Strategy cheatsheet (finals) strategy smu 2020 PDF

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Chapter 1: Introducion The AIS Strategy Framework Analysis - strategic leadership, external analysis, internal analysis, compeiive advantage Formulaion business strategy: difereniaion, cost leadership and blue ocean business strategy: innovaion, entrepreneurship, and plaforms corporate strategy: ver...

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Chapter 1: Introduction The AIS Strategy Framework 1. Analysis - strategic leadership, external analysis, internal analysis, competitive advantage 2. Formulation – business strategy: differentiation, cost leadership and blue ocean – business strategy: innovation, entrepreneurship, and platforms – corporate strategy: vertical integration, diversification, strategic alliances, M&A – global strategy: globalisation 3. Implementation – organisational design, corporate governance, and business ethics Strategy A set of goal directed actions a firm takes to gain and sustain superior performance relative to competitors (strategy kernel) Analysis: A diagnosis of the competitive challenge Formulation: A guiding policy to address the competitive challenge Implementation: A set of coherent actions to implement the firm’s guiding policy Sustainable Competitive Advantage A firm that is able to outperform its competitors/industry over a long time Competitive disadvantage is a firm that underperforms its rivals/industry Competitive Party When two or more firms perform at the same level Strategic Positioning A unique position within an industry that allows the firm to provide value to customers, while controlling costs Economic Contribution = Value Creation - Costs Managers must make conscious trade-offs Define Vision, Mission and Values Vision: What do we want to accomplish ultimately? Captures aspiration, identified long term objective, forward looking and inspiring Strategic intent  outlines firm’s stretch goal based on vision, actions based on vision will ensure continuous organizational learning and learning from failure, build capabilities and resources Mission: How do we accomplish our goals? What an organisation actually does, the products and services it will provide and the markets it will compete in Strategic commitments  Credible actions that back up

vision and mission statements. Commitments are often costly, long term and difficult to reverse Values: What commitments do we makes, what restrictions do we put in place to act legally and ethically to pursue our vision and mission? Values help employees understand company culture, deal with complexity and resolve conflict while organisational core values help provide stability to the strategy Customer vs Product Oriented Vision Customer oriented vision statement  allow companies to adapt to changing environments, focus employees on problem solving for the customer needs Product oriented vision statement  constrain the ability to adapt, focus on employees on improving product, limiting because based on product, myopic view, can hinder understanding of competitive landscape Relationship between vision statement and firm performance strongest when vision is customer oriented, internal stakeholders help define the vision and organisational structure align to the vision Chapter 2: Strategic Leadership & Stakeholders Relationship Strategic leadership is the successful use of power and influence, directing the activities of others, pursuing organisational goals and enabling CA Upper Echelon’s Theory Organisational outcomes (i.e. strategic choices and performance levels) reflect the values of the top management team Level 5 Leadership Pyramid L1: Competent individual effort L2: Ables to collaborate and work in teams L3: Have staff under your care, can manage a team L4: Present a compelling vision and mission to guide the team L5: Founding members/Board of directors, chart direction for organisation Corporate vs Business Strategy Corporate strategy  where to compete? – industry, markets, and geography Business strategy  how to compete? - cost leadership, differentiation, or value innovation Functional strategy  how to implement a chosen business strategy

Intended vs Realised Strategy Intended strategy  the outcome of a rational and structured top-down strategic plan Emergent strategy  an unplanned strategic initiative bottom-up from organisation which can influence firm’s overall strategy Realised strategy  combination of intended and emergent strategy Autonomous Actions Strategic initiatives undertaken by employees through feedback, in response to unexpected situations Serendipity Random events that have an effect on strategic initiatives Resource Allocation Process (RAP) How a firm allocates resources based on policy Who are your stakeholders? Internal stakeholders  stockholders, employees, board members External stakeholders  customers, suppliers, alliance partners, unions, communities, media, government Stakeholder Strategy An integrative approach to manage a diverse set of stakeholders to gain and sustain competitive advantage Helps to lower business transaction cost, increase adaptability and flexibility, improve reputation, and allow more predictable returns Stakeholder Impact Analysis Power: Amount of influence stakeholders have over company actions Legitimacy: Importance/validity of concerns raised Urgency: How soon must it be solved Chapter 3: Competitive Advantage & Business Models Economic Value Creation The difference between a buyer’s willingness to pay for a product and the firm’s total cost to produce it (difference between value and cost) Limitation  valuing consumer good isn’t easy, value of good changes to consumer Producer & Consumer Surplus Producer surplus  price charged minus cost to produce Consumer surplus  what you were willing to pay minus what you paid The Balance Scorecard Helps managers achieve their strategic objectives Uses internal and external performance metrics to balance both financial and strategic goals Advantages of The Balance Scorecard

Links strategic vision to responsible parties Translates vision into measurable goals Designs and plans business processes Implements feedback and organizational learning Alerts to needed strategic goal adaptation Disadvantages of The Balance Scorecard Focused on implementation and not formulation Managers must identify the right metrics to track The Triple Bottom Line Balance between people, planet, and profits to source a sustainable strategy What is a Business Model? Explains how the firm intends to make money, and how it conducts its business with buyers, suppliers, and partners Examples of Business Models Razor-razorblade: pay for replacements Subscriptions: pay for access Pay as you go: pay for what you consume Freemium: pay for extra features Wholesale: products sold at discount Agency: products sold on commission Bundling: more than one product sold at a discount Business Model Canvas Key Partners  who are our key partners/suppliers? Which resources are we acquiring? What function do the partners serve? Key Activities  What activities does our value proposition require? What are our distribution channels, customer relationships and revenue streams? Key Resources  What resources does our value proposition require? What are our distribution channels, customer relationships and revenue streams? Value Propositions  What value do we deliver to the customer? What problem/need are we trying to solve? Customer Relationships  How do we get, keep, and grow customer base? How costly is it? How integrated are they with our business? Channels  How do we want to reach the customers? Which ones work best? Customer Segments  Who are we creating value for? Which segments are most profitable/are we targeting? Profile of customer? Cost Structure  What are the most important costs? What are the most expensive?

Revenue Stream  How much are consumers willing to pay? What is our pricing tactics/revenue model? Chapter 4: External Analysis Macro (PESTLE)  Industry (Porter 5)  Different Players (Strategic Group Map) PESTLE Analysis Political  Stability of government, policies enacted, processes & actions of government bodies Economic  inflation and interest rates, labour costs Social  Population (e.g. age, gender, family size, race, religion), education, media, lifestyle, fashion, culture Technology  Emerging technologies Legal  Regulations and standards Environment  Weather, green and ethical issues, pollution levels Porter Five Forces Threat of Entry  the risk that potential competitors will enter the industry and lower industry profit potential, if low threat then many new players and harder to keep existing customers  entry barriers = economies of scale, network effects, switching costs, capital requirements, size of company Threat of Substitutes  Meet the same basic customer need but in a different way, available from outside the industry Power of suppliers  Pressures that industry suppliers can exert on an industry’s profit potential, can lower profit if suppliers demand higher prices for their inputs, or if they reduce quality Power of Buyers  pressure customers put on an industry, can lower profit if buyers demand discounts or demand higher quality or service which requires higher production costs Rivalry Among Existing Competitors - Perfect Competition  many small firms, firms are price takers, commodity product, low entry barriers - Monopolistic Competition  many firms, some pricing power, differentiated product, medium entry barriers - Oligopoly  few large firms, some pricing power, differentiated product, high entry barriers - Monopoly  one firm, considerable pricing power, unique product, very high entry barriers Sixth Force: Complements & Co-opetition Complements  a product, service or competency that

adds value when used with the original product Co-opetition  Cooperation by competitors to achieve a strategic objective Industry Growth The level of growth will affect the intensity of rivalry among competitors During periods of high growth, consumer demand rises, and price competition decreases among firms During periods of low growth, rivalry is fierce because they can only gain at the expense of another Strategic Group Mapping Strategic Group  a set of companies that pursue a similar strategy in the same industry The dimensions in the group map should not be correlated Insights from Group Mapping: - Competitive Rivalry  strongest between firms in the same strategic group - External Environment & Porter Five Forces  affect the strategic groups differently - Profitability  some groups will be more profitable than others Mobility barrier restricts the movement between strategic groups based on hard-toreverse investments Chapter 5: Internal Analysis Core Competencies Unique strengths embedded within the firm that allows differentiation of products from competitors Results in creating higher value for the customer or allowing the firm to offer products at a lower cot Resources, Capabilities and Activities - Resources  assets that the firm can use - Capabilities  organisational and managerial skills - Activities business processes using the core competencies The Resource Based View Resources reinforce core competencies, and the capabilities allow the core competencies to be used The activities will then leverage on core competencies to maximise productivity or minimise cost and achieve CA Tangible Resources  have physical attributes (e.g. labour, capital, land, PPE) Intangible Resources  does not have physical attributes (e.g. culture, knowledge, brand equity, reputation, copyrights, trade secrets, designs, patents) Assumptions: - Resource Heterogeneity  each firm is a unique bundle of resources and capabilities (but

in reality, many resources overlap) - Resource Immobility  resources don’t move easily from firm to firm, they are difficult to replicate and they can last for a long time (but in reality, not true) The VIRO Framework A tool to evaluate the firm’s resources Valuable  is the resource able to exploit an opportunity or offset a threat? Rare  are there many competitors who have access to the resources? Costly to Imitate  can it be copied easily or for a reasonable price? Organized  Can the firm capture the full value of the resources? Does it have an effective organizational structure and coordinating systems Isolating Mechanisms Barriers to imitation prevents rivals from competing away firm advantage - Better expectations of future resource value - Path Dependence  decisions presented are dependent on prior decisions - Casual Ambiguity  resources might be linked together - Social Complexity  clash of culture - Intellectual Property protection Core Rigidity A former core competency turned into a liability as a result of an environment change and firm could not innovate fast enough Core rigidity can be mitigated by developing a better understanding of driving forces, identifying relationship between core competency, and driving force, then having new resource allocation The Dynamic Capabilities Perspective Dynamic capability is the firm’s ability to adapt resources over time so as to create, modify and upgrade them in response to changes in external environment Aim to create a strategic fit with the firm’s environment and change in a dynamic fashion The perspective is a model that emphasises firm’s ability to modify and leverage resource base and gain a CA in a constantly changing environment Dynamic markets due to technological change, deregulation, globalisation, and demographic shifts Resource Stocks and Flows Resource stocks  the firm’s

current level of intangible resources (e.g. new product development, engineering expertise, innovation capability and reputation for quality) Resource flows  the firm’s level of investments to maintain or build a resource Inflow should > Outflow The Value Chain Internal activities a firm engages in when transforming inputs into outputs through primary and support activities Primary Activities  firm’s activities that directly add value by transforming inputs into outputs (e.g. supply chain management, operations, distribution, marketing & sales, after sales service) Support Activities  firm’s activities that indirectly add but necessary to sustain primary activities (e.g. R&D, information systems, HR, accounting & finance, firm infrastructure such as policies and processes) Chapter 6: SWOT Analysis Combines external and internal analysis Aims to leverage internal strengths to exploit external opportunities and to mitigate weaknesses and external threats Internal Analysis  Strengths & Weaknesses External Analysis  Opportunities & Threats SWOT Strategies Strength/Opportunity (SO)  use of internal strengths to exploit external opportunities [attacking strategy] Strength/Threat (ST)  use of internal strengths to avoid or minimize the impact of external threats [defensive strategy] Weakness/Opportunity (WO)  overcoming internal weaknesses by exploiting external opportunities [build strengths for attacking strategy] Weakness/Threat (WT)  overcoming internal weaknesses and minimizing external threats [build strengths for defensive strategy] Evaluation Evaluate the pros and cons of each strategic alternative Select one or more alternatives to implement Carefully explain decision rationale and include why other strategic alternatives were rejected Chapter 7: Business Strategy: Differentiation, Cost Leadership & Blue Ocean Strategy What is a business level strategy? Goal directed actions to achieve

competitive advantage in a single product market Who  which customer segments? What  what customer needs will we satisfy? Why  do we want to satisfy them? How  how will we do it? Generic Business Strategies Differentiation  seeks to create higher value over its competitors  allows business to charge higher prices due to offering unique features Cost Leadership  seeks to create similar value compared to competitors while charging lower prices Focused Business Strategies Focused Differentiation  narrower competitive scope  only target a niche part of industry (e.g. luxury market) Focused Cost Leadership  narrower competitive scope  bulk sales (e.g. disposable pens) Economies of Scope vs Economies of Scale vs Diseconomies of Scale Economies of scale  cost per unit decreases as output increases by spreading fixed costs over a larger output through better systems and equipment Diseconomies of scale  firms become too big and the complexities that follow require too much coordination than company can afford, become inflexible and slow Economies of scope  sharing resources or technology to produce two outputs at lesser cost Differentiation Strategy Consumers will pay higher price for produces that have unique features that increase value Companies compete on unique product features, service, marketing, and promotion Competitive advantage achieved when value – cost is > competitors Perceived value is increased with unique product features, better customer service and providing complements Cost Leadership Strategy Aims to reduce cost below competitors while offering adequate value Price is reduced for customers through optimizing the value chain Ways cost can be decreased: - Cost of input factors  decrease spending on raw materials, capital, labour - Economies of scale  increase output to decrease cost, only viable for companies

that have enough volume to do so - Learning curve effects  the more experienced you are, the more efficient you will be and that reduces cost (more output can be created in the same amount of time) - Experience-curve effects  improvements to technology and production processes increases efficiency Benefits & Risks of Differentiation Benefits - Threat of Entry  protection against threat of entry due to intangible resources such as reputation for innovation, quality, or customer service - Power of Suppliers  protection against increase in input prices which could be passed on to customers - Power of Buyers  protection against decrease in sales prices because well-differentiated products have few imitations - Threat of Substitutes  protection against substitute products due to differential appeal - Rivalry Among Competitors  protection against competitors if product has enough differential appeal to command premium price Risks - Threat of Entry  erosion of margins and replacement of firm - Power of Suppliers  erosion of margins - Power of Buyers  erosion of margins - Threat of Substitutes  Replacement, especially when faced with innovation - Rivalry Among Competitors  risk of focus of competition shifts to price, risk of increasing differentiation of product features that do not create value but raise costs, or if costs increase to above acceptable threshold Benefits & Risks of Cost Leadership Benefits - Threat of Entry  protection against entry due to economies of scale - Power of Suppliers  protection against increase in input prices which can be absorbed - Power of Buyers  protection against decrease in sales prices which can be absorbed - Threat of Substitutes  protection against substitute products through further lowering of products - Rivalry Among Competitors  protection against price war because lowest cost firm will win Risks

- Threat of Entry  erosion of margins or replacement - Power of Suppliers  erosion of margins - Power of Buyers  erosion of margins - Threat of Substitutes  replacement, especially when faced with innovation - Rivalry Among Competitors  risk of focus of competitions shifts to non-price attributes, price also could be lowered to below acceptable threshold Blue Ocean Strategy Blue ocean represent untapped market potential, the creation of additional demand and opportunities for highly profitable growth Makes competition irrelevant, create new demand and disregards value/cost trade off Red Ocean vs Blue Ocean  compete in existing markets vs create uncontested market to serve  beat competition vs make competition irrelevant  exploit existing demand vs create and capture new demand  make value/cost trade off vs break the value/cost trade off  align the whole system of a firm’s activities with its strategic choice of differentiation or low cost vs align the whole system of a firm’s activities in pursuit of differentiation and low cost Value Innovation vs Stuck in The Middle It is better to focus on either differentiation or lowering cost than being stuck in the middle The Strategy Canvas Graphical depiction of a company’s performance relative to its competitors Usually to show that being stuck in the middle if worse than pursuing a differentiation or low cost strategy so should rat...