Part A Strategic Formulation

Chapter 1 Objectives

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THE ROLE AND FUNCTION OF OBJECTIVES

The role and function of objectives What are objectives? A hierarchy of objectives Business goals and objectives Setting objectives

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The role and function of objectives

a. They enable the overall objectives of the organisation to be broken down into clear statements of what needs to be done at each level. They provide clear statements of what action needs to be taken. They provide a focus for all activity. They provide targets for both individual and group achievement. They facilitate the control of actual performance. They provide a basis for evaluating how successfully the plans are being implemented.
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b. c. d. e. f.
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A hierarchy of objectives

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Different categories of objectives.

Strategic objectives such as the mission and corporate objectives affect the whole organisation and are normally longterm. Functional objectives relate to a department or section and will include most team objectives as well. These are typically medium-term. Individual objectives relate to particular people and to their work. Most of these, but by no means all, will involve shortterm activities.
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Business goals and objectives

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Types of objectives
Primary & secondary objectives
Some objectives are more important than others.

Corporate objectives and unit objectives

Corporate objectives: These objectives should relate to the key factors for business success: - Profitability - Customer satisfaction - Market share - Quality of the firms products - Growth - Human resources Cash flow

Long-term objectives and shortterm objectives Financial objectives would include the following.
Profitability Return on investment (ROI) or return on capital employed (ROCE) Share price, earnings per share, dividends Growth

Technological goals
Technological goals might be stated as follows. product design and production methods using current and new technology. improve current products through R & D level of quality.

Multiple objectives
A firm might identify several objectives growth, Maintaining policies, acceptable level of borrowing

Product-market goals

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Definitions & Setting Standards process and SMART

Standards are the agreed quality measures that are used to judge whether a task has been satisfactorily completed Performance criteria are the individual standards of performance that help to judge that work is being done satisfactorily Process
1. 2. 3. 4. 5. 6. Agree the objectives Prioritise the objectives Define the activities and tasks Agree standards of performance Allocate roles Set and timetable performance criteria

SMART: Specific, Measurable, Agreed, Realistic, Timetabled

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MISSION

What is a mission?
The organisation's basic function in society, in terms of products / services it produce for its clients.

Mission statements
A broad declaration of an organizations overriding purpose Identifies what is unique or important about its products Seeks to distinguish or differentiate the organization from its competitors
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Mission Statements
Mission statement addresses some of the following
Identity of the persons; shareholders, customers, staff, etc. Nature of the firms business: the products it makes, the services it provides, the markets it produces for, etc. Ways of competing; quality, innovation, technology low prices, commitment to customer care, policy on acquisition, geographical spread, etc. Principles of business; commitment to suppliers and staff; social policy, for example, on non-discrimination or environmental issues, commitment to customers.

Questions that need to be considered when a mission statement is formulated:

Who is to be served and satisfied? What need is to be satisfied? How will this JT be-84 achieved? slides

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Corporate, Functional &Individual objectives

Corporate objectives
These are strategic objectives that outline the expectations of the organisation These are typically: Market share; Growth; Profitability; Cash flow; Survival; Growth in payments to shareholders; Customer satisfaction; Quality of products/services; Industrial relations. Corporate objectives are normally long-term or medium-term

Functional objectives
These objectives are specific to individual units of an organisation, and are often associated with the tactical or operational aspects of an organisations activities.

Individual objectives
These objectives provides members of staff with clear idea of what they are expected to achieve over a given period. Task-related objectives & Self-development objectives
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Stakeholder analysis

The effect of stakeholders Stakeholder risks Stakeholder analysis

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The effect of stakeholders

Two aspects of stakeholder risk
Varying degrees of risk. Respond

Three broad types of stakeholder

Internal stakeholders Connected stakeholders External stakeholders

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Stakeholder risks

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Stakeholder analysis
Primary Stakeholders Roles
(i) Performance role directly involved with adding value (e.g. Manufacturer, Wholesaler, retailer) (ii) Support role supporting the 'performing membersbanks, consultancies, government

Degree of reliance and/or dependence of stakeholders group

Disruption. Can the stakeholder disrupt the organisations plans (e.g. a bank withdrawing overdraft facilities)? Replacement. Can the firm replace the relationship? Uncertainty. Does the stakeholder cause uncertainty in the firms plans? A firm with healthy positive cash flows and large cash balances need not worry about its banks attitude to a proposed investment.
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NESTLE Ads (Context to Assignment)

http://www.youtube.com/watch?v=d2ITB0 Dyjb4 http://www.youtube.com/watch?v=xTpv9lc _qMw http://www.youtube.com/watch?v=7oynmF uA57U

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Part A Strategic Formulation

Chapter 2 External Environment

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What is the external environment?

Elements of the external environment The political-legal environment The economic environment The socio-cultural environment The technological environment The physical environment

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THE EXTERNAL ENVIRONMENT?

Analysis of the external environment, and the trends which lead to changes in it, can identify threats and opportunities more quickly, decrease the likelihood of major surprises and shorten the firms reaction time to events. The external environment can be divided into three interrelated elements
The physical environment The social environment The competitive environment

The physical and social environments can be further divided into PESTEL factors.
Political, Economic, Socio-cultural, Environmental/ecological and Legal
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Technological,
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Aspect of the external environment

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PESTEL factors
Political and legal
Political factors such as changes in political control, public priorities, funding arrangements, laws which are set by Parliament, etc., affects organisations in several ways

Economic
The state of the economy affects all organisations, both commercial and noncommercial. The economic objectives has an impact in demand and organisations decisions.

Socio-cultural
Social and cultural factors affect the make-up of the population and the lifestyle of society. The social and cultural environments are constantly changing. Trends identified can assist planners with their task.

Technological
Technological change probably has the most rapid, persistent and profound effect, influencing the following: type of products or services, way in which products are made, way in which services are provided, way in which markets are identified, the way in which employees are mobilised and the means and extent of communications with external clients.

Environmental/ecological
The physical environment (natural environment) covers the natural conditions such as the weather, floods, earthquakes, the supply of many raw materials, etc.
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Political risk checklist

1. How stable is the host countrys political system? 2. How strong is the host governments commitment to specific rules of the game, such as ownership or contractual rights, given its ideology and power position? 3. How long is the government likely to remain in power? 4. If the present government is succeeded, how would the specific rules of the game change? 5. What would be the effects of any expected changes in the specific rules of the game? 6. In light of those effects, what decisions and actions should be taken now?
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The socio-cultural environment

Demography is the study of population and population trends Demographic factors:
Growth / decline rate of populations Changes in the age distribution Population concentration

Changes in the nature, attitudes and habits of society should be considered during the planning process and this include:
Rising standards of living Societys attitude and ethical conduct. Changes in the workforce

The ethical environment incorporates justice, respect for the law and a moral code.
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Economic Definition and International business

Protectionism is the imposition of tariffs, quotas or other barriers to trade to restrict the inflow of imports, in order to protect domestic producers from overseas competition. Tariffs are taxes imposed on an imported goods. Quotas are limits that are imposed on the quantity of a particular good, that is imported.
Organisation with plans to trade abroad.

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Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

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NESTLE- Context to Assignment

http://www.youtube.com/watch?v=d0powJ Uv5a0 http://businesscasestudies.co.uk/nestle/#a xzz2vbK1xN43 http://forbesindia.com/video/video/nestlesstrategy-for-growth-acquisitions/34255

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Competitive Environment
Definition
Competitive advantage is a factor which enables an organisation to compete successfully with its main competitors on a sustained basis

Porter: Five competitive forces

The threat of new entrants into the industry The threat of substitute products or services (for example, taking the Eurostar train from London to Paris is a substitute for flying there) The bargaining power of customers (who may demand better quality at a lower price) The bargaining power of suppliers (who may charge higher prices) The rivalry amongst current competitors in the industry (which can lead to price wars, new product development and special offers)

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The threat of new entrants & substitute

A new entrant into an industry will bring extra capacity and more competition. The strength of this threat is likely to vary from industry to industry and depends on two things i.e. Barriers to entry & response of existing competitors Barriers to entry: Scale economies. Product differentiation Capital requirements. Switching costs. Access to distribution channels Cost advantages of existing producers, independent of economies of scale include; Patent, Experience, Government subsidies and regulations, Favoured access to raw materials. Substitute Definition A substitute product is a goods or service produced by another industry which satisfies the same customer needs
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The bargaining power of customers & suppliers

The bargaining power of customers
Customers want better quality products and services at a lower price. .
How much customer buys How critical the product is to the customers own business Switching costs Standard items (hence easily copied) Customers own profitability: Customers ability to bypass Skills of purchasing staff, or the priceawareness of consumers Product quality
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The bargaining power of suppliers

Suppliers can exert pressure for higher prices. Dominant suppliers able to charge monopoly or oligopoly prices Suppliers do not rely on the industry for the majority of their sales Importance of the suppliers product to the customer. Differentiated product Is switching costs high?

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The rivalry amongst current competitors in the industry

The rivalry amongst current competitors in the industry The intensity of competitive rivalry within an industry will affect the profitability of the industry as a whole. Competitive actions
Factors determining the intensity of competition Market growth: Competing against a greater market share where growth is slow or stagnant Cost structure: Higher fixed cost Switching (Coca Cola v/s Pepsi): Suppliers will compete if buyers switches easily Strategic importance: If success is prime strategic objective; firms will likely to act very competitively Exit barriers: Difficult for an existing supplier to leave the industry.

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Part A Strategic Formulation

Chapter 3 Internal Analysis

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The position audit resources and limiting factors

Definitions Limiting factors Resource use

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1.1 Definitions
Position audit is part of the planning process which examines the current state of the entity. Examples of factors examined; tangible and intangible assets, brands and markets, operating systems, current results, financial resources Resource audit is a review of all aspects of the resources the organisation uses, including; physical, financial and systems Limiting factor / key factor is a factor that at any time may limit the activity of an entity, where-by there is shortage or difficulty of supply. Effectiveness is the measure of achievement and is assessed by reference to goals Efficiency is a combination of effectiveness and economy Economy is reduction or containment of cost There will normally be a trade-off between effectiveness and economy
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Efficiency v/s Effectiveness

Efficiency is doing the thing right. Effectiveness is doing the right thing. Peter Drucker

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1.1 Definitions

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2 Competency and critical success factors

Core Competency: Nike (Designing, Product Development, endorsement Preparing resource planning

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Core Competency
Strategic approach involves indentifying a firms competences. These competences develop in a variety of ways. Experience in making and marketing a product or service The talents and potential of individuals in the organisation The quality of co-ordination The distinctive competence of an organisation is what it does well, or better, than its rivals Tests for identifying a core competence It provides potential access to a wide variety of markets. It contributes significantly to the value enjoyed by the customer. It should be hard for a competitor to copy. In many cases, a company might choose to combine competences.
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Preparing resource plans

Competences can be related to critical success factors. Critical success factors (CSFs) are those factors on which the strategy is fundamentally dependent for its success- Customer Care Centre (CC) Key tasks are what must be done to ensure each critical success factor is satisfied- Many Key Task in CC Priorities indicate the order in which tasks are completed- Urgent task should be prioritize

Competences thus fulfil the CSF.

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Converting the resources (The value chain)

Activities are the means by which a firm creates value in its products (They are sometimes referred to as value activities) The value chain Value system The value chain model of corporate activities, developed by Michael Porter (1996), offers a birds eye view of the firm and what it does. Competitive advantage, says Porter, arises out of the way in which firms organise and perform activities.
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The value chain

Porter (1996) grouped the various activities of an organisation into a value chain. Here is a diagram.

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The value chain

The margin is the excess the customer is prepared to pay over the cost to the firm of obtaining resource inputs and providing value activities. Primary activities are directly related to production, sales, marketing, delivery and service. Support activities provide purchased inputs, human resources, technology and infrastructural functions to support the primary activities.

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Value Chain Videos

http://www.youtube.com/watch?v=dpSsm N0iTqA

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Value system

Invent new or better ways to do activities Combine activities in new or better ways Manage the linkages in its own value chain Manage the linkages in the value system
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The product life cycle

Product nature
Product class paper) paper) Category of product(cars, washing m/c, news

Product form- different form (national daily or weekly local news Brand- Rolls Royce

Planners should assess products in:

Stage of its life cycle Products remaining life Urgency in the need to innovate, to develop new and improved products?
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Outputs The product portfolio

The product life cycle Portfolio Panning The Boston Matrix

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Portfolio planning: the Boston Matrix

Market share: One entitys sale of a product or service in a specified market expressed as a percentage of total sales by all entities offering that product or service

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5 Organisation structure
Organisation structure determines how work is allocated, directed and controlled, in order to achieve the goals of the organisations strategy. Co-ordinating tasks Components of organisation structure and systems Hierarchy and span of control The 7s framework

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Co-ordinating tasks & Components of organisation structure & systems

Mintzberg (1997) suggests five methods of co-ordination.
Mutual adjustment. Direct supervision. Standardisation of work processes. Standardisation of outputs. Standardisation by skills and knowledge.

Mintzberg (The Structuring of Organisations, 1997) believes that any organisation is based on the following principles.
Job specialisation Behaviour formalisation- Standardization of work process Training Indoctrination of employees- Organization culture Unit grouping & unit size Planning & control systems Liaison & communication devices- Networks
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Components of organisation structure & systems

Mintzberg (1979) identifies five component parts, represented on what he calls an organigram Operating core: People directly involved in production, perhaps the primary activities of the value chain. Strategic apex: Owner, board of directors. Middle line: People in this area administer the work done. Techno-structure: Administrators, and planners standardise work. Support staff: Ancillary services. They function independently of the operating core (Public relation, legal)
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Hierarchy and span of control

Organisation Structure Power centres which control its efforts Divisions of responsibility Division of labour Substitution of personnel Ability to group personnel in different ways according to work Reviewing existing organisation structure; 1. can help or hinder the mission and effectiveness of the organisation. 2. might have to be changed and these takes time. 3. can shapes the deployment of value activities and the management of the linkages between them. 4. provide channels and filters information from markets and personnel. 5. Is an arena for various political manoeuvrings by management and other interest groups.
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Hierarchy
The span of control (unit size) refers to the number of subordinates working for a manager in the level immediately below the manager. The scalar chain (or chain of command) describes the organisations hierarchy from the most junior to the most senior A long scalar chain has many levels with many ranks between the most junior and the senior Organisation hierarchy can be:
Tall organisation structure Flat organisation structure Informal organisation structure Delayering- removal of management layer
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Hierarchy
Tall organisation
large number of management levels small spans of control. can be cumbersome and inflexible. slow down communications slow responsiveness to market.. Sometimes offer more secure promotion paths.

Flat organisations
more flexible and responsive. does save costs in management salaries. IT used to reduce information processing function of middle management. Allows empowerment.

Informal organisation
work / social relationships that exist outside the formal organisation structure. depends on individual personalities affected when someone leaves. certain individuals have significant influence outside of their formal authority
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Delayering
removal of management layers.

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Figure 3.5: The 7s framework (Source: Mintzberg & Quinn, The Strategy Process, 1999)

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1. Structure How does the organisation actually work? Which parts are important in focussing on what the organisation does best? 2. Systems Formal and informal procedures. E.g. management information system, which provides data (sales figures, customer data and so on) on which to base decisions. 3. Staff Management development to take the company forward. The socialisation process (Quinn) of a company. Staff as resources to be developed and allocated. 4. Skills Characterise companies by what they do best. Example the Amazon Internet bookshop - speed of delivery. 5. Strategy An important influence on organisational design, as it is the organisations plan as to how it is going to create value. 6. Style Patterns of management action and behaviour that guide the thinking of the organisation. 7. Super-ordinate goals Main values of the business. Superordinate literally means of higher order, and such goals go beyond conventional objectives, and may indicate the overall future direction that management is aiming for.
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MARKETING AUDIT AND THE CUSTOMER BASE

A marketing audit involves a review of an organisation s products and markets, the marketing environment and its marketing system and operations The profitability of each product and each market should be assessed, and the costs of different marketing activities established. Information obtained about markets
Size of the customer base. Size of individual orders. Sales revenue and profitability. Segments. Market share. Growth - Sales growth and contribution growth over the previous four years or so, for each product group Products demand is growing, stable or likely to decline Demand sensitivity Tendency for the market to become fragmented, with more specialist and custom-made products.
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Customers
Key customer analysis calls for seven main areas of investigation. 1. Customer attitudes and behaviour
Interpersonal factors affect sales, buying competitors products, buying postponed, emotional factors in buying decisions?

2. Key customer identity

name, location, size, product market

3. Relationship of customer to potential market

customer size; in relation to total end-market, expand, diversify, integrate?

4. Customer history
order size and frequency, reasons for purchase, key decision makers

5. Relationship of customer (product)

are products purchased to be resold? No - why bought? Products form part of customers service/product?

6. Financial performance of the customer

customer success in his own markets?

7. Profitability of selling to the customer

Profit/contribution (after discounts, selling and delivery costs), financial consequences of losing customer, buying in order sizes unprofitable to supply, roi in plant used, etc.
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STRATEGIC POSITIONING I & 2 pg67-102

Corporate Appraisal (SWOT analysis) Benchmarking Global factors Gap analysis

STRATEGIC POSITIONING I&2

Monitoring Competitors Using value chain In competitive strategy Scenario planning

Method of growth Product / Market strategy

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General competing strategy

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CORPORATE APPRAISAL (SWOT):

critical assessment of the strengths and weaknesses, opportunities and threats relation with internal & environmental factors to establish condition prior to the preparation of a long-term plan.

Corporate appraisal (SWOT):

If anyone says X is both our greatest strength and our greatest weakness, they are wrong It just means you need to think harder about what is it about X that creates a strength and what creates a weakness
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Customer-Oriented SWOT Analysis

The New Rules: Strengths and Weaknesses must be recognized by customers Strengths
Matching strategies

Weaknesses
Conversion strategies

Opportunities and Threats exists in the environment, not because of us

Conversion strategies

Opportunities

Threats

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 Strong market position and good brand (19th Place)

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Breaking Down Strengths and Weaknesses (1)

We are an old-established firm

?
Strengths Stable suppliers for after-sales service Trustworthy Experienced Weaknesses Inflexible Old-fashioned No innovations

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Breaking Down Strengths and Weaknesses (2)

We are a large supplier

?
Strengths Comprehensive product range and technical expertise Status/stability is reassuring Weaknesses Bureaucratic Offhand with customers No continuity of personal contacts

As well as making SWOT customer-oriented & environmental, you need to screen out meaningless motherhood statements:
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MAJOR PRODUCTS AND SERVICES

Television sets Television accessories Home theater systems Home theater projectors 5. Blu-ray 6. DVD players 7. Mobile phones 8. Mobile phone accessories 9. MP3 players 10. Digital cameras 11. Camcorders 12. Digital photo frames
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1. 2. 3. 4.

1. Desktop monitors 2. Printers 3. Projectors 4. Hard disk drive 5. Optical disc drive 6. Refrigerators 7. Washers and dryers 8. Dishwashers 9. Microwaves 10.Air conditioners

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Motherhood Strengths Statements

Strengths Please tick appropriate boxes Hidden Meanings

High quality Low price Personal service High value to u c stomers Old-established firm Technologically sophisticated Product strengths

We cant think of any real reason why we do business in this market . . . That must explain it . . . We still cant . . . Our products are a bit expensive, but we still sell some We must be OK, weve survived so far We know more than the customer Look at the product, never mind the customer. We dont know who our competitors are

The natural supplier to this market We are the industry standard

We dont think we have any competition

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2
Forecasting

GAP ANALYSIS

Identification of relevant factors and quantification of their effect on an entity as a basis for planning

Gap analysis
The comparison of an entitys ultimate objective with the sum of projections and already planned projects.

Gap analysis compares two things.

Organisations targets for achievement over the planning period Organisation expectation to achieve if carried on in current way with the same products and selling to the same markets, with no major changes to operations. The F0 forecast. Gap could be filled by new product-market growth strategies.
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Strategies for closing the gap

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Strategic planning exercise (gap analysis) 1 revenue

1. OBJECTIVE
(A) Start by plotting the sales position you wish to achieve at the end of the planning period, point E. (B) Next plot the forecast revenue position, point A

2. GAP ANALYSIS (Productivity)

Are there any actions you can take to close the gap under the following headings? Plot the total value of these on the Gap Analysis Graph on the left, point B. (These represent cash and margin focus). Now proceed to 3 below.

E (Objective) D (New Products/Markets) Rev / Vol. C (Market Penetration) B (Productivity)

Productivity (NB: Not all factors are mutually exclusive) Better Product Mix More Sales Calls Better Sales Calls Increase Price Reduce Discounts (1) (3) (4) Better Customer Mix (2)

Revenue

5. GAPANALYSIS (Diversification)
Finally, list the value of any new products you might develop for new markets until point E is reached. (Steps 3, 4 and 5 represent a sales growth focus).

6. GAPANALYSIS (Capital Utilisation)

If none of this gives the required return on investment consider changing the asset base. This could be (A) Acquisition (B) Joint Venture (Step 6 represents a capital utilisation focus)

A (Forecast)

Charge For Deliveries Total

t+0

t+1

t+2

t+3

(budget)
Pr od u Pr ct od 10 Pr uct od 11 uc Et t 1 2 c.

uc Pr t 1 od u Pr ct 2 od u Et ct 3 c.

Market 1 Market 2 Market 3 Ect.

ANSOFF PRODUCT/MARKET (MARKET PENETRATION) (A) List principle products on the horizontal axis and principle markets on the vertical axis. In each smaller square write in current sales and achievable sales value during the planning period. (B) Next, plot the market penetration position, point C. This point will be the addition of all the values in the right hand half of the small boxes in the Ansoff Matrix. If there is a gap, proceed to 4 below. Please note, revenue from (1) (2) (3) and (4) from the productivity box should be deducted from the market penetration total before plotting pointC.

Pr od

Market 1 Market 2 Market 3 Ect.

4. GAP ANALYSIS
ANSOFF PRODUCT/MARKET MATRIX (NEW PRODUCTS/ NEW MARKETS) Next, list the value of any new products you might develop which you might sell to existing markets. Alternatively, or as well as, if necessary, list the value of any existing products that you might sell to new markets. Plot the total value of these on the Gap Analysis Graph above, point D. If there is still a gap proceed to 5.

Market 10 Market 11 Market 12 Ect.

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3. GAP ANALYSIS

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Strategic planning exercise (gap analysis) 2 profit

1. OBJECTIVE
(A) Start by plotting the profit position you wish to achieve at the end of the planning period, point E. (B) Next plot the forecast profit position, point A

2. GAPANALYSIS (Productivity)
Are there any actions you can take to close the gap under the following headings? Plot the total profit value of these on the Gap Analysis Graph on the left, point B. (These represent cash and margin focus). Now proceed to 3 below.

E (Objective) D (New Products/Markets) Rev / Vol. C (Market Penetration) B (Productivity)

Productivity (NB: Not all factors are mutually exclusive) Better Product Mix Better Customer Mix More Sales Calls Better Sales Calls Increase Price Reduce Discounts Charge For Deliveries Reduce Debtor Days Cost Reduction Others (Specify) Total

Profit

5. GAPANALYSIS (Diversification)
Finally, list the profit value of any new products you might develop for new markets until point E is reached. (Steps 3, 4 and 5 represent a sales growth focus).

6. GAPANALYSIS (Capital Utilisation)

If none of this gives the required return on investment consider changing the asset base. This could be (A) Acquisition (B) Joint Venture (Step 6 represents a capital utilisation focus)

A (Forecast)

t+0

t+1

t+2

t+3

(budget) 3. GAPANALYSIS
ANSOFF PRODUCT/MARKET (MARKET PENETRATION) (A) List principle products on the horizontal axis and principle markets on the vertical axis. In each smaller square write in current profit and achievable profit value during the planning period. (B) Next, plot the market penetration position, point C. This point will be the addition of all the values in the right hand half of the small boxes in the Ansoff Matrix. If there is a gap, proceed to 4 below.

Market 1 Market 2 Market 3 Ect.

Pr od u Pr ct 1 od u Pr ct 2 od u Et ct 3 c.

Market 1 Market 2 Market 3 Ect.

4. GAPANALYSIS
ANSOFF PRODUCT/MARKET MATRIX (NEW PRODUCTS/ NEW MARKETS) Next, list the value of any new products you might develop which you might sell to existing markets. Alternatively, or as well as, if necessary, list the value of any existing products that you might sell to new markets. Plot the total value of these on the Gap Analysis Graph above, point D. If there is still a gap proceed to 5.

Market 10 Market 11 Market 12 Ect.

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Pr od Pr uct od 1 Pr uct od 2 u Et ct 3 c.

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3 MONITORING COMPETITORS
Why Analysis?
assess what they will do to respond accordingly competitive position.

Aspects of competitor analysis (key questions) relates to competitors:

future goals, Industry assumptions position current strategy capabilities.

Future goals - Reviewing competitors assessed future goals, 2 things:

current position response to strategic changes.
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Aspects of competitor analysis

Information on competitors goals Useful information about competitor assumptions What are the businesss stated
financial goals? What trade-offs are made between long-term and short-term objectives? What is the competitors attitude to risk? Do managerial beliefs affect its goals? Organisation structure: what is the relative status of each department? What incentive systems are in place? What are the managers like? Are they divided against each other? Does the business cross-subsidise others? Is it a cash cow?
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What does a competitor believe to be its relative position (in terms of cost, product quality etc) in the industry? Is there a strong emotional bond with particular products and markets? Do cultural or regional differences influence the way managers think? What does the competitor believe about the future demand for the industry? Does the competitor accept the industrys conventional wisdom? Career analysis of key managers. An accountant in charge is likely to have different priorities from a marketer.
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Aspects of competitor analysis Current strategies and capabilities

Current strategy
Marketing; products promotions, price, etc. Operations, research, engineering, etc. Financial strengths, overall costs, etc. Managerial ability, general managerial skills, etc.
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Capabilities - two main aspects.

Core or distinctive competences Ability to expand in a particular market (production capacity, raising capital, adapting to change, survival in longed battles, etc.).
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Competitor - respond & intelligent systems

Competitor response profiles should indicate two things.
Competitors vulnerability (e.g. , environmental forces, competitors actions or downturn in sales, etc.) Battleground (e.g. invading competitors weak market, lowpriority product range, Lexus, etc.)

Competitor intelligence system a) Contents:

Financial statements, Information from common customers and suppliers Inspection of a competitors products Information from former employees Job advertisements

b) Processing
Data compiled, catalogued, easy access, analysed, extrapolating, etc.
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GENERIC COMPETITIVE STRATEGIES: HOW TO COMPETE

Competitive strategy
taking offensive or defensive actions to create a dependable position in an industry, to cope with ... competitive forces and thereby yield a superior return on investment for the firm. Firms have discovered many different approach's to this end, and the best strategy for a given firm is ultimately a unique construction reflecting its particular circumstances. (Porter, 1996)

Cost Leadership
Being the lowest cost producer in the industry as a whole.

Differentiation
Exploitation of a product/service which the industry as a whole believes to be unique.

Focus
Involves a restriction of activities to only part of the market (a segment) through:
Providing good/services at lower cost to that segment Providing a differential product/service to that segment
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Cost Leadership and differentiation

Cost leadership
Achieve lowest-cost producer in industry by producing at lowest cost,

Differentiation
Competitive advantage gained through particular characteristics of a firms products.

Three products categories. How to achieve overall cost leadership

Obtaining economies of scale Use of latest technology (reduce costs, enhance productivity, use cheap labour) exploit learning curve and achieve lower average costs In high technology industries, skills for product design and production methods, improving productivity minimise overhead costs favourable access to sources of supply cheaper areas 18/03/2014 Breakthrough products, improved products (e.g. microchips), competitive products (e.g. cars compete by offering more attractive compromise than rival models).

How to differentiate
Building brand image (e.g. Pepsis blue cans are supposed to offer different benefits to Cokes red ones). Give product special features Exploit other activities of the value chain.

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Advantages industry-wide strategies

Cost leadership Differentiation Brand loyalty and perceived uniqueness are entry barriers Customer loyalty against substitutes is a weapon

New entrants Substitutes

Economies of scale raise entry barriers Firm is not so vulnerable as its less cost-effective competitors to the threat of substitutes

Customers Suppliers Industry rivalry

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Customers cannot drive down prices further than the next most efficient competitor Flexibility to deal with cost increases Firm remains profitable when rivals go under through excessive price competition

Customers alternative have no comparable Higher margins can offset vulnerability to supplier price rises Brand loyalty should lower price sensitivity

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Disadvantages industry-wide strategies

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Focus (or niche) strategy

Cost-focus strategy:
To be a cost leader for a particular segment. This type of strategy is often found in the printing, clothes manufacture and car repair industries.

Differentiation-focus strategy:
Differentiation for a chosen segment. Luxury goods are the prime example of such a strategy.

Advantages of a focus strategy

A niche is more secure and a firm can insulate itself from competition The firm does not spread itself too thinly

Drawbacks of a focus strategy

The firm sacrifices economies of scale which would be gained by serving a wider market. Competitors can move into the segment, with increased resources (e.g. the Japanese moved into the US luxury car market, to compete with Mercedes and BMW). The segments needs may eventually become less distinct from the main market.
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USING THE VALUE CHAIN IN COMPETITIVE STRATEGY

The two supermarkets represented are based on the following.

The value chain in 4.3(a) is based on Marks and Spencer foods, which seeks to differentiate on quality and service. Hence the no quibble refunds, the use of prime retail sites, and customer care training. The value chain in 4.3(b) is similar to that of Lid, a discount supermarket chain which sells on price, pursuing a cost leadership, or perhaps more accurately, a cost-focus strategy. This can be seen in the limited product range and its low-cost sites.
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USING THE VALUE CHAIN IN COMPETITIVE STRATEGY

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6
Scenario

SCENARIO PLANNING

An internally consistent view of what the future might turn out to.

Macro scenarios
Use macro-economic or political factors, creating alternative views of the future environment (e.g. global economic growth, political changes, interest rates).

Industry scenario
Internally consistent view of an industrys future structure.

Steps in scenario planning

Step I - Decide on the drivers for change Step 2 - Bring drivers together into a viable framework Step 3 - Produce seven to nine mini-scenarios Step 4 - Group mini-scenarios into two or three larger scenarios containing all topics. Step 5 - Write the scenarios Step 6 - Identify issues arising
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Part 2

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Product-market mix is term for the products/services a firm sells (or a service which a public sector organisation provides) and the markets it sells them to
Ansoff matrix

PRODUCTS
increasing technological newness Present New

Present

Market Penetration
(mkt/prod share, freq. & qty of use, new application)

Product Development
(Product improvement. product line extension, new product)

MARKETS
increasing market newness New

Market Extension
(Market & geographical Expansion, new segment, Customer group).

Diversification
(vertical, forward, backward Integration, diversification related and/or unrelated Businesses)

Figure4.2 pp110

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Method of growth & Global Factors

Method of growth
Internal / external

International business
Depends on the countrys, government, position, industries, etc. One key barrier Protectionism (restrict competition from overseas) Quotas, bans, restrictions, tariffs, quality abuse
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Global market
Global nature Depends on the industry (countries that are subjected to managed trade and services)
E.g. prohibiting firms from other countries from selling insurance

Unlikely to be true global market for labour

Disparity in skills between different countries, restrictions on immigration.

Depends on the market

Upmarket luxury goods (requirement or affordability in developing nations or certain locations). Some good/service sold almost anywhere, but to limited degrees (television sets, oil, aerospace, etc).

Global drivers: Financial factors, country/continent alliances, legal factors, stock markets trading (commodities), protectionist measures. Effect of globalisation on the firm Lower barriers to entry, hence incoming competition Opportunities to compete abroad via exports Opportunities to invest abroad Opportunities to raise finance from overseas sources of capital

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Porters Diamond of National Competitive Advantage

Success in trade comes from the interaction of the country and the firms specific elements
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Analysing the diamond

Factor conditions Factor conditions are a countrys inputs to production.
Infrastructure, capital, human resources, physical resources and knowledge.

Porter distinguishes between basic and advanced factors.

Basic factors are natural resources, climate, semiskilled and unskilled labour. Advanced factors include modern digital communications, highly educated personnel (e.g. computer scientists), research laboratories and so forth. They are necessary to achieve high order competitive advantages.

Demand conditions: the home market No cultural impediments to communication. Segmentation of the home market shapes a firms priorities. Anticipating buyer needs (consumer needs home earlier than world market, benefits firms from experience). The rate of growth. Slow growing home markets do not encourage the adoption of state of the art technology. Early saturation of the home market will encourage a firm to export. Sophisticated and demanding buyers set standards.

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Diamond determinants
Related & supporting Industries & Firms' strategy, structure and rivalry
Related and supporting industries Supplying industries in the home base has several advantages in downstream industries
Efficient, early, rapid, and sometimes preferential access to the most cost-effective inputs Ongoing coordination Innovation and upgrading

Competitive success in one industry is linked to success in related industries A competitive domestic supplier industry is better than relying on well-qualified foreign suppliers

Firm strategy, structure, and rivalry One country differs from another with regard to managerial systems and philosophies and with regard to capital markets Institutional environments that allow firms to take a long-term view contribute positively to competitiveness Presence of a large number of competing firms or rivals in the domestic industry
Competition among firms is necessary for allocated efficiency in a market system, but domestic rivalry contributes to dynamic, technological efficiency

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www.swlearning.com/economics/reinert/reinert1e/ppt/ch11.ppt

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Benchmarking
Benchmarking The establishment, through data gathering, of targets and comparators, through whose use relative levels of performance (and particularly areas of underperformance) can be identified.
By adopting identified best practices it is hoped that performance will improve

Types of benchmarking Competitive benchmarking

Information gathered and compared with direct competitors Type of competitive benchmarking aimed at strategic action and organisational change Comparing one operating unit or function with another within the same industry Internal functions compared with best external practitioners of those functions, regardless of the industry they are in (also known as operational benchmarking or generic benchmarking)

Strategic benchmarking

Internal benchmarking Functional benchmarking

Advantages of Benchmarking Position audit.

assess a firms existing position and provide a basis for establishing standards of performance. carried out managers (e.g. exercise results). For improvement , sets achievable challenging targets can spur innovation.

Comparisons

Focuses on key areas Information sharing

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Three levels of benchmarking.

Level of benchmarking
Resources

Through

Examples of measures

Resource audit

Revenue per employee

Capital usage Quality of resources

Quantity of resources
Qualifications of employees Age of machinery Uniqueness (e.g. patents)
Competences in separate activities

Analysing activities

Sales calls per salesperson Output per employee Materials wastage Market share Profitability Productivity
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Competences in linked activities

Analysing overall performances

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