategic alliance where
Microsoft gained a minority equity stake, and the two companies collaborated on various initiatives.

• Non-Equity Strategic Alliances:

o Non-equity alliances involve collaboration between companies without the exchange of ownership
stakes. Partnerships are formed to achieve specific goals, such as sharing resources, technology, or
distribution channels.
▪ Key Characteristics:
• No exchange of ownership stakes.
• Collaboration on specific projects or initiatives.
• Shared benefits without shared ownership.
o Example: The partnership between Starbucks and Nestlé, where Nestlé has the rights to market and
sell Starbucks-branded packaged coffee globally without owning equity in Starbucks.
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Reasons for Strategic Alliances by Market Type

Slow Cycle
• Reason
• Gain access to a restricted market
• Establish a franchise in a new market
• Maintain market stability (e.g., establishing standards)
Fast Cycle
• Reason
• Speed up development of new goods or service
• Speed up new market entry
• Maintain market leadership
• Form an industry technology standard
• Share risky R&D expenses
• Overcome uncertainty
Standard Cycle
• Reason
• Gain market power (reduce industry overcapacity)
• Gain access to complementary resources
• Establish economies of scale
• Overcome trade barriers
• Meet competitive challenges from other competitors
• Pool resources for very large capital projects
 • Learn new business techniques
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Business-Level Cooperative Strategies

Complementary Strategic Alliances

• Combine partner firms’ assets in complementary ways to create new value
• Include distribution, supplier or outsourcing alliances where firms rely on upstream or downstream partners
to build competitive advantage
 • Vertical Complementary Strategic Alliance
– Formed between firms that agree to use their skills and capabilities in different stages of the value
chain to create value for both firms.
• Outsourcing is one example of this type of alliance.
• Horizontal Complementary Strategic Alliance
– Formed when partners who agree to combine their resources and skills to create value in the same
stage of the value chain.
• Focus is on long-term product development and distribution opportunities.
• The partners may become competitors which requires a great deal of trust between the
partners.
Competition Response Alliances
• Occurs when firms join forces to respond to a strategic action of another competitor
• Because they can be difficult to reverse and expensive to operate, strategic alliances are primarily formed to
respond to strategic rather than tactical actions
Uncertainty Reducing Alliances
• Used to hedge against risk and uncertainty
• These alliances are most noticed in fast-cycle markets.
• An alliance may be formed to reduce the uncertainty associated with developing new product or technology
standards.
Competition Reducing Alliances
• Created to avoid destructive or excessive competition
• Explicit collusion: when firms directly negotiate production output and pricing agreements to reduce
competition (illegal).
• Tacit collusion: when firms indirectly coordinate their production and pricing decisions by observing other
firm’s actions and responses.
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Corporate Level Cooperative Strategies

• Corporate-level Strategies
– Help the firm diversify in terms of:
• products offered to the market
• the markets it serves
– Require fewer resource commitments
– Permit greater flexibility in terms of efforts to diversify partners’ operations

Diversifying Strategic Alliance

• Allows a firm to expand into new product or market areas without completing a merger or an acquisition
• Provides some of the potential synergistic benefits of a merger or acquisition, but with less risk and
greater levels of flexibility
• Permits a “test” of whether a future merger between the partners would benefit both parties
Synergistic Strategic Alliance
• Creates joint economies of scope between two or more firms
 • Creates synergy across multiple functions or multiple businesses between partner firms
Franchising
• Spreads risks and uses resources, capabilities, and competencies without merging or acquiring another
firm
• A contractual relationship (franchise) is developed between two parties, the franchisee and the
franchisor
• An alternative to pursuing growth through mergers and acquisitions
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Diversifying Strategic Alliance (IMP)
A diversifying strategic alliance refers to a collaborative agreement between two or more companies from different
industries or business segments with the aim of entering new markets or diversifying their product or service
offerings. Unlike alliances formed between companies within the same industry (horizontal alliances) or along the
same value chain (vertical alliances), diversifying alliances involve partners from unrelated or different business
domains.

Key Characteristics of Diversifying Strategic Alliances:

1. Different Industries or Sectors:
• Characteristics: The partnering companies operate in unrelated industries or sectors.
• Example: An alliance between a technology company and a healthcare company, combining technology
expertise with healthcare solutions.
2. Diversification Objectives:
• Characteristics: The primary goal is to achieve diversification, entering new markets or expanding the
range of products or services offered.
• Example: A cosmetics company forming an alliance with a food and beverage company to create beauty-
enhancing food products.

3. Risk and Reward Sharing:

• Characteristics: Partners share the risks and rewards associated with entering unfamiliar markets or
industries.
• Example: A clothing retailer forming an alliance with a technology company to develop and sell smart
wearable fashion items.
4. Complementary Capabilities:
• Characteristics: Each partner contributes complementary capabilities, resources, or expertise that
enhance the overall value proposition of the alliance.
• Example: An automotive manufacturer forming an alliance with a renewable energy company to develop
electric vehicles and sustainable mobility solutions.
5. Market Entry Strategies:
• Characteristics: Often used as a strategy for entering markets where one or both partners lack a
significant presence.
• Example: A pharmaceutical company forming an alliance with a local distributor in a new geographic
region to enter that market effectively.
6. Innovation and R&D Collaboration:
• Characteristics: Collaborative efforts in research and development to create innovative products or
solutions that benefit both partners.
• Example: A consumer electronics company forming an alliance with a research institution to develop
cutting-edge technologies for various applications.

Benefits of Diversifying Strategic Alliances:

✓ Market Access and Entry
✓ Risk Mitigation
✓ Resource and Expertise Pooling
✓ Innovation and Synergy
 ✓ Diversification of Product/Service Portfolio
✓ Cost Sharing

Challenges and Considerations:

✓ Cultural Differences
✓ Integration Challenges
✓ Communication Challenges
✓ Regulatory Compliance
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International Cooperative Strategy
• Cross-border Strategic Alliance
– A strategy in which firms with headquarters in different nations combine their resources and
capabilities to create a competitive advantage.
– A firm may form cross-border strategic alliances to leverage core competencies that are the
foundation of its domestic success to expand into international markets.
• Synergistic Strategic Alliance
– Allows risk sharing by reducing financial investment
– Host partner knows local market and customs
– International alliances can be difficult to manage due to differences in management styles, cultures
or regulatory constraints.
– Must gauge partner’s strategic intent such that the partner does not gain access to important
technology and become a competitor.
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Network Cooperative Strategy
• A cooperative strategy wherein several firms agree to form multiple partnerships to achieve shared
objectives.
– Stable alliance network
– Dynamic alliance network
• Effective social relationships and interactions among partners are keys to a successful network cooperative
strategy.
Stable Alliance Network
• Long term relationships that often appear in mature industries where demand is relatively constant and
predictable
• Stable networks are built for exploitation of the economies (scale and/or scope) available between the firms
Dynamic Alliance Network
• Arrangements that evolve in industries with rapid technological change leading to short product life cycles
• Primarily used to stimulate rapid, value-creating product innovation and subsequent successful market
entries
• Purpose is often exploration of new ideas
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Managing Cooperative Strategies
• Cost Minimization Management Approach
– Have formal contracts with partners
– Specify how strategy is to be monitored
– Specify how partner behavior is to be controlled
– Set goals that minimize costs and to prevent opportunistic behavior by partners
• Opportunity Maximization Approach
– Maximize partnership’s value-creation opportunities
– Learn from each other
– Explore additional marketplace possibilities
– Maintain fewer formal contracts, fewer constraints
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Organizational Structure
• Effective structures provide:
– stability
– flexibility
• Structural stability provides:
– the capacity required to consistently and predictably manage daily work routines.
• Structural flexibility provides for:
– the opportunity to explore competitive possibilities.
– the allocation of resources to activities that shape needed competitive advantages.
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Organizational Controls
• Purposes of organizational controls
– Guide the use of strategy
– Indicate how to compare actual results with expected results
– Suggest corrective actions to take when the difference between actual and expected results is
unacceptable
• Two types of organizational controls
– Strategic controls
• Strategic Controls: Subjective criteria
• Concerned with examining the fit between:
• what the firm might do (opportunities in its
external environment).
• what the firm can do (competitive advantages).
• Evaluate the degree to which the firm focuses
on the requirements to implement its strategy
– Financial controls
• Financial Controls: Objective criteria
• Accounting-based measures
• Return on investment
• Return on assets
• Market-based measures
• Economic Value Added (EVA)
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Relationships between Strategy and Structure
• Strategy and structure have a reciprocal relationship
– Structure flows from or follows the selection
of the firm’s strategy, but…
– once in place, structure can influence current strategic actions as well as choices about future
strategies.
Evolutionary Patterns of Structure and Organizational Structure
• Firms grow in predictable patterns:
– first by volume
– then by geography
– then integration (vertical, horizontal)
– and finally, through product/business diversification.
• A firm’s growth patterns determine its structural form.
• All organizations require some form of organizational structure to implement and manage their strategies.
• Firms frequently alter their structure as they grow in size and complexity.
• Three basic structure types
– Simple structure
– Functional structure
– Multidivisional structure (M-form)-
Strategy and Structure Growth Pattern

Simple Structure
• Owner-manager
– Makes all major decisions directly
– Monitors all activities
• Staff
– Serves as an extension of the manager’s supervisor authority
• Matched with focus strategies and business-level strategies
– Commonly complete by offering a single product line in a single geographic market
• Growth creates:
– complexity
– managerial and structural challenges
• Owner-managers:
– commonly lack organizational skills and experience.
– become ineffective in managing the specialized and complex tasks involved with multiple
organizational functions.
Functional Structure
• Chief Executive Officer (CEO)
– Limited corporate staff
• Functional line managers in dominant organizational areas of:
– production
– marketing
– engineering
– human resources
– accounting
– R&D
• Supports use of business-level strategies and some corporate-level strategies
– Single or dominant business with low levels of diversification
• Differences in orientation among organizational functions can:
– impede communication and coordination.
 – increase the need for CEO to integrate decisions and actions of business functions.
– facilitate career paths and professional development in specialized functional areas.
– cause functional-area managers to focus on local versus overall company strategic issues.
Multidivisional Structure (IMP)
• Strategic Control
– Operating divisions function as separate businesses or profit centers.
• Top corporate officer delegates responsibilities to division managers:
– for day-to-day operations.
– for business-unit strategy.
• Appropriate as firm grows through diversification
• Three Major Benefits
– Corporate officers are able to more accurately monitor the performance of each business, which
simplifies the problem of control.
– Facilitates comparisons between divisions, which improves the resource allocation process.
– Stimulates managers of poorly performing divisions to look for ways of improving performance.
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What makes a decision strategic?
A decision is considered strategic when it involves choices that significantly impact the long-term direction, goals,
and success of an organization. Several key characteristics distinguish a strategic decision from routine or operational
decisions:
Long-Term Impact:
✓ Strategic Decision: Affects the organization's long-term direction, goals, and competitive positioning.
✓ Example: Choosing to enter a new market or invest in a major technology upgrade.
Scope and Scale:
✓ Strategic Decision: Typically involves high levels of resources and has a broad organizational impact.
✓ Example: Merging with another company or launching a new product line.
Involves Uncertainty and Ambiguity:
✓ Strategic Decision: Often made in an environment with high uncertainty, requiring careful analysis and
consideration of various factors.
✓ Example: Expanding into a new geographic region with an unfamiliar market landscape.
Cross-Functional Impact:
✓ Strategic Decision: Requires coordination and collaboration across different departments or functional areas
of the organization.
✓ Example: Developing a company-wide sustainability initiative that involves marketing, operations, and
finance.
Aligns with Mission and Vision:
✓ Strategic Decision: Supports the organization's mission and vision, guiding it toward the desired future state.
✓ Example: Shifting the focus of a technology company from hardware to software to align with the vision of
becoming a leader in software solutions.
Addresses Competitive Positioning:
✓ Strategic Decision: Influences the organization's competitive positioning in the market.
✓ Example: Choosing a differentiation strategy to stand out in a crowded market.
Incorporates External Factors:
✓ Strategic Decision: Takes into account external factors such as market trends, economic conditions, and
regulatory changes.
✓ Example: Adjusting business strategies in response to changes in government policies or industry regulations.
Trade-offs and Choices:
✓ Strategic Decision: Involves making trade-offs and choices among different alternatives, considering
opportunity costs.
✓ Example: Allocating resources to one strategic initiative over another due to limited resources.
Top-Level Involvement:
 ✓ Strategic Decision: Typically made at the highest levels of the organization by executives and senior
leadership.
✓ Example: Deciding to divest a non-core business unit to focus on the organization's core competencies.
Integrated Planning:
✓ Strategic Decision: Requires integrated planning that aligns various aspects of the organization, such as
finance, marketing, operations, and human resources.
✓ Example: Developing a comprehensive strategic plan that addresses multiple areas of the business to achieve
organizational goals.
Adaptable and Dynamic:
✓ Strategic Decision: Recognizes the need for adaptability in a dynamic business environment.
✓ Example: Adjusting the strategic direction in response to changes in market conditions or emerging
technologies.
Impact on Stakeholders:
✓ Strategic Decision: Considers the interests and impact on various stakeholders, including employees,
customers, investors, and the community.
✓ Example: Implementing a sustainability program to address environmental concerns and meet the
expectations of socially conscious consumers.
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TOWS Matrix

External Factors:
Threat
✓ Increasing competition from cheaper Polish workers.
Opportunity
✓ Strong desire from vocational educators for partnerships with organisations for apprenticeship positions.
Internal Factors:
Weakness
✓ The organisation takes little initiative when it comes to customer acquisition and waits for customers to come
to them.
Strength
 ✓ There is a large group of very experienced professionals working within the organisation who have a lot of
expertise.
Strategies:
Strengths-Opportunities (SO) Strategies:
o Description: Identify strategies that leverage internal strengths to take advantage of external
opportunities.
o Objective: Maximize the organization's capabilities to capitalize on favorable external conditions.
o Example: Using a strong brand and innovation capabilities to enter new markets or launch new
products.
Weaknesses-Opportunities (WO) Strategies:
o Description: Develop strategies that address internal weaknesses while taking advantage of external
opportunities.
o Objective: Overcome weaknesses by tapping into external opportunities.
o Example: Collaborating with external partners to compensate for internal resource limitations and
enter new markets.
Strengths-Threats (ST) Strategies:
o Description: Strategies that leverage internal strengths to mitigate or defend against external threats.
o Objective: Use internal strengths to counteract potential negative impacts from external threats.
o Example: Enhancing operational efficiency and cost-effectiveness to counteract potential market
downturns.
Weaknesses-Threats (WT) Strategies:
o Description: Focus on addressing internal weaknesses to minimize the impact of external threats.
o Objective: Mitigate vulnerabilities and protect against potential threats.
o Example: Implementing cost-cutting measures to address financial weaknesses and withstand
economic downturns.
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ETOP (Environment Threats and Opportunity Profile)

Upward Arrows (↑):

 ✓ An upward arrow typically indicates a positive impact or opportunity.
✓ Example: If there is an upward arrow from "Technological Trends" to the organization, it may signify that
technological advancements present opportunities for the organization to enhance its products or services.
Downward Arrows (↓):
✓ A downward arrow typically indicates a negative impact or threat.
✓ Example: If there is a downward arrow from "Economic Conditions" to the organization, it may suggest that
economic downturns or unfavourable economic conditions pose a threat to the organization.
Two-Way Arrows (↔ or ↔):
✓ Two-way arrows may indicate a relationship that involves both opportunities and threats.
✓ Example: If there is a two-way arrow from "Market Demand" to the organization, it may suggest that while
there are opportunities in responding to market demand, there are also threats if the organization fails to
meet customer expectations.
No Arrow:
✓ The absence of an arrow may indicate a neutral or indirect relationship.
✓ Example: If there is no arrow from "Political Stability" to the organization, it may suggest that political
stability does not directly impact the organization or that the impact is not significant
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VUCA

Volatility:
✓ Definition: The speed and magnitude of change in the business environment.
✓ Implications: Rapid and unpredictable changes in market conditions, technology, and other factors.
Uncertainty:
✓ Definition: The lack of predictability and the inability to foresee future events or outcomes.
✓ Implications: Difficulty in making accurate predictions, planning, and decision-making due to the
unpredictable nature of the environment.
Complexity:
✓ Definition: The multiplicity of factors and the interconnectedness of various elements in the business
environment.
✓ Implications: Interdependencies and intricate relationships that make it challenging to understand and
address issues comprehensively.
Ambiguity:
✓ Definition: The lack of clarity or the presence of multiple possible interpretations in the business
environment.
✓ Implications: Unclear cause-and-effect relationships, making it difficult to understand the implications of
actions or events.

Usage of VUCA in Business and Leadership:

Strategic Planning:
✓ Organizations use VUCA to inform strategic planning by acknowledging the dynamic and unpredictable
nature of the business environment.
Leadership Development:
✓ Leaders are trained to navigate VUCA conditions by developing adaptability, resilience, and the ability to
make decisions in ambiguous situations.

Risk Management:
✓ VUCA considerations are integrated into risk management strategies to address uncertainties and
unexpected challenges.
Innovation:
✓ Organizations focus on fostering a culture of innovation to respond to rapid changes and capitalize on
emerging opportunities.
Agile Methodologies:
✓ Agile methodologies in project management and organizational structure are employed to enhance flexibility
and responsiveness to changes.
Continuous Learning:
✓ The recognition of VUCA prompts a commitment to continuous learning and the ability to quickly acquire
new skills and knowledge.
Scenario Planning:
✓ Organizations engage in scenario planning to anticipate and prepare for various potential future situations.
Crisis Management:
✓ VUCA is considered in crisis management strategies, emphasizing the need for quick, flexible, and adaptive
responses to unexpected events.
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BANI

Brittle:
✓ Brittle systems are fragile and can break or fail easily when subjected to stress or sudden changes.
✓ Implications: Organizations operating in brittle environments may struggle to adapt to unexpected
disruptions and may be vulnerable to sudden shifts in market conditions.
Anxious:
✓ Anxious systems are characterized by a high level of uncertainty and unease, often resulting from
the lack of predictability.
✓ Implications: Anxious environments may lead to heightened levels of stress and apprehension
among organizations, making it challenging to plan and make decisions confidently.
Nonlinear:
✓ Nonlinear systems do not follow a linear cause-and-effect relationship; instead, they exhibit
complexity and unpredictability.
✓ Implications: Nonlinear environments may have interconnected and dynamic elements, making it
difficult to anticipate the outcomes of actions or events.
Incomprehensible:
✓ Incomprehensible systems are characterized by a lack of clarity or the difficulty in understanding the
complex interplay of factors.
✓ Implications: Incomprehensible environments may pose challenges in gaining a comprehensive
understanding of the business landscape, leading to ambiguity and confusion.

Usage of BANI:
Adaptability:
✓ Organizations use the BANI framework to emphasize the need for adaptability and resilience in the
face of brittleness, anxiety, nonlinearity, and incomprehensibility.
Innovation and Learning:
✓ BANI encourages a focus on continuous learning, innovation, and the ability to quickly adjust
strategies based on the evolving and complex nature of the business environment.
Risk Management:
✓ BANI considerations are integrated into risk management practices to address the inherent
uncertainties and complexities in the business landscape.
Strategic Planning:
✓ Strategic planning efforts incorporate BANI principles to ensure that organizations are prepared for
unforeseen challenges and can respond effectively to dynamic conditions.
Leadership Development:
✓ Leaders are trained to navigate BANI conditions by developing the skills necessary to lead in
environments characterized by brittleness, anxiety, nonlinearity, and incomprehensibility.
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VIRO

Value:
✓ The resource must add value to the firm by enabling it to exploit opportunities or defend against
threats in the external environment.
Rarity:
✓ The resource must be rare or unique, meaning that it is not widely possessed or available to
competitors.
Imitability:
✓ The resource should be difficult for competitors to imitate or replicate. Imitability is about the
challenge of other firms copying the resource.
Organization (Exploitability):
✓ The firm must be organized and capable of exploiting the resource effectively. This involves the
ability to leverage the resource to gain a competitive advantage.

Usage of VIRO:
Resource Assessment:
✓ Organizations use the VIRO framework to assess the strategic value of their resources, focusing on
their ability to provide a sustainable competitive advantage.
Competitive Positioning:
✓ VIRO aids in determining whether a firm's resources can contribute to its competitive positioning in
the industry.
Strategic Planning:
 ✓ The VIRO analysis informs strategic planning by identifying which resources are truly valuable, rare,
and difficult to imitate.
Investment Decisions:
✓ VIRO considerations influence investment decisions, guiding organizations in allocating resources to
develop, acquire, or enhance resources that meet the criteria.
Sustainable Advantage:
✓ VIRO helps organizations understand whether their competitive advantages are sustainable over the
long term.

Example of VIRO in Practice:

Value:
✓ The software algorithm adds value by providing the company with a unique capability to analyse
and derive insights from large datasets, contributing to its competitiveness in the market.
Rarity:
✓ Since the software algorithm is proprietary, it is rare and not widely available to competitors, giving
the company a unique advantage.
Imitability:
✓ The algorithm is complex, and the company has taken measures to protect it through intellectual
property rights, making it difficult for competitors to imitate.
Organization (Exploitability):
✓ The organization has a team of skilled data scientists who can effectively use and leverage the
software algorithm to develop innovative solutions for clients, ensuring it is exploited to its full
potential.
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Strategy clock

Bowman's Strategic Clock - Illustrated

Low Price and Low Value Added (Position 1)
✓ This is not a very competitive position for a business. The product is not differentiated, and the customer
perceives very little value, despite a low price.
✓ This is a bargain basement strategy. The only way to remain competitive is to be as “cheap as chips” and hope
that no-one else is able to undercut you.
Low Price (Position 2)
✓ Businesses positioning themselves here look to be the low-cost leaders in a market.
✓ A strategy of cost minimisation is required for this to be successful, often associated with economies of scale.
Profit margins on each product are low, but the high volume of output can still generate high overall profits.
✓ Competition amongst businesses with a low-price position is usually intense – often involving price wars.
Hybrid (Position 3)
✓ As the name implies, a hybrid position involves some element of low price (relative to the competition), but
also some product differentiation. The aim is to persuade consumers that there is good added value through
the combination of a reasonable price and acceptable product differentiation.
✓ This can be a very effective positioning strategy, particularly if the added value involved is offered consistently.
Differentiation (Position 4)
✓ The aim of a differentiation strategy is to offer customers the highest level of perceived added value. Branding
plays a key role in this strategy, as does product quality.
✓ A high-quality product with strong brand awareness and loyalty is perhaps best-placed to achieve the relatively
prices and added-value that a differentiation strategy requires.
Focused Differentiation (Position 5)
✓ This strategy aims to position a product at the highest price levels, where customers buy the product because
of the high perceived value. This the positioning strategy adopted by luxury brands, who aim to achieve
premium prices by highly targeted segmentation, promotion and distribution.
✓ Done successfully, this strategy can lead to very high profit margins, but only the very best products and brands
can sustain the strategy in the long-term.
Risky High Margins (Position 6)
✓ This is a high-risk positioning strategy that you might argue is doomed to failure – eventually. With this
strategy, the business sets high prices without offering anything extra in terms of perceived value. If customers
continue to buy at these high prices, the profits can be high. But eventually customers will find a better-
positioned product that offers more perceived value for the same or lower price.
✓ Other than in the short-term, Risky High Margins is an uncompetitive strategy. Being able to sell for a price
premium without justification is tough in any normal competitive market.
Monopoly Pricing (Position 7)
✓ Where there is a monopoly in a market, there is only one business offering the product. The monopolist does
not need to be too concerned about what value the customer perceives in the product – the only choice they
have is to buy or not. There are no alternatives. In theory the monopolist can set whatever price they wish.
Fortunately, in most countries, monopolies are tightly regulated to prevent them from setting prices as they
wish.
Loss of Market Share (Position 8)
✓ This position is a recipe for disaster in any competitive market. Setting a middle-range or standard price for a
product with low perceived value is unlikely to win over many consumers who will have much better options
(e.g. higher value for the same price from other competitors).
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