Introduction to

Business Organisations & Strategy

Lecture #12
Course Summary
Prof. Minas Kastanakis
Lecture schedules
1. Introduction to Business Models 7. Market types, differentiations, and
(re)positioning
2. Conducting an Industry Analysis: Structure,
5-forces, and Competitive environment 8. Innovation in the organisation

3. Entrepreneurship and start-ups 9. Organisational Design, structure, and

dynamics; Leading the organisation through
4. Resources and Capabilities, introduction to organisational change
the Resource-based view of organisations
10. Managing the Human Capital within and
5. Developing Competitive Advantages outside of the organisation
6. Developing a business through a successful 11. Global market expansion
product portfolio strategy (BCG, Ansoff and
McKinsey Matrix) 12. Course Summary

2
Learning Objectives

• Review key concepts of each session;

• Connect all sessions & highlight interdependencies in order to see

the “Big Picture” in Management, Organizations and Strategy;

• Prepare for the exam;

• For the exam:

=> PLEASE make sure to revise the individual sessions for details:
this session is a high-level commentary and revision ONLY.

3
Session 1
Introduction to Business Models

4
Understanding What Businesses Do
Business
• Any profit-seeking organization that provides
goods and services designed to satisfy the
customers’ needs

• They sell goods to earn a profit

• Difficult question for startup (e.g.TikTok,

Snapchat how do you make this profitable?)

• What added value do they bring?

 Value added
§ Value proposition - VP: a set of (real or perceived) benefits that satisfy
those (realized or not) types of needs.

§ Customer value - CV: the net sum of (real or perceived) benefits minus
(real or perceived) costs: changing any of these alters (perceived) CV.
 Value added

Generic product
(me-too!)

Augmented
product

Expected
product
 Value added

CAR SEGMENT “D”

• Dacia Logan • BMW Series 3

 Value added
§ Fundamental (abstract) forms of customer utility or value(s):

- Economic or financial value: of something to the consumers (incl. appreciation,

running costs, money savings, etc.)

- Utilitarian value: it relates to a product’s/service’s basic functionalities, e.g. a

car can take you from London to Paris.

- Hedonic value (secondary utility): it is about (abstract and sensorial) pleasure,

e.g. a luxury car can bring you sensorial (5 senses) pleasure plus abstract
fantasies and satisfaction.

- Symbolic or self-expressive value (secondary utility): what a product/service

can tell about you to others, e.g. a particular car can connote status.

- New emerging types of values: these are emerging in developed societies that
evolve towards other ethical-type of ideals, such as, ecology & health, CSR and
ethics.
How Do Companies Add Value? Competing to Attract and
Satisfy Customers

Competitive advantage

• Some aspect of a product or company

that makes it more appealing to its target
customers (overall);
• USP (unique sales proposition in
marketing).
Identifying Major Types of Businesses (1 of 2)
Goods-producing businesses
• Companies that create value by making “things,” most of which are tangible
Manufacturing, construction, mining, agriculture …
• Goods-producing businesses are often capital-intensive businesses.
Identifying Major Types of Businesses (2 of 2)
Service businesses
• Companies that create value by performing activities that deliver some benefit to
customers
Finance, insurance, entertainment, maintenance and repair, healthcare …
• Service businesses tend to be labor-intensive businesses
• In developed countries, the service sector now accounts for 75% of a nations economic
output.
Identifying Major Types of Businesses (3 of 2) (NEW)
Platform Businesses (a specific type of Service Business)
• A platform is a business model that creates value by facilitating exchanges between two or more
interdependent groups, usually users and providers.

• In order to make these exchanges happen, platforms harness and create large, scalable networks of users
and resources that can be accessed on demand.

• Platforms create communities and markets with network effects that allow users to interact and transact.

• A platform is an evolving ecosystem upon which other applications or technologies can be developed.

• Companies such as Visa, Mastercard, eBay, Airbnb or even your smartphone device with its App Store
are examples of multi-sided digital platform businesses.

=> A platform isn’t just a piece of software. It’s a holistic business model that creates
value by bringing together consumers and producers.
Identifying Major Types of Businesses (3 of 2) (NEW)
Platform Business
Characterised by :

ü Multiple customers : Every transaction needs a producer and consumer. Each user group has different
motivations, needs and wants. Empathising with your users’ and understanding them enables you to
figure out how to maximise the value that you can provide them;

ü Networks effects : traction between users and providers => critical mass required;

ü Redefining behaviours : no direct control over the user’s behaviour: platforms need to curate access and
usage between multiple user groups with a goal of facilitating an exchange of value;

ü Optimised user experience.

Major Functional Areas in a Business Enterprise
Session 2
Conducting an Industry Analysis: Structure, 5-forces, and
Competitive environment

16
Layers of the business environment (NEW)
Characteristics/features

Complexity: Business environment is a complex

phenomenon and is difficult to grasp in its totality;

Uncertainty: Business environment is uncertain as

it is difficult to predict future happenings;

Dynamism, instability, change: Business

environment is dynamic as it keeps on changing. It
is not static and its components are highly flexible;

Relativity: The impact of environmental factors is

highly relative. Factors that are beneficial towards
one business may be the doom of another;

Interrelation of factors: most factors, affecting a

business, are affected by each other as well.
Pestel
PEST(EL) model
Analysing with PEST(EL)
P E S T E L
Political Economic Socio-cultural Technology Environment Legal
• Government • Business • Demo- • Innovation • Energy • Competition
stability cycles graphics • Technology consumption law
• Taxation • GNP trends • Income transfer • Waste • Procurement
policy • Interest rates distribution • Dynamics of • “Green” law
• Foreign • Supply of • Social obsolescence aspects • Health policy
trade money mobility • R&D efforts • Safety
regulations • Lifestyle regulation
• Inflation • Industry
• Social welfare • Work vs. spending on • Labor market
• Growth
policy Leisure R&D related laws
• Unemployme
nt • Education • Government
• Trends spending on
• Disposable
R&D
income level
 Internationalization
drivers

PESTEL
International Market Mode of
strategy selection entry
Advantages
q Firm-specific
q Gerographic

• Political – political environments vary widely between countries and can alter rapidly (e.g.
China, Russia, Turkey, City of London);

• Economic – key comparators are levels of gross domestic product and disposable income
which indicate the potential size of the market (e.g. China, Argentina, Sub-Saharan Africa);

• Social – factors like population characteristics and lifestyle as well as cultural differences (e.g.
China, Russia, USA, Sub-Saharan Africa);

• Technological factors - new discoveries and technology developments;

• Ecological factors - refers to ‘green’ environmental issues, such as pollution, waste and
climate change;

• Legal – countries vary widely in their legal regime and regulatory or admin culture: tax,
corruption, strong property rights and enforcement of contracts (e.g. Luxemburg, Malta, Puerto-
Rico, UK vs. Ilse of Man, Greece etc.).
20
Porter’s 5 Forces
PEST(EL) model

Porter ‘s 5 forces
The Five Forces framework

Source: Adapted from Competitive Strategy: Techniques for Analysing Industries and Competitors The Free Press by Michael E. Porter, copyright © 1980, 1998 by The Free Press.
All rights reserved. 22
 The Five Forces •
•
•
Economies of scale
Absolute cost advantages
Capital requirements

framework •
•
•
Product differentiation
Access to distribution channels
Government and legal barriers
• Retaliation by established producers

• Concentration
• Diversity of competitors
• Product differentiation
• Excess capacity and exit barriers Price sensitivity Bargaining power
• Cost conditions • Product • Size and
Factors determining power of differentiation concentration of
suppliers relative to producers; same • Competition buyer relative to
as those determining power of between buyers suppliers
producers relative to buyers - see • Buyers' switching
'Buyer power' box costs
• Buyers'
information
• Buyers' ability to
backward integrate

• Buyer propensity to substitutes

• Relative price performance of
substitutes 23
Source: Adapted from Competitive Strategy: Techniques for Analysing Industries and Competitors The Free Press by Michael E. Porter, copyright © 1980, 1998 by The Free Press. All rights reserved.
Implications of Five Forces analysis
• Which industries/markets to enter or leave: it helps identify the attractiveness of industries.

• Which strategies work best in a given industry? Identifies strategies that can influence the
impact of the five forces, e.g. building barriers to entry by becoming more vertically integrated.

• The forces may have a different impact on different organisations: e.g. large firms can
deal with barriers to entry more easily than small firms.

24
Issues/problems in Five Forces analysis
• Defining the ‘right’ industry. Applying the model at the most appropriate level – not necessarily
the whole industry. E.g. the European low-cost airline industry rather than airlines globally.

• Converging industries – particularly in the high tech arenas – where industries overlap (e.g.
digital industries – mobile phones/cameras/mp3 players).

• Considered a static model versus rapid changes enabled by technology!

25
What’s coming next?

PEST(EL) model

Porter’s 5
forces; PLC

Internal
drivers

Market
segments
Session 3
Entrepreneurship and start-ups

27
What is Entrepreneurship? Key elements
"Entrepreneurship is much broader than the
creation of a new business venture. At its core, it is
Entrepreneurship is the process by a mindset – a way of thinking and acting. It is about
which individuals pursue imagining new ways to solve problems and create
opportunities without regard to value."
resources they currently control. ― Bruce Bachenheimer
– Stevenson & Jarillo

Entrepreneurship is the art of turning

“This defines entrepreneur and an idea into a business.
entrepreneurship: the ― Fred Wilson (Venture Capitalist )
entrepreneur always searches
for change, responds to it, and
Explanation of What Entrepreneurs Do:
exploits it as an opportunity.”
― Peter F. Drucker Entrepreneurs assemble and then integrate all the
resources needed – the money, the people, the
business model, the strategy – to transform an
invention or an idea into a viable business.
Shane and Venkataraman’s (2000)

Ø This is what we call “causal logic” (very similar to managerial logic/process)

Causation or Causal Logic (Managerial thinking)
SELECTING BETWEEN GIVEN MEANS TO ACHIEVE GIVEN GOALS

Precise Fixed Goal

“To the extent we can predict the future, we can control it. » (RISK
AVERSION/MANAGEMENT) Source: Sarasvathy 2001

This is true when the uncertainty is low. Managers set goals in advance. 30
Effectuation or Effectual Logic (Entrepreneurial thinking)
IMAGINING POSSIBLE (Broad/Vague) NEW ENDS USING A GIVEN
SET OF MEANS

Which effects are

Broad goal
enabled by my means?

=> effectuation

Effects can turn into

new means

« To the extent that we can control the future, we do not need to predict it »
Source: Sarasvathy 2001
This is true when the level of uncertainty is high
31
 Definitions of strategy at different times (see later on)
‘..the determination of the long-run goals and
objectives of an enterprise and the adoption of
courses of action and the allocation of resources ‘..the long-term direction of an
necessary for carrying out these goals’ organisation’
Alfred D. Chandler Exploring Strategy

‘Competitive strategy is about being different. It means deliberately

choosing a different set of activities to deliver a unique mix of value’
Michael Porter

A firm theory about how to gain competitive

advantage ‘..a pattern in a stream of decisions’
Peter Drucker Henry Mintzberg

Sources:
A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise, MIT Press, 1963, p. 13
M.E. Porter, ‘What is strategy?’, Harvard Business Review, 1996, November–December, p. 60
H. Mintzberg, Tracking Strategy: Toward a General Theory, Oxford University Press, 2007, p. 3
P.F. Drucker, ‘The theory of the Business’, Harvard Business Review, 1994, September–October.
The Five Principles driving entrepreneur’s action
Start with Who you are, What you Not with pre-set
know, and Whom you know goals

Invest what you can afford to lose – Not with

extreme case $0 expected return

Build a network of self-selected Not with

stakeholders competitive
analysis

Embrace and Leverage surprises, Not to avoid them

contingencies, failures

Not with
The future comes from what people do inevitable trends
The Effectual Cycle Heuristic (and its five principles)
Expanding cycle of CO-CREATED resources

Actual courses of
Action possible New
means
Who I am What can Effectual
Interactions
What I know I do? stakeholder
Whom I know with other commitments
people
(Bird-in-hand) (Affordable loss) (Crazy Quilt)
New
goals
Actual Means
Converging cycle of CO-CREATED constraints

Surprise!
Lemonade

NEW MARKETS
AND NEW FIRMS Sarasvathy (2013)

34
This mode (i.e. effectuation heuristic with 5 principles
pictured below) is in stark contrast to managerial mindset
(i.e. Competitive analyses, Porter’s 5 Forces etc. but see the definition of
Strategy as a Process)

35
Session 4
Resources and Capabilities, introduction to the Resource-
based view of Organizations

36
Resource-based view (RBV) - Introduction

37
Resource-based view (RBV) - Introduction
• The resource-based view (RBV) is a managerial framework used to determine the strategic
resources a firm can exploit to achieve sustainable competitive advantage;

• The RBV focuses managerial attention on the firm's internal resources in an effort to identify
those assets, capabilities and competencies with the potential to deliver superior competitive
advantages;

• There are two components of strategic capability: resources and capabilities (or competences);

• Resources are the assets that organisations have or can call upon;

• Competences are the ways those assets are used or deployed effectively. A shorthand way of
thinking of this is that resources are “what we have” (nouns) and competences are “what we do well”
(verbs).

38
Resources and Capabilities
Resources: what we have Capabilities: what we do well
Tangible resources: Physical competences:
• Physical resources Ways of achieving utilization of plant,
(machines, plants, etc.) efficiency, productivity, flexibility,
marketing
• Financial resources
(capital, cash flow, revenue, etc.) Financial competences:
• Humane resources (skills) Ability to raise funds and manage cash
flows, debtors, creditors, etc.
• Intellectual capital
(patents, brands, databases, etc.) Human competences:
Intangible (tacit) resources: How people gain and use experience, skills,
• Knowledge, Information knowledge, build relationships, motivate
• Reputation others and innovate
Core competences and competitive advantage
For core competences to achieve sustainable competitive advantage these need to fulfil the
following criteria (VRIO or –sometimes- VRIN):

• Value
• Rarity
• In-imitability
• Robust (Organisational support)
• Non-substitutable

Hamel & Prahalad, (1990), “The Core Competence of the Corporation”, Harvard Business Review, 68, 3, 79-91.

40
Resource-based view (RBV) and competitive advantage (VRIO)

41
Core competences and competitive advantage
V – Value of resources and capabilities

Core competences are of value when they:

• take advantage of opportunities and neutralise threats;

• provide value to customers; and
• are provided at a cost that still allows an organisation to make an acceptable return.

42
Core competences and competitive advantage
R – Rarity

Rare capabilities are those possessed uniquely by one organisation or only by a few others.
(e.g. a company may have patented products, have supremely talented people or a powerful
brand.)

Rarity could be temporary (therefore not enough)

(e.g. Patents expire, key individuals can leave or brands can be de-valued by adverse publicity.)

43
Core competences and competitive advantage
I – Inimitability

Inimitable capabilities are those that competitors find difficult and costly to imitate, to obtain or to
substitute.

• Competitive advantage can be built on unique resources (a key individual or IT system) but
these may not always be sustainable (key people leave or others acquire the same systems).

• Sustainable advantage is more often found in competences (the way resources are managed,
developed and deployed) and the way competences are linked together and integrated.

44
Elements that make imitation difficult for competitors
• Complexity: sources of competitive advantage that are complex to decipher and imitate.

• Causal ambiguity exists when the source of competitive advantage is unknown.

If the resource in question is knowledge-based or embedded in the company’s processes, causal

ambiguity is more likely to occur where it is unclear which resource, or combination of these, is
the particular source of advantage.

• Path dependency: sources of competitive advantage rooted in a company’s evolution/DNA.

45
Core competences and competitive advantage
Robust - Organisational support

The organisation must be suitably organised to support the valuable, rare and inimitable
capabilities that it has. This includes appropriate processes and systems.

(example ESCP Business School: coding of processes and best practices etc.)

46
Core competences and competitive advantage
Non-substitutable

There’s no strategically equivalent resources available that can be exploited by a competitor firm

e.g. a unique top management team

(example ESCP Business School)

47
VRIO framework
Note: The original VRIN framework
was later improved from VRIN to
VRIO by adding the following
question: “Is a company Organized to
exploit these resources?”
Session 5
Developing Competitive Advantages

49
 PEST(EL) model

Porter’s 5 forces
Capture value

Internal drivers

Create value

Value =C ore Competencies (Assets + Processes)

Value =C ore Competencies (Resources + Dynamic capabilities)

Sustainable Competitive Advantage (RBV session 4)

Earn profit over time

 What do you think strategy is?

l
Is this strategy? Yes or No
Setting lots of goals Companies many times have too many goals not knowing where to focus
Template exercise It cannot be a template / check-box exercise
(PESTLE, SWOT etc.)
Race for the best It is not about beating everyone and doing everything first
Having the perfect plan It is not about having the perfect plan and sticking to it whatever may come!
Just doing things It is not about doing things just for the sake of action
What do you think strategy is?

52
 Definitions of strategy at different times
‘..the determination of the long-run goals and
objectives of an enterprise and the adoption of
courses of action and the allocation of resources ‘..the long-term direction of an
necessary for carrying out these goals’ organisation’
Alfred D. Chandler Exploring Strategy

‘Competitive strategy is about being different. It means deliberately

choosing a different set of activities to deliver a unique mix of value’
Michael Porter

A firm theory about how to gain competitive

advantage ‘..a pattern in a stream of decisions’
Peter Drucker Henry Mintzberg

Sources:
A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise, MIT Press, 1963, p. 13
M.E. Porter, ‘What is strategy?’, Harvard Business Review, 1996, November–December, p. 60
H. Mintzberg, Tracking Strategy: Toward a General Theory, Oxford University Press, 2007, p. 3
P.F. Drucker, ‘The theory of the Business’, Harvard Business Review, 1994, September–October.
Defining strategy

Strategy is…

1. the direction and scope of an organization

2. over the long term

3. which achieves competitive advantage in a changing environment

4. through its (re-)configuration of resources and competences (dynamic capabilities)

5. with the aim of fulfilling the stakeholders’ expectations for sustainable profitability.
(J, S & W, 2005)

54
Deliberate and emergent strategy development (NEW)

Source: Adapted from H. Mintzberg and J.A. Waters, ‘Of strategies, deliberate and emergent’, Strategic Management Journal, vol. 6, no. 3 (1985), p. 258.
One can say, strategy is … (NEW)
A set of •An strategy should leverage current
Coordinated, assets, resources and competences by
sustainable combining them in an creative way
creative actions •Actions need to be coordinated so that
… a set of the systems (not the parts) achieves
higher productivity and sustainability
coordinated,
sustainable
creative actions (a •The core challenge is identified by the
… designed to root-cause analysis (effect-cause-
plan) designed to solve one or more effect)
solve one or more core challenge •It causes many different
core challenges, “symptoms”, sometimes hidden
that create value under the surface

Outcome of a
• Value creation is a necessary performed
condition in ensuring action
That create sustainability and prosperity Effort of
value performing it
• Value creation is the positive
difference between the outcome
of a strategy and the effort
required to perform it

Source: D. Sola, J. Couturier: How to Think Strategically, Your roadmap to innovation and results. 2013, Financial Times Publishing
What do you think strategy is?

57
Session 6
Developing a business through a successful product
portfolio strategy (BCG, Ansoff and McKinsey Matrix)

58
Corporation-level portfolio vs. Strategic business units
(our focus in previous sessions and until today)

Corporation
Headquarter

Business Business Business

...
unit 1 unit 2 unit n

e.g. Porter’s 3
generic strategies

59
Corporation-level portfolio vs. Strategic business units
(our focus today)

e.g. Ansoff’s
Corporate
matrix, BCG and
McKinsey Matrix Headquarter

Business Business Business

...
unit 1 unit 2 unit n

60
Corporation-level portfolio management frameworks
BCG matrix, McKinsey matrix and parental matrix provide frameworks for managers to
determine financial investment and divestment within their portfolios of business

The models give more or less attention to at least 1 of (or ideally all) the 3 criteria:

• The balance of portfolio (e.g. in relation to its markets and the needs of the corporation)

• The attractiveness of the business units in terms of how strong they are individually and how
profitable their markets or industries are likely to be

• (In the case of the parental matrix) the 'fit' that the business units have with each other in terms
of potential synergies or the extent to which the corporate parent will be able at looking after
them.

61
 BCG (or growth/share) matrix

high
Question Stars
marks The BCG matrix uses market share and market
growth criteria for determining the
attractiveness and balance of a business
Market portfolio
attractiveness
(growth) Poor dogs Cash cows The BCG matrix provides a good way of
visualizing a) the different needs and b) potential of
all the diverse businesses within the corporate
low
portfolio.

low
high
Competitive
strength
(relative Market
share)
62
 BCG (or growth/share) matrix

high
Question Stars A star is a business unit which has a high
marks market share in a growing market.

- Consumes a lot of capital (ideally should be self-

Market sufficient but this is not always the case)
attractiveness
(growth) Poor dogs Cash cows - Could become extremely profitable

- Is strategically important for the future

low

low
high
Competitive
strength
(rel. Market share)

63
 BCG (or growth/share) matrix

high
Question Stars A star is a business unit which has a high
marks market share in a growing market.

A question mark (or problem child) is a

Market business unit in a growing market, but it does
attractiveness not yet have a high market share.
(growth) Poor dogs Cash cows
- Could become a star one day

- However this is uncertain; it could also fail

low
- They “drain” cash
low
high
Competitive - Need to have some of them esp. in growing and
strength
(rel. Market share) promising strategically important markets
64
 BCG (or growth/share) matrix

high
Question Stars A star is a business unit which has a high
marks market share in a growing market.

A question mark (or problem child) is a

Market business unit in a growing market, but it does
attractiveness not yet have a high market share.
(growth) Poor dogs Cash cows
A cash cow is a business unit that has a high
market share in a mature market.
low - Provides cash to invest in other quadrants
low
high
- Very important for the viability of the BCG
Competitive
strength portfolio
(rel. Market share)

65
 BCG (or growth/share) matrix

high
Question Stars A star is a business unit which has a high
marks market share in a growing market.

A question mark (or problem child) is a

Market business unit in a growing market, but it does
attractiveness not yet have a high market share.
(growth) Poor dogs Cash cows
A cash cow is a business unit that has a high
market share in a mature market.
low A poor dog is a business unit that has a low
low market share in a static or declining market.
high
Competitive
strength - Usually a candidate for divestment
(rel. Market share)
- Could be acceptable for other reasons
66
 BCG (or growth/share) matrix example: Apple
A star is a business unit which has a high
market share in a growing market.
high
Question Stars - Apple iPhone (also a cash cow)
marks
A question mark (or problem child) is a
business unit in a growing market, but it does
Market not yet have a high market share.
attractiveness
(growth) Poor dogs Cash cows
- Apple iWatch

A cash cow is a business unit that has a high

market share in a mature market.
low

low
high
- Apple iPhone, iTunes, various MacBooks
Competitive
strength A poor dog is a business unit that has a low
(rel. Market share) market share in a static or declining market.
67
- Apple iPod
Limits of BCG matrix
Potential problems with the BCG matrix:
• Hard to classify products in quadrants: need data high
Question Stars
marks
• Definitional vagueness
• Hard to decide what’s high or low growth
• Motivation problems (in ‘dogs’) Market
attractiveness
• Self-fulfilling prophecies (growth) Poor dogs Cash cows
• Cash cows will become dogs quickly if simply milked
• Ignores commercial linkages.
• With other BU in the portfolio
low

low
high
Competitive
strength
(rel. Market share)

68
Session 7
Consumers, STP (segmentation-targeting-positioning),
Marketing Mix

69
A simple definition of marketing
MARKETING IS A PHILOSOPHY OF EXCHANGE(s)

to create VALUE

DEMAND SUPPLY

VALUE
70
Definition of Marketing
(Prof. Philip Kotler)

“The process of creating value for customers

and building relationships with those
customers in order to capture value back
from them.”

71
Formal (AMA) definitions of marketing (2007
same as 2017 revision)

Definitions of marketing through time:

Source: Boysen Anker, Moutinho, Sparks, and Gronroos (2013)

The 4 eras of marketing

Production Era Sales Era Marketing Era Relationship Era

• Mass • Sales • Marketing § Relationship

production campaigns era saw the Era is also
with persuade advent of a known as the
development customers for marketing value-based
of new the department era.
mechanical advantages of within the
processes. the specific organization • Relationship
Companies product over
marketing
concentrated others • The focus is became
on producing made on the common
one single customer,
• This era saw marketing
product the advent of who is placed practice.
(SKU) at the center
personal
selling, print, of business
• Business held radio and TV operations
the position advertising
of power
over the
customer
Customer Perceived Value (CPV)

Customer perceived value (CPV) = is the difference between a prospective customer’s evaluation
of all the benefits and all the costs of an offering vs. the perceived alternatives (Kotler and Kelly).
Customer Perceived Value (CPV)

Customer perceived value (CPV) is made up of several kinds (abstract) forms of

customer utility or value(s):
- Utilitarian value: it relates to a product’s/service’s basic functionalities, e.g. a car can take you from
London to Paris.

- Hedonic value: it is about (abstract and sensorial) pleasure, e.g. a luxury car can bring you sensorial (5
senses) pleasure plus abstract fantasies and satisfaction.

- Symbolic or self-expressive value: what a product/service can tell about you to others, e.g. a particular
car can connote status.

- Psychological (comfort) or new emerging types of values: these are emerging in developed societies that
evolve towards other ethical-type of ideals, such as humanitarianism, ecology & health, ethics etc.
Defining (the many faces of) consumer value

Utilitarian value: it relates to a product’s/service’s basic functionalities,

e.g. a car can take you from place A to B. Also the product’s quality,
material, safety, running costs, pre- and after-sales support etc.
Defining (the many faces of) consumer value

Hedonic value: any product can bring you sensorial pleasure plus
abstract fantasies (dreams, escapism) and satisfaction.
Defining (the many faces of) consumer value

Symbolic or Expressive value: it is what a product can tell about you

to others, e.g. a particular car can connote status or sportiness.
Defining (the many faces of) consumer value

Psychological value: it is what a product/service can do to comfort

consumers or to protect them from external or internal threats, e.g. a cross;
your favorite pair of clothes/shoes; your favorite place or lucky pen; a relaxing
doctor’s office etc.
Defining (the many faces of) consumer value

Other types of value: other types of value become more visible in

developed societies that evolve towards ethical or other ideals, such
as humanitarianism, health and sustainability and consumer or CSR ethics.
Why Market Research & Analysis

§ So that marketers can see the world through their customers’ eyes: i.e. understand their needs and
value(s);

§ If marketers manage this task, they can offer CUSTOMER VALUE.

Why Market Research + Market Analysis?

§ What do we need various disciplines and data for?

1. With that data at hand, marketers divide consumers into “clusters”, called consumer
“segments”:
=> Segmentation

2. Then, marketers decide which of these segments to “target” (i.e. serve profitably):
=> Targeting

3. Finally, marketers develop and offer the right products to the right segment:
=> Positioning
What are Segmentation, Targeting & Positioning?

Segmentation Targeting Positioning

Dividing a market into distinct The process of Arranging for a product to

groups with distinct needs, evaluating each market occupy a clear, distinctive
characteristics or behaviours, segment’s attractiveness and desirable place (USP)
and selecting one or relative to competing
i.e. it delineates segments whose members are similar more segments to enter products in the minds of
to one another in one or more characteristics and target consumers
different from members of other segments.
 An example of developing Marketing Strategies via STP

§ Linkedin established itself as the premier professional networking site

with a vision (positioning statement) “to create economic opportunity for
every professional in the world”.

§ It revenue streams are being driven by 3 distinct customer groups:

- “Job Seekers”, who buy premium subscriptions with added special services (i.e. a marketing
mix offering X customer value);

- “Advertisers”, large and small, who rely on its marketing solutions unit (i.e. a marketing mix
offering Y customer value);

- “Corporate Recruiters”, who buy special search tools from

its talent solutions unit (i.e. a marketing mix offering Z customer value);
 (1) Market Segmentation

§ Market segmentation divides a market into well defined “slices” or

“clusters” called market segments.

§ A market segment consists of a group of customers who share similar needs

and wants; and is derived via a deep understanding and configuration of
a number of variables that we call bases of segmentation:
Types of segmentation

GEOGRAPHIC DEMOGRAPHIC
Categorization of customers The study of statistical
according to their geographical characteristics of a population
location

Criteria: age, gender, income,

Criteria: country, city, density, education, social status, family, life
language, climate, area, Stage cycle etc.
population.
Types of segmentation

PSYCHOGRAPHIC BEHAVIORAL
Classification of customers on the Categorization of customers
basis of their personality, according to their use of, relationship
interests, and lifestyles with products, or responses to
products’ characteristics

Criteria: lifestyle, activities, interests, Criteria: benefits sought,

opinions, personality, values, purchase, usage, occasion, buyer
attitudes etc. stage, user status, engagement.
 Segmentation Example (VALUES)

Price High
(Y)

Social Class (X)

Low High

Low
(2) Choosing your target market

Define a
Choose the tailored
Choose the
(right) marketing
1 segment(s) 2 3
marketing mix (4 Ps)
to focus on
approach for each
segment
The Marketing Mix

i.e. The “tactical part” of the Marketing Strategy.

• The Marketing Mix is the set of controllable tactical marketing tools – the 4Ps –
that the business blends into a coordinated program, designed to achieve the
company’s marketing objectives.
The Marketing Mix or the 4Ps: the tactical marketing tools

Product Price Place Promotion

Is the good or Is the amount All the Refers to the activities

service a firm of money activities that the firm takes
offers to its consumers pay move a firm’s to communicate
to buy a product from the merits of its
target
product production to product(s) to its
market(s) the consumer. target market(s)
Choosing your target approach (II)

Company
Undifferentiated
Marketing Market
Marketing
Mix

Different MMix (4 Ps)

for each segment

Marketing Mix 1 Segment 1

Differentiated
Marketing Mix 2 Segment 2
Marketing
Marketing Mix 3 Segment 3
(3) Positioning

• Act of designing the company’s offering and image to occupy a distinctive

place on the mind of the target market.
• A strong positionning is the way you differentiate yourself from your
competitors (USP).
• It is expressed with a positionning statement, which helps to make this
perception clear and positive in the mind of the customer.
(3) Positioning

• Marketers can achieve a strong USP by adjusting the marketing mix (4 Ps: product,
place, price, promotions), as well as the company’s brand name;

Product
• Other bases for differentiation can include: Place
Services
Price
- personnel service (experience), and Promotion

- additional services offered with the main purchase Points of

such as the experiential elements Differentiation

(service, atmospherics, various add-ons).

Image Personnel
STP + Mmix (4Ps) example: Airline Seating Plans Boeing 737

Boeing - 737
STP + Mmix (4Ps) example: Airline Seating Plans Boeing 737

= Budget fare passenger

= Business fare passenger
STP + Mmix (4Ps) example: Airline Seating Plans Boeing 737

= Budget fare passenger

= Open/Standard fare passenger
= Business fare passenger
= 1st Class fare passenger
STP + Mmix (4Ps) example: Airlines’ “Perceptual Mapping”
Price

High
Emirates

British Airways

Experience/Service Iberia
Low High

EasyJet

Low
Session 8
Innovation in the organisation

99
 The Context: useful terms
Christensen's Types of Innovation:

A. Sustaining: an innovation that does not significantly affect existing markets. It may be either:

• Evolutionary: an innovation that improves a product in an existing market in ways that

customers are expecting (e.g., fuel injection for gasoline engines, which displaced carburetors.)

• Revolutionary (discontinuous but sustaining): an innovation that is unexpected, but

nevertheless does not affect existing markets (e.g., the first automobiles in the late 19th
century, which were expensive luxury items, and as such very few were sold)

B. Disruptive: an innovation that creates a new market by providing a different set of values,
which ultimately (and unexpectedly) overtakes an existing market (e.g., the lower-priced,
affordable Ford Model T, which displaced horse-drawn carriages; Bitcoin replacing stores of
value such as gold and potentially money).
 The Context: useful terms
Innovation participant actors:

• Incumbents vs. disruptors

• Types of adopters

• “Crossing the Chasm”

 The Context: useful examples

Market disrupted by
Category Disruptive innovation
innovation

Academia Wikipedia Traditional encyclopaedias

 The Context: useful examples

Market disrupted by
Category Disruptive innovation
innovation

Communication Telephony Telegraphy

Computers Personal Computers Mainframes

Communication Mobile phones Landlines

/Telephony
 The Context: useful examples
Disruptive innovation
(combinations of previous Market disrupted by
Category
examples i.e. converging innovation
technologies)
Communication/Digital iPad Laptops
/Computers

Computers/Telephony Smartphones Laptops/Other devises & Apps

/Digital

Wearable Technology iWatch, Smart-watches Medical industry, Health, Training

(multiple USPs)
 The Context: useful examples

Market disrupted by
Category Disruptive innovation
innovation

Fintech Bitcoin Traditional stores of value (gold)

(Money, Investments) and investments (stocks) as well as
currencies (El Salvador, Africa, etc.)
 The Context: useful examples

Market disrupted by
Category Disruptive innovation
innovation

Leisure, Work, Communication, Metaverse Traditional ways of doing things

Socialising (Facebook or others) - Work;
- Leisure
- Society
- ???
The Metaverse: Mark Zuckerberg reveals his vision for working in the
metaverse (Thursday 28th October 2021)
https://www.youtube.com/watch?v=KsztO5eLg5k
Be the innovator or be the follower?
First-mover advantage exists where an organization is
better off than its competitors as a result of being first to
market with a new product, process or service

Experience curve benefits

Pre-emption
Scale benefits of scarce
resources

Buyer
Reputation
switching costs

But not a guaranty for success!

Be the innovator or be the follower?
Late-mover advantage can be (for some firms) better:

• Typically incumbents;
• Disruptions not profitable enough (i.e. low market %);
• Budgets dedicated to sustaining existing markets
(incremental innovation);
• In radical innovation, fast second strategy may be the
right choice!
Free-riding
i.e. imitating pioneer’s strategies
but less costly

Learning
from the mistakes made by pioneers
Session 9
Organizational Design, structure, and dynamics; Leading
the organization through organizational change

110
 Management

The process of planning, organizing, leading, and

controlling to meet organizational goals
 A Manager’s Roles
Managerial role
Behavioral patterns and activities involved in carrying out the functions of management (POLC);
include interpersonal, informational, and decision making roles. Has 3 facets:

1. Interpersonal role
• Providing leadership to employees, acting as a liaison between groups, networking, and
fostering relationships.

2. Informational role
• Gathering information from inside and outside the organization, sharing information.

3. Decisional role
• Facing an endless stream of decisions, some which need to be made on the spot.
 Management (1)

The process of planning, organizing, leading, and

controlling to meet organizational goals
 The Planning Function
Planning
• Establishing strategies, objectives and goals for an organization and
determining the best ways to accomplish them.
 The Planning Function
Strategic plans
• Plans that establish the actions and the resource allocation required
to accomplish strategic goals.

• Usually defined for periods of two to five years and developed by

top managers.
The Strategic Planning Process (1-6 steps)
 1. Defining the Mission, Vision, and Values
Mission statement
• A brief statement of why an organization exists; in other words, what the organization
aims to accomplish for customers, investors, and other stakeholders.

Vision statement
• A brief and inspirational expression of what a company aspires to be.

Values statement
• A brief articulation of the principles that guide a company’s decisions and behaviors.
 Examples of Mission Statements
Tesla:
• “To accelerate the world’s transition to sustainable energy.”

TED:
• “Spread Ideas.”

LinkedIn:
• “To connect the world’s professionals to make them more productive and successful.”
2. SWOT Analysis (internal & external)
Revise session 4 for external

Comparing a firm’s position to competitors:

Benchmarking is a means of understanding how
an organization compares with others – typically
competitors.

Two approaches to benchmarking:

• Industry/sector benchmarking – comparing performance against
other organizations in the same industry/sector against a set
of performance indicators

• Best-in-class benchmarking – comparing an organization's

performance or capabilities against ‘best-in-class’
performance – wherever that is found even in a very different
industry. (E.g. BA benchmarked its re-fueling operations
against Formula 1.)
 3. Developing Forecasts

Quantitative forecasts
• Typically based on historical data or tests and often involve complex
statistical computations.
Qualitative forecasts
• Based on intuitive judgments.
A Real Forecast Template
4. Analyzing the competition (session 7)

Price High
xxx
xxx

xxx

Quality xxx
xxx
Low High
xxx
xxx
xxx

xxx
Low
 5. Establishing Goals and Objectives
Goal
• A broad, long-range target or aim.

Objective
• A specific, short-range target or aim.

Goals and Objectives are SMART:

- Specific;
- Measurable;
- Attainable;
- Relevant;
- Time limited.
 6. Developing action plans

Strategic plans =>

Tactical plans =>

Operational plans
 Management (2)

The process of planning, organizing, leading, and

controlling to meet organizational goals
 The Organizing Function
Organizing
• The process of arranging resources to carry out the organization’s
plans.

Management pyramid
• An organizational structure divided into top, middle, and first-line
management.
The Management Pyramid
 The Management Pyramid
Top managers
• Those at the highest level of the organization’s management hierarchy.
• Responsible for setting strategic goals; they have the most power and responsibility in the
organization.

Middle managers
• Those in the middle of the management hierarchy.
• They develop tactical and operational plans to implement the goals of top managers and
coordinate the work of first-line managers.

First-line managers
• Those at the lowest level of the management hierarchy.
• They supervise operating employees and implement tactical and operational plans set at the higher
management levels.
 Management (3)

The process of planning, organizing, leading, and

controlling to meet organizational goals
 The Leading Function
Leading: The process of guiding and motivating people to work toward
organizational goals. Requires:

Cognitive intelligence
• Involves reasoning, problem solving, memorization, and other rational skills.

Emotional intelligence
• Measure of a person’s awareness of and ability to manage his or her own emotions.

Social intelligence
• Involves looking outward to understand the dynamics of social situations and the emotions of
other people, in addition to your own.
Leadership Styles
 Management (4)

The process of planning, organizing, leading, and

controlling to meet organizational goals
 The Controlling Function
Controlling
• The process of measuring progress against goals and objectives, and correcting deviations if
results are not as expected;
• The Control Cycle (see figure).

Standards
• Criteria against which performance is measured.

Benchmarking
• Collecting and comparing processes and performance
data from other companies.
 Essential Management Skills

Interpersonal skills
• Skills required to understand other people and to interact effectively with them.

Technical skills
• The ability and knowledge to perform the mechanics of a particular job.

Administrative skills
• Technical skills in information gathering, data analysis, planning, organizing, and other aspects
of managerial work.
 Essential Management Skills

Conceptual skills
• The ability to understand the relationship of parts to the whole.

Decision-making skills (I)

• The ability to define problems and opportunities and select the best course of action.
• To ensure thoughtful decision making, managers can follow a formal process, such as the six
steps highlighted in the exhibit.

Decision-making skills (II): the Digital Enterprise / Cognitive automation

• AI technology that aims to help professionals and managers with complex questions that
present some of the most difficult or routine decision scenarios.
 Designing an Effective Organization Structure

Organization structure
• A framework that enables managers to divide responsibilities, ensure employee accountability,
and distribute the decision-making authority.

Organization chart
• A diagram that shows how employees and tasks are grouped and where the lines of
communication and authority flow.

Agile organization
• A company whose structure, policies, and capabilities allow employees to respond quickly to
customer needs and changes in the business environment.
 Organizing the Workforce (I)

Functional structure
• Grouping workers according to the similarity in their skills, resource use, and
expertise.
 Organizing the Workforce (II)

Divisional structure
• Grouping departments according to similarities in product, process,
customers, or geography.
 Organizing the Workforce (III)

Matrix structure
• A structure in
which employees
are assigned to
both a functional
group and a project
team (thus using
functional and
divisional patterns
simultaneously).
 Organizing the Workforce (IV)

Network structure
• A structure in which individual companies are connected electronically to
perform selected tasks for a small headquarters organization.

• Also called virtual organization (an extreme form of which is the unstructured
organization: see next slide).
 Managing an Unstructured Organization

Unstructured organization
• An organization that doesn’t have a conventional structure but instead assembles talent as
needed from the open market; the virtual and networked organizational concepts taken to the
extreme.
Session 10
Managing the Human Capital within and outside of the
organization

142
Human Resource Management: role and functions
The specialized function of planning how to obtain employees, oversee their
training, evaluate them, and compensate them:

HR planning Job Analysis Compensation

Recruitment Selection Orientation

Performance appraisal Training Development

Safety Legal Equity

143
Managing Employment life cycle (I)

Job description Job specification

A statement of the tasks A statement describing the kind of

involved in a given job and the person who would be best for a given
conditions under which the job—including the skills, education,
holder of a job will work. and previous experience that the job
requires.

144
Managing Employment life cycle (II)

Turnover rate: Succession planning:

• The percentage of the • Workforce planning efforts that identify possible

workforce that leaves every replacements for specific employees, usually senior
year; executives;

Employee retention: Contingent employees:

• Efforts to keep current • Non-permanent employees, including temporary

employees. workers, independent contractors, and full-time
145
employees hired on a probationary basis.
From attracting to hiring
Sourcing candidates
Searching personnel through advertisements on newspaper
Advertisement
and magazines;
Consultants Agencies find and pre-screen applicants, referring those who
Labor agencies seem qualified for further assessment and final selection;
With this method, internal employees can achieve new
Internal recruitment
professional positions; internal mobility;

The process of recruiting candidates through personal contacts

Referrals
(i.e. referral programme);
Mass media is able to spread advertisements all over the world in
Social media less time;

University recruitment centres provide space and administrative

Campus recruiting
support.

147
 The use of LinkedIn has gone down 20 percentage points since
2017 (92% vs. 72% today); meanwhile Instagram use for
recruiting has grown from 18% to 37% during that same time.

37%
2020
92% 72% 18%
2017
2017 2020 Wher
SOCIALLY INCLINED
Recruiters aren’t fully distancing from social media Social media channels most used for recruiting
LinkedIn Facebook Twitter
With the exception of YouTube and Instagram, usage of all Male recruiters usereport
(72% socialusing
media more than female recruiters
(60%) (38%)
social media channels in recruiting has somewhat diminished or planning to use it
compared to previous years. for recruitment) Bigge
Facebook:
Instagram Twitter: Glassdoor YouTube Spe
The use of LinkedIn has gone down 20 percentage points since
(37%) (36%) (27%)
2017 (92% vs. 72% today); meanwhile Instagram use for
Ref
recruiting has grown from 18% to 37% during that same time.

37% Social channels that source the highest quality candidates

Instagram: YouTube:
Alc
2020
92% 72% 18%
2017
LinkedIn:
67%
Facebook:
34%
Glassdoor:
24%
Pol
2017 2020 Where staffing agencies vs. in-house recruiters
SOCIALLY INCLINED Pic
Recruiters aren’t fully distancing from social media Instagram: Twitter:
more frequently
Social media channels most used for recruiting 23% 21%

LinkedIn New finding Facebook Twitter TA software

In-house recruiters or platform
use LinkedIn most commonly
and Glassdoor more often
(72% report using TikTok “Dreams” (60%) Recruiting (38%) used for recruiting
or planning to use Recruiters
it
2020 Recruiter Nation Survey 14

linkedin
are starting to leverage TikTok,
for recruitment) with 7% of respondents using the platform Biggest recruiter turn-offs when it comes to social
Spelling and grammar errors in posts or tweets: 53%

jobvite indeed
Instagram Glassdoor
a rise, with 13% YouTube
of recruiters using it — an
(37%) (36%)
increase of 8 percentage points since 2017.(27%)
References to marijuana: 45%

Social channels that source the highest quality candidates glassdoor recruiter
Alcohol consumption: 42%
148
Source: https://www.jobvite.com/wp-content/uploads/2020/10/Jobvite-RecruiterNation-Report-Final.pdf
LinkedIn:
67%
Facebook:
34%
Glassdoor:
24%findings:
Political posts: 32% boards
Other relevant TikTok / Snapchat
Pictures of body showing skin: 30%
The technology and IT-hardware industries are using TikTok the most
Instagram: Twitter:
23% 21%

more positive results.

2020 Recruiter Nation Survey 14 jobvite.com

Internal vs. External Advantages of internal recruitment

• Career planning possible, morale and motivation high, security;

• Assessment of applicants easier: skills, and performance already observed;
Internal recruitment • Cost of recruitment low: advertising, travel, less training, less socialization.

• Vacancies filled from existing

staff; Disadvantages of internal recruitment
• Promotions;
• Company policy or union • Business stagnation;
contract. • Promoted employees do not necessarily have the potential to fill senior
positions.

Sources of
Advantages of external recruitment
recruitment

• Upgrade skills;
• New ideas increase opportunity for innovation;
• Increase diversity, opportunity for innovation.
External recruitment

• Vacancies filled from outside Disadvantages of external recruitment

the business when a post
becomes available; • Cost of recruitment very high: advertising, travel;
• All-levels of job positions. • Risky: Possibility that applicant may not be successful;
149
• Morale of existing employees low due to lack of opportunities for career
advancement. 149
What Motivates Employees to Peak Performance?
Motivation

• Motivation is the art of getting people to do what you want them to do because
they want to do it (i.e., having positive attitudes towards their work);

• Motivation = Value of outcome * expectation of achieving it.

High Motivation => Higher Engagement => Peak Performance

• An employee’s rational and emotional commitment to his or her work

manifested in behaviour.
Four Indicators of Motivation
Early and contemporary theories of motivation

Early theories Contemporary theories

(a) Taylorism; (a) Goal-setting theory;

(b) Hierarchy of needs theory; (b) Equity theory;

(c) Theory X and Theory Y; (c) Expectancy theory.

(d) Herzberg’s 2-Factor Theory;

(e) McClelland’s Motivation Theory.

Classic theories of employee motivation
x

(focus on either the employee’s needs/personality or on the work environment)

Applications: Top Ten Motivators for Managers
A great Manager:

1. Thanks personally, timely, often & sincerely;

2. Take time to meet and listen to staff;
3. Provides feedback;
4. Encourages new ideas and initiative;
5. Explains how the employee fits into organization’s plans;
6. Involves employees in decisions;
7. Provides ownership in their work;
8. Recognizes, rewards and promotes staff based on performance;
9. Gives them chance to learn new skills;
10. Celebrates their successes!
Applications: levers that managers can use to motivate
Feedback Goal setting
• Specific, clarity and focus
• Timely, frequent
• Challenging enough
• Personal
Gamification of • Ownership and accountability
business processes • One’s Belief in their ability to meet their goal

Address problems and

conflicts quickly Management by objectives
A motivational approach in which managers and
Manager
employees work together to structure personal goals
and objectives for every individual, department, and
Inspire
project to mesh with the organization’s goals.

Redesign jobs to stimulate performance

• Skill variety
• meaningfulness of the work Modify core job dimensions
• Task identity
• Job enrichment
• Task significance • responsibility for results
• Job enlargement
• Autonomy • Knowledge of actual results
• Cross training (job rotation)
• Feedback

155
Session 11
Global market expansion

156
 The strategic process in internationalization [Session Map]

Internationalization
drivers
(Market, Cost, Competitive, Government)

International Market Mode of

strategy selection entry
Advantages
q Firm-specific (S_4, S_5)
q Geographic (Porter’s Diamond
& Global Sourcing)

§ (a) Managers need to assess ID i.e. if the drivers are positive enough to justify expanding international;
§ (b) Managers need to appraise carefully potential (F, G) sources of international competitive advantages;
§ (c) If (a) and (b) are strong, managers need to select among a range of international strategy approaches
(export strategy, global, transnational, multi-domestic strategy) based on global vs. local focus;
§ (d) Managers need to assess which markets/countries to enter/avoid (cultural, economic, political etc. factors);
§ (e) When markets/countries are chosen, managers need to decide how to enter (simple export, licensing, joint
venture, FDI / subsidiary etc.).
157
What kind of analyses can
you do for market selection?

Ø PESTEL (PESTLE)

Ø CAGE Framework

Ø International Cross-Cultural comparisons

Ø Competitive Characteristics’ Analysis

(similar to Porter’s 5 Forces at the
international level)

158
 Internationalization
drivers

(a) Market characteristics

International Market Mode of
strategy selection entry
Advantages
q Firm-specific
q Gerographic

Four elements of the PESTEL framework (S_2) are particularly important in comparing countries
for entry:

• Political – political environments vary widely between countries and can alter rapidly (e.g.
China, Russia, Turkey, City of London);

• Economic – key comparators are levels of gross domestic product and disposable income
which indicate the potential size of the market (e.g. China, Argentina, Sub-Saharan Africa);

• Social – factors like population characteristics and lifestyle as well as cultural differences (e.g.
China, Russia, USA, Sub-Saharan Africa);

• Legal – countries vary widely in their legal regime and regulatory or admin culture: tax,
corruption, strong property rights and enforcement of contracts (e.g. Luxemburg, Malta, Puerto-
Rico, UK vs. Ilse of Man, Greece etc.).
159
 Internationalization
drivers

Internationalization is no easy task

International Market Mode of
strategy selection entry
Advantages
q Firm-specific
q Gerographic

(b) CAGE framework: measuring the “match” between

companies and countries, e.g. a Spanish firm might be ”closer” or “fit” to South
American markets.

Cultural distance e.g. Race, Administrative &

language, religion, values and social norms etc.
political distance
e.g. “Colonial ties”, slow or corrupt
* See next slide/Figure administration etc.

Economic distance
Geographical distance e.g. “Wealth Distance”, “base of the Pyramid”,
luxury or expensive goods, stripped-down
versions etc.

160
 Internationalization
drivers

(c) International cross-cultural comparison

International Market Mode of
strategy selection entry
Advantages
q Firm-specific
q Gerographic

Source: M. Javidan, P. Dorman, M. de Luque and R. House, ‘In

the eye of the beholder: cross-cultural lessons in leadership
from Project GLOBE’, Academy of Management Perspectives
(February 2006), pp. 67–90 ( Figure 4: USA vs China, p. 82 ).

GLOBE stands for ‘Global Leadership and Organisational

161
Behaviour Effectiveness’.
 Internationalization
drivers

(d) Competitive characteristics

International Market Mode of
strategy selection entry
Advantages
q Firm-specific
q Gerographic

Country markets can be assessed according

to three criteria:

1. Market attractiveness to the new

entrant (PESTEL, CAGE), e.g. (A, B are

High
highly attractive);
A
2. Likelihood and extent of defenders’

Attractiveness to entrant
Letter in bubble B
reaction because the markets are represents a county
important to them, e.g. here the defender is
highly reactive in countries A and D; C D

3. Defenders’ clout – the relative power of E

defenders to fight back, indicated by the
F

Low
size of the bubble, e.g. here the defender is more
powerful in countries A, D, C and F;
weaker Reactiveness of defender stronger

Adapted from 'Global gamesmanship' by I. MacMiIIan, S. van Putter and R. McGrath, Size of bubbIe indicates defender's reIative clout (power).
May 2003, HBR
 Internationalization
drivers

Analysis example:
International Market Mode of
strategy selection entry
Advantages
q Firm-specific
q Gerographic

ü Choice of country to enter can be significantly modified

by adding reactiveness and clout to calculations of
attractiveness;

ü Relying only on attractiveness, the top-ranked country to

enter is country A. Unfortunately, it is also one in which
the defender is highly reactive, and the one in which it has

High
most clout;
A
ü Country B becomes a better international move than A;

Attractiveness to entrant
Letter in bubble B
ü In turn, country C is a better prospect than country D, represents a county
because, even though they are equally attractive, the
C D
defender is less reactive;

ü One surprising result of taking defender reactiveness and E

clout into account is the re-evaluation of country E:
although ranked fifth on simple attractiveness, it might F

Low
rank second overall (behind B) if competitor retaliation is
accounted for! weaker Reactiveness of defender stronger

Adapted from 'Global gamesmanship' by I. MacMiIIan, S. van Putter and R. McGrath, Size of bubbIe indicates defender's reIative clout (power).
May 2003, HBR
 Internationalization
drivers

Entry mode strategies Advantages

q Firm-specific
q Gerographic
International
strategy
Market
selection
Mode of
entry

The staged international expansion model proposes a sequential process whereby companies
gradually increase their commitment to newly entered markets, as they build market knowledge
and capabilities.

In order of increasing resource commitment, the four key entry mode types are:

- exporting;

- contractual arrangement through licensing and franchising to local partners, as McDonald's does
to restaurant operators;

- joint ventures, in other words the establishment of jointly owned businesses; and

- wholly owned subsidiaries, through either the acquisition of established companies (“brownfield
investments”) or “greenfield investments” i.e. the development of facilities from scratch.

164
 Internationalization

a. Export
drivers
International Market Mode of
strategy selection entry
Advantages
q Firm-specific
q Gerographic

Export is the baseline option, and is suitable where the product or services are easily trans-
ported from country to country and where the home-based competitive advantages are
sufficiently broad to minimize reliance on local companies (= no need for a local partner).

Advantages Disadvantages
• Relatively less investment of resources, lower • Dependence on export intermediaries;
costs and risks (no operational facilities in host
country etc.); • Exposure to possible trade barriers;

• Speedy entry; • Transportation costs;

• Potential to take full advantage of production • Possibility that products can be manufactured
economies in existing facilities (home country); cheaper locally by competitors;
• Internet can facilitate export marketing
• Limited control of marketing and sales.
opportunities.

165
 Internationalization

b. License and franchise

drivers
International Market Mode of
strategy selection entry
Advantages
q Firm-specific
q Gerographic

Licensing or franchising involves a contractual agreement whereby a local firm receives the right
to exploit a product technology or a service concept commercially for a fee during a specific time
period. License or franchise the product or service where competitive advantages are too narrow
to do it alone (= need for a local partner).

Advantages Disadvantages
• Contractual source of income; • Difficult to identify good partner;
• Limited economic and financial exposure; • Potential lack of control over product and service
• Resource commitments can be kept low as local quality;
partners bear the primary financial and political
risks; • Apparent risk of technological leakage;

• Entry can be relatively quick. • Loss of competitive advantage.

166
 Internationalization

c. Joint ventures
drivers
International Market Mode of
strategy selection entry
Advantages
q Firm-specific
q Gerographic

Joint ventures are jointly owned companies where the international investor shares assets, equity
and risk with a local partner. Joint ventures work where competitive advantages are narrow (=
need for a local partner) and involve shared ownership, giving the foreign company more direct
control (because the local partner also has an interest in maximising the value of the common enterprise rather than solely its
own standalone interests).

Advantages Disadvantages
• Shared investment risk; financial and political risks • Difficult to find good partners;
are reduced;
• Relationship management issues: disagreements
• Complementary resources; financial commitments and conflicts between the partners when the joint
are limited (vs. full ownership); venture evolves and changes over time.
• Sometimes a requirement for market entry (e.g.
China); • Loss of competitive advantage: risk of losing
control over technologies to the partner even if
• Ability to build on the local partner's knowledge of agreements can be made to lower this risk;
customer needs and local institutions.
• Difficult to integrate and coordinate.
167
 Internationalization

d. Wholly owned subsidiary

drivers
International Market Mode of
strategy selection entry
Advantages
q Firm-specific
q Gerographic

Wholly owned subsidiaries involve 100 per cent control through setting up entirely new
greenfield operations or by acquiring a local firm. Wholly owned subsidiary is an attractive route
where competitive advantages are sufficiently broad not to depend on local partners (= no need
for a local partner), but where nevertheless transport difficulties rule out simple export.

Advantages Disadvantages
• Full control over technologies, operations, sales • Substantial investment and commitment of
and financial results; resources and costs;
• Integration and co-ordination possible; allows for • Significant risks, although the latter can be
exploiting production and coordination reduced somewhat if a local company is
economies among diverse units globally; acquired;
• Rapid market entry through acquisitions;
• Acquisitions may create integration &
• Greenfield investments are possible and may be coordination issues;
subsidized.
• Greenfield investments are time consuming and
unpredictable.
168
 Internationalization
drivers

Comparison of the entry mode strategies Advantages

q Firm-specific
q Gerographic
International
strategy
Market
selection
Mode of
entry

Export Licensing or Joint ventures Wholly own

franchising subsidiaries
Resource commitment Low Low Medium High
(financial, managerial,
equity, etc.)

Control: technology and High Low/Medium Low/Medium High

quality
Control: marketing and sales Low/Medium Low/Medium Medium High

Risk (financial, political, etc.) Low Low Medium High

Entry speed High High Medium Low/Medium

169