Basic Strategy

Introduction

The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy.
Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets.



The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategy. These are described below:
Market penetration
Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets.
Market penetration seeks to achieve four main objectives:
• Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling
• Secure dominance of growth markets
• Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors
• Increase usage by existing customers – for example by introducing loyalty schemes
A market penetration marketing strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.
Market development
Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets.
There are many possible ways of approaching this strategy, including:
• New geographical markets; for example exporting the product to a new country
• New product dimensions or packaging: for example
• New distribution channels
• Different pricing policies to attract different customers or create new market segments
Product development
Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.
Diversification
Diversification is the name given to the growth strategy where a business markets new products in new markets.
This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.
For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks

introduction to the balanced scorecard
The background
• No single measures can give a broad picture of the organisation’s health.
• So instead of a single measure why not a use a composite scorecard involving a number of different measures.
• Kaplan and Norton devised a framework based on four perspectives – financial, customer, internal and learning and growth.
• The organisation should select critical measures for each of these perspectives.
Origins of the balanced scorecard
R.S. Kaplan and D.P. Norton -”The Balanced Scorecard- measures that drive performance”. Harvard Business Review, January 1992
• -”The Balanced Scorecard”, Harvard University Press, 1996.
• “Kaplan and Norton suggested that organisations should focus their efforts on a limited number of specific, critical performance measures which reflect stakeholders key success factors” (Strategic Management, J. Thompson with F. Martin)
What is the balanced scorecard?
• A system of corporate appraisal which looks at financial and non-financial elements from a variety of perspectives.
• An approach to the provision of information to management to assist strategic policy formation and achievement.
• It provides the user with a set of information which addresses all relevant areas of performance in an objective and unbiased fashion.
• A set of measures that gives top managers a fast but comprehensive view of the business.
The balanced scorecard…
• Allows managers to look at the business from four important perspectives.
• Provides a balanced picture of overall performance highlighting activities that need to be improved.
• Combines both qualitative and quantitative measures.
• Relates assessment of performance to the choice of strategy.
• Includes measures of efficiency and effectiveness.
• Assists business in clarifying their vision and strategies and provides a means to translate these into action.
In what way is the scorecard a balance?
The scorecard produces a balance between:
• Four key business perspectives: financial, customer, internal processes and innovation.
• How the organisation sees itself and how others see it.
• The short run and the long run
• The situation at a moment in time and change over time
Main benefits of using the balanced scorecard
• Helps companies focus on what has to be done in order to create a breakthrough performance
• Acts as an integrating device for a variety of corporate programmes
• Makes strategy operational by translating it into performance measures and targets
• Helps break down corporate level measures so that local managers and employees can see what they need to do well if they want to improve organisational effectiveness
• Provides a comprehensive view that overturns the traditional idea of the organisation as a collection of isolated, independent functions and departments

strategy - benchmarking
Definition
Benchmarking is the process of identifying "best practice" in relation to both products (including) and the processes by which those products are created and delivered. The search for "best practice" can taker place both inside a particular industry, and also in other industries (for example - are there lessons to be learned from other industries?).
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to "best practice" and to identify areas and means of performance improvement.
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business, organisation, industry, region or country) to examine how others achieve their performance levels and to understand the processes they use. In this way benchmarking helps explain the processes behind excellent performance. When the lessons learnt from a benchmarking exercise are applied appropriately, they facilitate improved performance in critical functions within an organisation or in key areas of the business environment.
Application of benchmarking involves four key steps:
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise. To be effective, it must become an ongoing, integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice.
Types of Benchmarking
There are a number of different types of benchmarking, as summarised below:
Type Description Most Appropriate for the Following Purposes
Strategic Benchmarking Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed. It involves considering high level aspects such as core competencies, developing new products and services and improving capabilities for dealing with changes in the external environment. Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise - Re-aligning business strategies that have become inappropriate
Performance or Competitive Benchmarking Businesses consider their position in relation to performance characteristics of key products and services. Benchmarking partners are drawn from the same sector. This type of analysis is often undertaken through trade associations or third parties to protect confidentiality. _ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking Focuses on improving specific critical processes and operations. Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services. Process benchmarking invariably involves producing process maps to facilitate comparison and analysis. This type of benchmarking often results in short term benefits. - Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic improvements. - Improving activities or services for which counterparts do not exist.
Internal Benchmarking involves benchmarking businesses or operations from within the same organisation (e.g. business units in different countries). The main advantages of internal benchmarking are that access to sensitive data and information is easier; standardised data is often readily available; and, usually less time and resources are needed. There may be fewer barriers to implementation as practices may be relatively easy to transfer across the same organisation. However, real innovation may be lacking and best in class performance is more likely to be found through external benchmarking. - Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly, throughout the organisation
External Benchmarking involves analysing outside organisations that are known to be best in class. External benchmarking provides opportunities of learning from those who are at the "leading edge". This type of benchmarking can take up significant time and resource to ensure the comparability of data and information, the credibility of the findings and the development of sound recommendations. - Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking Best practitioners are identified and analysed elsewhere in the world, perhaps because there are too few benchmarking partners within the same country to produce valid results. Globalisation and advances in information technology are increasing opportunities for international projects. However, these can take more time and resources to set up and implement and the results may need careful analysis due to national differences - Where the aim is to achieve world class status or simply because there are insufficient"national" businesses against which to benchmark


change management - introduction
What is change management?
Change management is an aspect of management focusing on ensuring that the firm responds to the environment in which it operates
Four key features of change management:
• Change is the result of dissatisfaction with the present strategies
• It is essential to develop a vision for a better alternative
• It is necessary to develop strategies to implement change
• There will be resistance to the proposals at some stage
Change often arises from:
• The development of new products
• The entry of new competition
• Changes in consumer tastes & preferences
• Changes in the cultural, political, economic, legal and social framework
• Changes in technology leading to technological obsolescence or new product opportunities
Change affects all aspect of people management. HRM is directly affected be change in:
• Organisational structure
• Personnel of teams
• Process
• Location
• Work load
• Work role
• Work practices
• Supervision
• Work teams
There are many forces for change in business:
• Internal forces
• Desire to increase profitability
• Reorganisation to increase efficiency
• Conflict between departments
• To change organisational culture
• External forces
• Customer demand
• Competition
• Cost of inputs
• Legislation
• Tax changes
• New technology
• Political
• Ethics
• Technological obsolescence

change management - resistance and barriers to change
Resistance to change
A degree of resistance is normal since change is:
• Disruptive
• Stressful
Moreover a degree of scepticism can be healthy especially where there are weaknesses in the proposed changes
However resistance will also impede the achievement of organisational objectives
Four basic reasons why change is resisted
Kotter and Schlesinger identified basic causes of resistance to change:
(1)Parochial self interest
• Individuals are more concerned with the implications for themselves
(2)Misunderstanding
• Communications problems
• Inadequate information
(3)Low tolerance of change
• Sense of insecurity
• Different assessment of the situation
(4) Disagreement over the need for change
• Disagreement over the advantages and disadvantages
Some negative comments often received on proposed changes:
• "My needs are already being met"
• "There is no justification for change"
• "I don’t like the way they propose to do it"
• "The risks outweigh the benefits"
• "It will now be harder for me to meet my own needs"
Organisational barriers to change
• Structural inertia
• Existing power structures
• Resistance from work groups
• Failure of previous change initiatives
Individual barriers to change
• Tradition and set ways:
• Loyalty to existing relationships
• Failure to accept the need for change
• Insecurity
• Preference for the existing arrangements
• Break up of work groups
• Different person ambitions
• Fear of:
Loss of power
Loss of skills
Loss of income
The unknown
• Redundancy
• Inability to perform as well in the new situation
Inappropriate change management
• Change is often resisted because of failures in the way it is introduced
• Failure to explain the need for change
• Failure to provide information
• Failure to consult, negotiate and offer support and training
• Lack of involvement in the process
• Failure to build trust and sense of security
• Poor employee relations
Why change should be welcomed
• Change can produce positive benefits for the individual:
• Opportunities for personal change and development
• Provides a new challenge
• Reduces the boredom of work
• Opportunity to participate and shape the outcome

strategy - competitive advantage
Competitive Advantage - Definition
A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.
Competitive Strategies
Following on from his work analysing the competitive forces in an industry, Michael Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. The four strategies relate to the extent to which the scope of a businesses' activities are narrow versus broad and the extent to which a business seeks to differentiate its products.
The four strategies are summarised in the figure below:


The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry.
Strategy - Differentiation
This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer. Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products.
Examples of Differentiation Strategy: Mercedes cars; Bang & Olufsen
Strategy - Cost Leadership
With this strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed minimising costs. If the achieved selling price can at least equal (or near)the average for the market, then the lowest-cost producer will (in theory) enjoy the best profits. This strategy is usually associated with large-scale businesses offering "standard" products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share.
Examples of Cost Leadership: Nissan; Tesco; Dell Computers
Strategy - Differentiation Focus
In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers. The important issue for any business adopting this strategy is to ensure that customers really do have different needs and wants - in other words that there is a valid basis for differentiation - and that existing competitor products are not meeting those needs and wants.
Examples of Differentiation Focus: any successful niche retailers; (e.g. The Perfume Shop); or specialist holiday operator (e.g. Carrier)
Strategy - Cost Focus
Here a business seeks a lower-cost advantage in just on or a small number of market segments. The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called "me-too's".
Examples of Cost Focus: Many smaller retailers featuring own-label or discounted label products

strategy - competitor analysis
Competitor Analysis is an important part of the strategic planning process. This revision note outlines the main role of, and steps in, competitor analysis
Why bother to analyse competitors?
Some businesses think it is best to get on with their own plans and ignore the competition. Others become obsessed with tracking the actions of competitors (often using underhand or illegal methods). Many businesses are happy simply to track the competition, copying their moves and reacting to changes.
Competitor analysis has several important roles in strategic planning:
• To help management understand their competitive advantages/disadvantages relative to competitors
• To generate understanding of competitors’ past, present (and most importantly) future strategies
• To provide an informed basis to develop strategies to achieve competitive advantage in the future
• To help forecast the returns that may be made from future investments (e.g. how will competitors respond to a new product or pricing strategy?
Questions to ask
What questions should be asked when undertaking competitor analysis? The following is a useful list to bear in mind:
• Who are our competitors? (see the section on identifying competitors further below)
• What threats do they pose?
• What is the profile of our competitors?
• What are the objectives of our competitors?
• What strategies are our competitors pursuing and how successful are these strategies?
• What are the strengths and weaknesses of our competitors?
• How are our competitors likely to respond to any changes to the way we do business?
Sources of information for competitor analysis
Davidson (1997) describes how the sources of competitor information can be neatly grouped into three categories:
• Recorded data: this is easily available in published form either internally or externally. Good examples include competitor annual reports and product brochures;
• Observable data: this has to be actively sought and often assembled from several sources. A good example is competitor pricing;
• Opportunistic data: to get hold of this kind of data requires a lot of planning and organisation. Much of it is “anecdotal”, coming from discussions with suppliers, customers and, perhaps, previous management of competitors.
The table below lists possible sources of competitor data using Davidson’s categorisation:
Recorded Data Observable Data Opportunistic Data
Annual report & accounts Pricing / price lists Meetings with suppliers
Press releases Advertising campaigns Trade shows
Newspaper articles Promotions Sales force meetings
Analysts reports Tenders Seminars / conferences
Regulatory reports Patent applications Recruiting ex-employees
Government reports Discussion with shared distributors
Presentations / speeches Social contacts with competitors
In his excellent book [Even More Offensive Marketing], Davidson likens the process of gathering competitive data to a jigsaw puzzle. Each individual piece of data does not have much value. The important skill is to collect as many of the pieces as possible and to assemble them into an overall picture of the competitor. This enables you to identify any missing pieces and to take the necessary steps to collect them.
What businesses need to know about their competitors
The tables below lists the kinds of competitor information that would help businesses complete some good quality competitor analysis.
You can probably think of many more pieces of information about a competitor that would be useful. However, an important challenge in competitor analysis is working out how to obtain competitor information that is reliable, up-to-date and available legally(!).
What businesses probably already know their competitors
Overall sales and profits
Sales and profits by market
Sales by main brand
Cost structure
Market shares (revenues and volumes)
Organisation structure
Distribution system
Identity / profile of senior management
Advertising strategy and spending
Customer / consumer profile & attitudes
Customer retention levels
What businesses would really like to know about competitors
Sales and profits by product
Relative costs
Customer satisfaction and service levels
Customer retention levels
Distribution costs
New product strategies
Size and quality of customer databases
Advertising effectiveness
Future investment strategy
Contractual terms with key suppliers
Terms of strategic partnerships


corporate social responsibility - introduction
Definitions of social responsibility
Corporate social responsibility (CSR) is:
• An obligation, beyond that required by the law and economics, for a firm to pursue long term goals that are good for society
• The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as that of the local community and society at large
• About how a company manages its business process to produce an overall positive impact on society
Corporate social responsibility means:
• Conducting business in an ethical way and in the interests of the wider community
• Responding positively to emerging societal priorities and expectations
• A willingness to act ahead of regulatory confrontation
• Balancing shareholder interests against the interests of the wider community
• Being a good citizen in the community
Is CSR the same as business ethics?
• There is clearly an overlap between CSR and business ethics
• Both concepts concern values, objectives and decision based on something than the pursuit of profits
• And socially responsible firms must act ethically
The difference is that ethics concern individual actions which can be assessed as right or wrong by reference to moral principles.
CSR is about the organisation’s obligations to all stakeholders – and not just shareholders.
There are four dimensions of corporate responsibility
• Economic - responsibility to earn profit for owners
• Legal - responsibility to comply with the law (society’s codification of right and wrong)
• Ethical - not acting just for profit but doing what is right, just and fair
• Voluntary and philanthropic - promoting human welfare and goodwill
• Being a good corporate citizen contributing to the community and the quality of life


The debate on social responsibility
Not all business organisations behave in a socially responsible manner
And there are people who would argue that it is not the job of business organisations to be concerned about social issues and problems
There are two schools of thought on this issue:
• In the free market view, the job of business is to create wealth with the interests of the shareholders as the guiding principle
• The corporate social responsibility view is that business organisation should be concerned with social issues
Free market view - a summary
• The role of business is to create wealth by providing goods and services
• “There is one and only one social responsibility of business- to use its resources and engage in activities designed to increase its profit so long as it stays will the rules of the game, which is to say, engages in open and free competition, without deception or fraud.” [Milton Friedman, American economist]
• Giving money away is like a self imposed tax
• Managers who have been put in charge of a business have no right to give away the money of the owners
• Managers are employed to generate wealth for the shareholders - not give it away
• Free markets and capitalism have been at the centre of economic and social development
• Improvements in health and longevity have been made possible by economies driven by the free market
• To attract quality workers it is necessary to offer better pay and conditions and this leads to a rise in standards of living and wealth creation
• Free markets contribute to the effective management of scarce resources
• It is true that at times the market fails and therefore some regulation is necessary to redress the balance
• But the correcting of market failures is a matter for government - not business
• Regulation should be kept to a minimum since regulation stifles initiative and creates barrier to market entry
The free market case against corporate social responsibility
• The only social responsibility of business is to create shareholder wealth
• The efficient use of resources will be reduced if businesses are restricted in how they can produce
• The pursuit of social goals dilutes businesses’ primary purpose
• Corporate management cannot decide what is in the social interest
• Costs will be passed on to consumers
• It reduces economic efficiency and profit
• Directors have a legal obligation to manage the company in the interest of shareholders – and not for other stakeholders
• CSR behaviour imposes additional costs which reduce competitiveness
• CSR places unwelcome responsibilities on businesses rather than on government or individuals
The corporate responsibility view
• Businesses do not have an unquestioned right to operate in society
• Those managing business should recognise that they depend on society
• Business relies on inputs from society and on socially created institutions
• There is a social contract between business and society involving mutual obligations that society and business recognise that they have to each other
Stakeholder theory
The basic premise is that business organisations have responsibility to various groups in society (the internal and external stakeholders) and not just the owners/ shareholders
The responsibility includes a responsibility for the natural environment
Decisions should be taken in the wider interest and not just the narrow shareholder interest
Arguments for socially-responsible behaviour
• It is the ethical thing to do
• It improves the firm’ public image
• It is necessary in order to avoid excessive regulation
• Socially responsible actions can be profitable
• Improved social environment will be beneficial to the firm
• It will be attractive to some investors
• It can increase employee motivation
• It helps to corrects social problems caused by business
Enlightened self interest
This is the practice of acting in a way that is costly and/or inconvenient at present but which is believed to be in one’s best long term interests
There is a long history of philanthropy based on enlightened self interests e.g. Robert Owen’s New Lanark Mills, Titus Salt’s Saltaire as well the work of the Quaker chocolate makers such as Cadbury at Bournville and Rowntree in York.
Enlightened self interest is summed up in this quotation from Anita Roddick (founder of the Body Shop):“Being good is good for business”
CSR behaviour can benefit the firm in several ways
• It aids the attraction and retention of staff
• It attracts green and ethical investment
• It attracts ethically conscious customers
• It can lead to a reduction in costs through re-cycling
• It differentiates the firm from its competitor and can be a source of competitive advantage
• It can lead to increased profitability in the long run

corporate social responsibility - business in the community
Business in the Community
BITC is an independent charity set up by leading business organisations to inspire, engage, support an challenge continually improve the impact they have on society
It defines CSR as “a company’s positive impact on society and the environment, through its operations, products or services and through its interaction with key stakeholders” (www.bitc.org.uk)
The BITC index
Each year BITC conducts a self assessment survey on how companies are managing, measuring and reporting their social and environmental impacts
For each of community, environment, market place and workplace assessment is made in terms of:
• Community issues
• Environmental issues
• Market place issues
• Workplace issues
Scores are given and a BITC index is produced
How the BITC measures CSR:
• Commitment to CSR is evaluated in terms of the extent to which:
• Responsibilities have been clearly defined at all levels
• Policies are in place to ensure responsible business behaviour
• Objectives and targets have been set to create improvement
• There are effective communications systems to share knowledge
• Training is provided to ensure competency and delivery of objectives
• A process is in place for stakeholder consultation and engagement
• There are monitoring systems in place to assess and report progress
• Key issues, targets and performance are reported quickly.
BITC Index 2006: the top 20
• Co-operative Bank.
• BAA.
• Barclays
• BT
• National Grid
• PriceWaterhouseCoopers
• CE Electric UK
• Scottish and Southern Energy
• Veolia Water UK
• Boots
• Co-operative Insurance
• HBOS
• Lloyds TSB
• John Lewis Partnership
• RWE Npower
• Tesco
• Reckitt Benckiser
• Rolls Royce
• United Utilities
• And joint 20th- BBC,M&S, Scottish Power, Severn Trent Water.
(Source :Sunday Times 7/5/06)
Case study in CSR - Tesco
Tesco went on the offensive against criticism that it is an uncaring retail giant by unveiling a plan in turn it into a “better neighbour”
In addition to the investing in sustainable environmental technology such as wind turbine to light its stores, Tesco announced a 10 point action plan
Was this a genuine measure or corporate responsibility or an attempt to defect criticism of the power of the supermarket giants?
Tesco’s Ten Point Action Plan:
• Halve average energy used in Tesco buildings by 2010 compared with 2000
• Double the amount that customers recycle at stores by 2008
• Make all carrier bags degradable
• Put nutritional labeling on all own brand products by 2007
• Help educate parents about healthier food for their children
• Get 2m people running, cycling or walking in sponsored events leading up to the 2012 Olympics
• Be a quieter neighbour by cutting the number of deliveries to Express convenience stores
• More consultation before building new stores from 2007
• Make it easier for small suppliers to gain access to Tesco
• Sell more local product than other retailers and introduce regional counters into stores

crisis management - introduction
Defining and categorising crises
A crisis is defined as
• An unexpected event that threatens the wellbeing of a company, or
• A significant disruption to the company and its normal operations which impacts on its customers, employees, investors and other publics
Crises can be categorised as
• Fairly predictable and quantifiable crises, or
• Totally unexpected crises
Types of crises
Natural disaster (so called acts of God)
• Physical destruction due to natural disaster e.g. flood
• Environmental disaster
Industrial accident
• Construction collapse
• Fire
• Toxic release
Product or service failure
• Product recall
• Communications failure
• Systems failure
• Machine failure causes massive reduction in capacity
• Faulty or dangerous goods
• Health scare related to the product of industry
Public relations
• Pressure group or unwelcome media attention.
• Adverse publicity in the media.
• Removal/loss of CEO or other key management
Business and management
• Hostile takeover
• Sudden strike by workforce or that of a key supplier
• Major customer withdraws its support
• Competitor launches new product
• Sudden shortfall in demand
Legal
• Product liability
• Health scare
• Employee or other fraud
Examples of crises
• Asian tsunami - crisis for the countries concerned and for the tourist industry
• Three Mile Island - US nuclear industry crisis in the 1980s
• Sudan 1 dyestuff in processed food
• Coca Cola’s Dansani purified water –contained a carcenogen and as a result the European launch was abandoned
• Hurricane Katrina
Case study - Exxon Valdez
• This oil tanker which got into trouble in Prince William Sound off Alaska caused an oil spillage amounting to 30m US gallons
• In addition to the loss of product and a major asset:
• The clean up took three years and cost Exxon $2.2 billion
• Legal settlement with the state and federal government amounted to $1billion
Case study - Buntsfield (2005)
In 2005 the oil storage depot at Buntsfield, Hemel Hempstead suffered major explosion and fire
The result was:
• Loss of product
• Significant loss of capacity
• Disruption to supplies
• Loss of business
• Physical damage to neighbouring houses and commercial premises
• Possible environmental damage
• Damage to reputation
• Claims for compensation
• Legal action
Case study - a different type of disaster
• In 1991 Gerald Ratner, head of the chain of high street jewellers that bore his name, explained why his products were so inexpensive
• He said that a decanter sold in his shop was cheap because it was “total crap”
• He “sold a pair of earrings for under £1,which was cheaper than a prawn sandwich from M&S, but probably wouldn’t last as last as long”
• The result: share values fell substantially, Mr Ratner left the company and it was sold
crisis management - planning and action
Contingency planning
Organisations prepare contingency plans in recognition of the fact that things do go wrong from time to time
Contingency planning involves:
• Preparing for predictable and quantifiable crises
• Preparing for unexpected and unwelcome events
The aim is to minimise the impact of a foreseeable event and to plan for how the organisation will resume normal operations after the crisis
Contingency plans
The contingency plan:
• Identifies alternative courses of action that can be taken if circumstances change with time
• Details standby procedures to enable the continuation of essential activities and services during the period of the emergency
• Includes programmes for improving the business in the longer term once the immediate situation has been resolved
Steps in drawing up a contingency plan
• Recognise the need for contingency planning
• Identify possible contingencies - all the possible adverse and crisis scenarios
• Specify the likely consequences
• Assess of the degree of risk to each eventuality
• Determine risk strategy to prevent a crisis & to deal with a crisis should one occur
• Draft the plan and identify responsibilities
• Simulate crises and the operate of each plan
Dealing with the “what if” question
Scenario analysis:
• This involves constructing multiple but equally plausible views of the future
• The scenario consists of a “story” from which managers can plan
Sensitivity analysis
• Involves testing the effect of a plan on alternative values of key variables
• e.g. the effect of a 50% loss of capacity


Crisis management
• Crisis management involves:
• Identifying a crisis
• Planning a response
• Responding to a sudden event that poses a significant threat to the firm
• Limiting the damage
• Selecting an individual and team to deal with the crisis
• Resolving a crisis
Stages of a crisis
Pre-crisis Prior to the event
Warning Indications that there is or may be or could be an event liable to cause a significant impact on the organisation
Crisis point When the event begins to cause significant impact on the organisation
Recovery The acute stage of crisis has passed and the organisation is able to focus on a return to normal operations
Post crisis Evaluation of the effects
Repair to the organisation

Role of the crisis manager
• Crisis assessment
• Event tracking
• Managing human considerations
• Damage assessment
• Assessment or resources and options
• Development of contingencies
• Managing communications
• Co-ordination with external bodies
• Controlling information
• Controlling expectations
• Managing legal requirements
Advice on handling a crisis
• Appoint a crisis manager
• Recognise that the crisis manager is likely to adopt a more authoritarian style than is normal
• Do an objective assessment of the cause (s) of the crisis
• Determine whether the cause (s) will have a long term effect or whether it will be a short term phenomenon
• Project the most likely cause of events
• Focus on activities that will mitigate or eliminate the problem
• “Look for the silver lining”- opportunities in the aftermath
• Act to guard cash flow
Dealing with the financial aspects of a crisis
• Accelerate accounts receivable (payment by debtor)- by offering a discount if necessary.
• Slow up payment to creditors where possible.
• Increase short term, sales
• Reduces expenses - especially “non mission critical” expenses
• Outsource non mission critical operations.
• Re-schedule loans
Dealing with the “people” aspects of a crisis
• Form a crisis team
• Designate one person only to speak about the crisis to the outside world
• Act to prevent or counter the spread of negative information
• Make use of the media to provide a counter argument
• Do not tell untruths - trying to manipulate or distort the information will backfire

strategy - portfolio analysis - ge matrix
The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.
The company must:
(1) Analyse its current business portfolio and decide which businesses should receive more or less investment, and
(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses should no longer be retained.
The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and the McKinsey / General Electric Matrix (discussed in this revision note). In both methods, the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. An SBU can be a company division, a product line or even individual brands - it all depends on how the company is organised.
The McKinsey / General Electric Matrix
The McKinsey/GE Matrix overcomes a number of the disadvantages of the BCG Box. Firstly, market attractiveness replaces market growth as the dimension of industry attractiveness, and includes a broader range of factors other than just the market growth rate. Secondly, competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed.
The diagram below illustrates some of the possible elements that determine market attractiveness and competitive strength by applying the McKinsey/GE Matrix to the UK retailing market:

Factors that Affect Market Attractiveness
Whilst any assessment of market attractiveness is necessarily subjective, there are several factors which can help determine attractiveness. These are listed below:
- Market Size
- Market growth
- Market profitability
- Pricing trends
- Competitive intensity / rivalry
- Overall risk of returns in the industry
- Opportunity to differentiate products and services
- Segmentation
- Distribution structure (e.g. retail, direct, wholesale
Factors that Affect Competitive Strength
Factors to consider include:
- Strength of assets and competencies
- Relative brand strength
- Market share
- Customer loyalty
- Relative cost position (cost structure compared with competitors)
- Distribution strength
- Record of technological or other innovation
- Access to financial and other investment resources

global business - introduction
Introduction to international business
International business is not new – businesses and nations have conducted trade across national boundaries for centuries.
Lured by the prospects of large markets and/or sources of raw materials, businesses have traded with other parts of the world.
But as we will see later global business and global industry is different.
Overseas trade and Ansoff’s matrix

Thinking about international business in the context of Ansoff’s matrix:
• Entry into overseas markets represents market development.
• Existing products are sold in new markets.
• It is appealing because:
- market penetration is difficult in saturated markets.
- product development is costly.
- diversification is risky
Why enter overseas markets?
The reasons for entering overseas markets can be categorised into “push” and “pull” factors:
Push factors
• Saturation in domestic markets
• Economic difficulty in domestic markets
• Near the end of the product life cycle at home
• Excess capacity
• Risk diversification
Pull factors
• The attraction of overseas markets
• Increase sales
• Enjoy greater economies of scale
• Extend the product life cycle
• Exploit a competitive advantage
• Personal ambition
Factors in the choice of which overseas market(s) to enter:
• Size of the market (population, income)
• Economic factors (state of the economy)
• Cultural linguistic factors (e.g. preference for countries with similar cultural background)
• Political stability (there is usually a preference for stable areas)
• Technological factors (these affect demand and the ease of trading)
Constraints and difficulties in entering overseas markets:
• Resources
• Time
• Market uncertainty
• Marketing costs
• Cultural differences
• Linguistic differences
• Trade barriers
• Regulations and administrative procedures.
• Political uncertainties
• Exchange rates (transactions costs & risks)
• Problems of financing
• Working capital problems
• Cost of insurance
• Distribution networks
Exporting is only one method of doing business internationally
• We normally think of overseas trade in terms of exporting and importing goods and services
• This involves transporting goods and selling them across national boundaries.
• Direct exporting implies that the domestic firm is actively involved in selling the goods abroad
• Indirect exporting means that the marketing of goods is delegated to export agents and the UK manufacturer concentrates on production
• But exporting involving the movement of goods is only one method of engaging in international business
Other methods of market entry
• Overseas product an/or assembly (producing goods abroad)
• International alliances and joint ventures (working with foreign companies)
• International M&A (mergers and acquisitions across frontiers)
• International franchising and licensing allowing foreign based firms to produce, market and distribute goods in specified areas abroad)

global business - global strategy
A global industry
A global industry can be defined as:
• An industry in which firms must compete in all world markets of that product in order to survive
• An industry in which a firm’s competitive advantage depends on economies of scale and economies of scope gained across markets
Global markets are international markets where products are largely standardised.
Michael Porter argued that industries are either multi-domestic or global.
Global industries: competition is global. The same firms compete with each other everywhere.
Multi-domestic industries: firms compete in each national market independently of other national markets.
In general businesses adopt a global strategy in global markets and a multi-local strategy in multi domestic markets.
Global strategy
Companies such as Sony and Panasonic pursue a global strategy which involves:
• Competing everywhere
• Appreciating that success demands a presence in almost every part of the world in order to compete effectively
• Making the product the same for each market
• Centralised control
• Taking advantage of customer needs and wants across international borders
• Locating their value adding activities where they can achieve the greatest competitive advantage
• Integrating and co-ordinating activities across borders
• A global strategy is effective when differences between countries are small and competition is global. It has advantages in terms of
o Economies of scale
Lower costs
Co-ordination of activities
Faster product development
However, many regret the growing standardisation across the world.
Multi domestic strategy
• A multi-domestic strategy involves products tailored to individual countries
Innovation comes from local R&D
• There is decentralisation of decision making with in the organisation
• One result of decentralisation is local sourcing
• Responding to local needs is desirable but there are disadvantages: for example high costs due to tailored products and duplication across countries
Comparison of the two strategies
Four drivers determine the extent and nature of globalisation in an industry:
(1) Market drivers
• Degree of homogeneity of customer needs
• Existence global distribution networks
• Transferable marketing
(2) Cost drivers
• Potential for economies of scale
• Transportation cost
• Product development costs
• Economies of scope
(3) Government drivers
• Favour trade policies e.g. market liberalisation
• Compatible technical standards and common marketing regulations
• Privatisation
(4) Competitive drivers
• The greater the strength of the competitive drivers the greater the tendency for an industry to globalise

strategic planning - mission
Mission
A strategic plan starts with a clearly defined business mission.
Mintzberg defines a mission as follows:
“A mission describes the organisation’s basic function in society, in terms of the products and services it produces for its customers”.
A clear business mission should have each of the following elements:


Taking each element of the above diagram in turn, what should a good mission contain?
(1) A Purpose
Why does the business exist? Is it to create wealth for shareholders? Does it exist to satisfy the needs of all stakeholders (including employees, and society at large?)
(2) A Strategy and Strategic Scope
A mission statement provides the commercial logic for the business and so defines two things:
- The products or services it offers (and therefore its competitive position)
- The competences through which it tries to succeed and its method of competing
A business’ strategic scope defines the boundaries of its operations. These are set by management.
For example, these boundaries may be set in terms of geography, market, business method, product etc. The decisions management make about strategic scope define the nature of the business.
(3) Policies and Standards of Behaviour
A mission needs to be translated into everyday actions. For example, if the business mission includes delivering “outstanding customer service”, then policies and standards should be created and monitored that test delivery.
These might include monitoring the speed with which telephone calls are answered in the sales call centre, the number of complaints received from customers, or the extent of positive customer feedback via questionnaires.
(4) Values and Culture
The values of a business are the basic, often un-stated, beliefs of the people who work in the business. These would include:
• Business principles (e.g. social policy, commitments to customers)
• Loyalty and commitment (e.g. are employees inspired to sacrifice their personal goals for the good of the business as a whole? And does the business demonstrate a high level of commitment and loyalty to its staff?)
• Guidance on expected behaviour – a strong sense of mission helps create a work environment where there is a common purpose
What role does the mission statement play in marketing planning?
In practice, a strong mission statement can help in three main ways:
• It provides an outline of how the marketing plan should seek to fulfil the mission
• It provides a means of evaluating and screening the marketing plan; are marketing decisions consistent with the mission?
• It provides an incentive to implement the marketing plan
strategy - introduction to PEST analysis
PEST analysis is concerned with the environmental influences on a business.
The acronym stands for the Political, Economic, Social and Technological issues that could affect the strategic development of a business.
Identifying PEST influences is a useful way of summarising the external environment in which a business operates. However, it must be followed up by consideration of how a business should respond to these influences.
The table below lists some possible factors that could indicate important environmental influences for a business under the PEST headings:
Political / Legal Economic Social Technological
- Environmental regulation and protection - Economic growth (overall; by industry sector) - Income distribution (change in distribution of disposable income; - Government spending on research
- Taxation (corporate; consumer) - Monetary policy (interest rates) - Demographics (age structure of the population; gender; family size and composition; changing nature of occupations) - Government and industry focus on technological effort
- International trade regulation - Government spending (overall level; specific spending priorities) - Labour / social mobility - New discoveries and development
- Consumer protection - Policy towards unemployment (minimum wage, unemployment benefits, grants) - Lifestyle changes (e.g. Home working, single households) - Speed of technology transfer
- Employment law - Taxation (impact on consumer disposable income, incentives to invest in capital equipment, corporation tax rates) - Attitudes to work and leisure - Rates of technological obsolescence
- Government organisation / attitude - Exchange rates (effects on demand by overseas customers; effect on cost of imported components) - Education - Energy use and costs
- Competition regulation - Inflation (effect on costs and selling prices) - Fashions and fads - Changes in material sciences
- Stage of the business cycle (effect on short-term business performance) - Health & welfare - Impact of changes in Information technology
- Economic "mood" - consumer confidence - Living conditions (housing, amenities, pollution) - Internet!
strategy - resources of a business
In our introduction to the topic of business strategy, we used Johnson & Scholes' definition stating that "Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".
So, what are these "resources" that a business needs to put in place to pursue its chosen strategy?
Business resources can usefully be grouped under several categories:
Financial Resources
Financial resources concern the ability of the business to "finance" its chosen strategy. For example, a strategy that requires significant investment in new products, distribution channels, production capacity and working capital will place great strain on the business finances. Such a strategy needs to be very carefully managed from a finance point-of-view. An audit of financial resources would include assessment of the following factors:
Existing finance funds - Cash balances
- Bank overdraft
- Bank and other loans
- Shareholders' capital
- Working capital (e.g. stocks, debtors) already invested in the business
- Creditors (suppliers, government)

Ability to raise new funds - Strength and reputation of the management team and the overall business
- Strength of relationships with existing investors and lenders
- Attractiveness of the market in which the business operates (i.e. is it a market that is attracting investment generally?)
- Listing on a quoted Stock Exchange? If not, is this a realistic possibility?
Human Resources
The heart of the issue with Human Resources is the skills-base of the business. What skills does the business already possess? Are they sufficient to meet the needs of the chosen strategy? Could the skills-base be flexed / stretched to meet the new requirements? An audit of human resources would include assessment of the following factors:
Existing staffing resources - Numbers of staff by function, location, grade, experience, qualification, remuneration
- Existing rate of staff loss ("natural wastage")
- Overall standard of training and specific training standards in key roles
- Assessment of key "intangibles" - e.g. morale, business culture

Changes required to resources - What changes to the organisation of the business are included in the strategy (e.g. change of location, new locations, new products)?
- What incremental human resources are required?
- How should they be sourced? (alternatives include employment, outsourcing, joint ventures etc.)
Physical Resources
The category of physical resources covers wide range of operational resources concerned with the physical capability to deliver a strategy. These include:
Production facilities - Location of existing production facilities; capacity; investment and maintenance requirements
- Current production processes - quality; method & organisation
- Extent to which production requirements of the strategy can be delivered by existing facilities

Marketing facilities - Marketing management process
- Distribution channels

Information technology - IT systems
- Integration with customers and suppliers
Intangible Resources
It is easy to ignore the intangible resources of a business when assessing how to deliver a strategy - but they can be crucial. Intangibles include:
Goodwill - The difference between the value of the tangible assets of the business and the actual value of the business (what someone would be prepared to pay for it)

Reputation - Does the business have a track record of delivering on its strategic objectives? If so, this could help gather the necessary support from employees and suppliers

Brands - Strong brands are often the key factor in whether a growth strategy is a success or failure

Intellectual Property - Key commercial rights protected by patents and trademarks may be an important factor in the strategy.
seasonality - introduction
Seasonality
Seasonality refers to fluctuations in output and sales related to the seasonal of the year.
For many (or even most products) there will be seasonal peaks and troughs in production and/or sales.
In some cases there will be fluctuations over the week or even within the working day but the time based fluctuation that produces the greatest problem concerns fluctuations related to seasons of the year.
Demand or supply?
We should distinguish between seasonality of demand and seasonality of supply.
Products whose production is affected by the weather and the cycle of the year can be subject to seasonality in supply.
The main examples of seasonality in supply relate to agricultural, horticulture and related activities.
If production takes places in the open then seasonal changes will have an impact.
But manufactured products and services are produced indoors and supply is not affected by the seasons and the weather.
Seasonal demand
Supply of manufactured goods and services is little affected by seasonal factors. But demand for these goods is subject to seasonal fluctuation.
In some cases it can be explained in terms of culture and customs e.g. religious festivals.
In other cases the seasonality can be explained in terms of the weather.
Obvious examples of products with highly seasonal demand include:
• Christmas cards
• Valentine cards
• Easter eggs
• Fireworks
• Sun lotion
• Overcoats
• Swimwear
• College textbooks
• Holidays
• Winter clothes
• Summer clothes
• Back to school clothes
Less obvious examples of products with seasonal demand include:
• Demand for slippers peaks in the run up to Christmas
• Demand for strawberries peaks in the period around the Wimbledon fortnight
• Demand for plants at garden centres is linked to the planting season
• There is high demand for decorating materials before the Easter weekend
• Demand for electricity and gas rises in the winter
• High street retailers such as M&S rely heavily on the Christmas period. Up to 25% of sales occur around Christmas
• Many theatres take a similar proportion of their income during the Christmas pantomime season – hence the desire to sign up UK and Australian soap stars
Example of induced seasonality
• Car registration induced a distinct seasonal pattern to sales of new cars
• Each year, from 1st August onwards, new cars were given a new registration suffix
• The purpose was to introduce some transparency to the market so that the age of the car was clear to all concerned. But it produced an unfortunate effect
• Sales of new cars slumped in the spring and early summer and a high proportion of sales were concentrated in August
• This was an example of seasonal fluctuation as an unintended by-product of a bureaucratic decision
• As it distorted the market in new cars the practice was abandoned
stakeholders - introduction
Some definitions of a stakeholder:
• An individual or group with an interest in an organisation.
• Any individual or group who can affect or are affected by the achievement of a firm’s objective.
• Groups/individuals that have an interest in the well being of the company and/or are affected by the goals, operations, activities of the organisation.
Stakeholders can be classified as:
• Internal stakeholders (e.g. employees, managers)
• Connected stakeholders (e.g. shareholders, customers, suppliers, financiers)
• External (e.g. government, the community, pressure groups)
The main stakeholders in any business are:
• Shareholders
• Employees
• Customers
• Suppliers
• Creditors
• Society
• The government
• Competitor
Shareholders look for:
• High profits
• High dividend
• Long term growth
• Prospect of capital gain
• A say in the business
• A positive corporate image
• Preferential treatment as customers
Employees look for:
• High pay
• Job security
• Good working conditions
• Fair treatment
• Fringe benefits
• Health and safety
• Promotion prospects
• Training opportunities
Customers look for:
• Low prices
• Value for money
• High quality products
• Good service
• Innovation
• Certain and regular supply
• Choice of goods i.e. variety
• Clear and accurate information
Suppliers look for:
• A long term relationship with the firm
• Large size and high value of contracts
• Frequent and regular orders
• Prompt payment
• Fair prices
• Growth of the firm leading to more orders
Creditors look for:
• Prompt payment
• Payment of interest on outstanding debt
• Repayment at agreed date
• Credit worthiness of the organisation
• Sufficient positive cash flow to meet obligations
The community looks for:
• Employment prospects
• Safeguarding the environment
• Acceptance of social responsibility
• Ethical behaviour
Government looks for:
• Compliance with laws and regulations
• Efficient use of resources
• Employment
• Contribution to the national economy
• Payment of taxes
strategic planning - the link with marketing
Introduction
Businesses that succeed do so by creating and keeping customers. They do this by providing better value for the customer than the competition.
Marketing management constantly have to assess which customers they are trying to reach and how they can design products and services that provide better value (“competitive advantage”).
The main problem with this process is that the “environment” in which businesses operate is constantly changing. So a business must adapt to reflect changes in the environment and make decisions about how to change the marketing mix in order to succeed. This process of adapting and decision-making is known as marketing planning.
Where does marketing planning fit in with the overall strategic planning of a business?
Strategic planning is concerned about the overall direction of the business. It is concerned with marketing, of course. But it also involves decision-making about production and operations, finance, human resource management and other business issues.
The objective of a strategic plan is to set the direction of a business and create its shape so that the products and services it provides meet the overall business objectives.
Marketing has a key role to play in strategic planning, because it is the job of marketing management to understand and manage the links between the business and the “environment”.
Sometimes this is quite a straightforward task. For example, in many small businesses there is only one geographical market and a limited number of products (perhaps only one product!).
However, consider the challenge faced by marketing management in a multinational business, with hundreds of business units located around the globe, producing a wide range of products. How can such management keep control of marketing decision-making in such a complex situation? This calls for well-organised marketing planning.
What are the key issues that should be addressed in strategic and marketing planning?
The following questions lie at the heart of any marketing and strategic planning process:
• Where are we now?
• How did we get there?
• Where are we heading?
• Where would we like to be?
• How do we get there?
• Are we on course?
Why is marketing planning essential?
Businesses operate in hostile and increasingly complex environment. The ability of a business to achieve profitable sales is impacted by dozens of environmental factors, many of which are inter-connected. It makes sense to try to bring some order to this chaos by understanding the commercial environment and bringing some strategic sense to the process of marketing products and services.
A marketing plan is useful to many people in a business. It can help to:
• Identify sources of competitive advantage
• Gain commitment to a strategy
• Get resources needed to invest in and build the business
• Inform stakeholders in the business
• Set objectives and strategies
• Measure performance

strategy - value chain analysis
Introduction
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings:
(1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and
(2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities.
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced").
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used.
Primary Activities
Primary value chain activities include:
Primary Activity Description
Inbound logistics All those activities concerned with receiving and storing externally sourced materials
Operations The manufacture of products and services - the way in which resource inputs (e.g. materials) are converted to outputs (e.g. products)
Outbound logistics All those activities associated with getting finished goods and services to buyers
Marketing and sales Essentially an information activity - informing buyers and consumers about products and services (benefits, use, price etc.)
Service All those activities associated with maintaining product performance after the product has been sold

Support Activities
Support activities include:
Secondary Activity Description
Procurement This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers)
Human Resource Management Those activities concerned with recruiting, developing, motivating and rewarding the workforce of a business
Technology Development Activities concerned with managing information processing and the development and protection of "knowledge" in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management

Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps:
(1) Break down a market/organisation into its key activities under each of the major headings in the model;
(2) Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage;
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained

product portfolio strategy - introduction to the boston consulting box
Introduction
The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.
The company must:
(1) Analyse its current business portfolio and decide which businesses should receive more or less investment, and
(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses should no longer be retained.
Methods of Portfolio Planning
The two best-known portfolio planning methods are from the Boston Consulting Group (the subject of this revision note) and by General Electric/Shell. In each method, the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. An SBU can be a company division, a product line or even individual brands - it all depends on how the company is organised.
The Boston Consulting Group Box ("BCG Box")

Using the BCG Box (an example is illustrated above) a company classifies all its SBU's according to two dimensions:
On the horizontal axis: relative market share - this serves as a measure of SBU strength in the market
On the vertical axis: market growth rate - this provides a measure of market attractiveness
By dividing the matrix into four areas, four types of SBU can be distinguished:
Stars - Stars are high growth businesses or products competing in markets where they are relatively strong compared with the competition. Often they need heavy investment to sustain their growth. Eventually their growth will slow and, assuming they maintain their relative market share, will become cash cows.
Cash Cows - Cash cows are low-growth businesses or products with a relatively high market share. These are mature, successful businesses with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars.
Question marks - Question marks are businesses or products with low market share but which operate in higher growth markets. This suggests that they have potential, but may require substantial investment in order to grow market share at the expense of more powerful competitors. Management have to think hard about "question marks" - which ones should they invest in? Which ones should they allow to fail or shrink?
Dogs - Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in.
Using the BCG Box to determine strategy
Once a company has classified its SBU's, it must decide what to do with them. In the diagram above, the company has one large cash cow (the size of the circle is proportional to the SBU's sales), a large dog and two, smaller stars and question marks.
Conventional strategic thinking suggests there are four possible strategies for each SBU:
(1) Build Share: here the company can invest to increase market share (for example turning a "question mark" into a star)
(2) Hold: here the company invests just enough to keep the SBU in its present position
(3) Harvest: here the company reduces the amount of investment in order to maximise the short-term cash flows and profits from the SBU. This may have the effect of turning Stars into Cash Cows.
(4) Divest: the company can divest the SBU by phasing it out or selling it - in order to use the resources elsewhere (e.g. investing in the more promising "question marks").
balanced scorecard - four perspectives
The four perspectives are:
• Financial perspective - how does the firm look to shareholders?
• Customer perspective - how do customers see the firm?
• Internal perspective - how well does it manage its operational processes?
• Innovation and learning perspective – can the firm continue to improve and create value? This perspective also examines how an organisation learns and grows.
For each of four perspectives it is necessary to identify indicators to measure the performance of the organisations.
More on the financial perspective
This is concerned with the shareholders view of performance.
Shareholders are concerned with many aspects of financial performance: Amongst the measures of success are:
• Market share
• Revenue growth
• Profit ratio
• Return on investment
• Economic value added
• Return on capital employed
• Operating cost management
• Operating ratios and loss ratios
• Corporate goals
• Survival
• Profitability
• Growth
• Process cost savings
• Increased return on assets
• Profit growth
• Measures
• Cash flow
• Net profitability ratio
• Sales revenue
• Growth in sales revenue
• Cost reduction
• ROCE
• Share price
• Return on shareholder funds
More on the customer perspective
How do customers perceive the firm?
This focuses on the analysis of different types of customers, their degree of satisfaction and the processes used to deliver products and services to customers.
Particular areas of focus would include:
• Customer service
• New products
• New markets
• Customer retention
• Customer satisfaction
• What does the organisation need to do to remain that customer’s valued supplier?
Potential goals for the customer perspective could include:
• Customer satisfaction
• New customer acquisition
• Customer retention
• Customer loyalty
• Fast response
• Responsiveness
• Efficiency
• Reliability
• Image
The following metrics could be used to measure success in relation to the customer perspective:
• Customer satisfaction index
• Repeat purchases
• Market share
• On time deliveries
• Number of complaints
• Average time to process orders
• Returned orders
• Response time
• Reliability
• New customer acquisitions
• Perceived value for money
More on the internal perspective
This seeks to identify:
• How well the business is performing.
• Whether the products and services offered meet customer expectations.
• The critical processes for satisfying both customers and shareholders.
• Activities in which the firm excels?
• And in what must it excel in the future?
• The internal processes that the company must be improved if it is to achieve its objectives.
This perspective is concerned with assessing the quality of people and processes.
Potential goals for the internal perspective include:
• Improve core competencies
• Improvements in technology
• Streamline processes
• Manufacturing excellence
• Quality performance
• Inventory management
• Quality
• Motivated workforce
The following metrics could be used to measure success in relation to the internal perspective:
• Efficiency improvements
• Reduction in unit costs
• Reduced waste
• Improvements in morale
• Increase in capacity utilisation
• Increased productivity
• % defective output
• Amount of recycled waste
• Amount of reworking
More on the innovation and learning perspective
This perspective is concerned with issues such as:
• Can we continue to improve and create value?
• In which areas must the organisation improve?
• How can the company continue to improve and create value in the future?
• What should it be doing to make this happen?
Potential goals for the innovation and learning perspective include:
• New product development
• Continuous improvement
• Technological leadership
• HR development
• Product diversification
The following metrics could be used to measure success in relation to the innovation and learning perspective:
• Number of new products
• % sales from new products
• Amount of training
• Number of strategic skills learned.
• Value of new product in sales
• R&D as % of sales
• Number of employee suggestions.
• Extent of employee empowerment
change management - force field analysis & Lewin's change model
Lewin’s Force Field Analysis

• There are forces driving change and forces restraining it
• Where there is equilibrium between the two sets of forces there will be no change
• In order for change to occur the driving force must exceed the restraining force
The analysis can be used to:
• Investigate the balance of power involved in an issue
• Identify the key stakeholders on the issue
• Identify opponents and allies
• Identify how to influence the target groups
Lewin’s change model
This model defines three stages in the process of change:
(1) Unfreezing
(2) Change
(3) Refreezing
It assists organisation change by:
• Allowing the process to be understood
• Providing milestones for evaluating progress towards the change
Unfreezing
This is the shake up phase perhaps triggered by declining sales or profits. The result is an acceptance that the existing structures and ways are not working
To get people ready for change it is necessary to develop an awareness of the:
• Necessity of change
• Nature of change needed
• Methods planned to achieve the change
• Needs of those affected
• Ways that progress will be planned and monitored
Changing
This is the process of devising and implementing the change:
• Define the problem
• Identify solutions
• Devise appropriate strategy to implement change
• Implement solutions
Refreezing
This is the process of maintaining the momentum of change:
• Locking in the changes
• Stabilising the situation
• Building relationships
• Consolidating the system
• Evaluation and support
• Preventing any going back to the old ways
Refreezing is complete when the new patterns are accepted and followed willingly
change management - implementation
Managing the change
Preparation for change
• Environmental analysis.
• Set out the strengths and weaknesses of the organisation
– Current provisions
– Resources
– Roles and responsibilities
• Identify the change required
• Determine the major issues
• Identify and assess the key stakeholders
• Win the support of key individuals
• Identify the obstacles
• Determine the degree of risk and the cost of change
• Understand why change is resisted
• Recognize the need for change, identify current position, devise a suitable method
Building the vision
• Develop a clear vision
• Make it people clear about what a change involves and how they are involved in it
• What is involved
• What is the proposed change
• Why should we do it
• What the major effects will be
• How we can manage the change
Plan the change
• Devise appropriate strategies to introduce change
• Design the change
• Identify the significant steps in the change process
• Discuss the need for change and the full details of what is involved
• Allow people to participate in planning change
• Communicate the plan to all concerned
• Produce a policy statement
• Devise a sensible time scale
• Produce action plans for monitoring the change
• Allow people to participate in planning change
• Get all parties involved in and committed to the change
• Inspire confidence by forestalling problems and communicating regularly
• Devise a sensible time scale for implementation of change
• Anticipate the problems of implementation
• Understand why change is resisted
Implementing the change
• Check on and record progress
• Make sure that change is permanent
• Evaluate the change
• Improve on any weak areas
• Overcome resistance
• Involve all personnel affected
• Keep everyone informed
• Devise an appropriate reward system
• Be willing to compromise on detail
• Ensure that strategies are adaptable
• Select people to champion change
• Provide support and training
• Monitor and review
Two types of change
(1) Step change
• Dramatic or radical change in one fell swoop
• Radical alternation in the organisation
• Gets it over with quickly
• May require some coercion
(2) Incremental change
• Ongoing piecemeal change which takes place as part of an organisation’s evolution and development
• Tends to more inclusive
Step v incremental change



Techniques to help implement change
Teams building across units
Internal communication
Negotiation
Action planning
Change agents or champions of change
And a certain amount of compulsion manipulation and coercion


Change agents
Managers should be able to act as change agents:
• To identify need for change
• Be open to goods ideas for change
• To able to successfully implement change
Advantages of using a change agent:
• Forces trough change
• Becomes the personification of the process
• Responsibility for change is delegated thus freeing up senior managers to focus on future strategy
Helping people to accept change
• Consider how they will be affected
• Involve them in the change
• Consult and inform frequently
• Be firm but flexible
• Make controversial change as gradually as possible
• Monitor the change
• Develop a change philosophy
Six ways of overcoming resistance to change
• (1) Education and communication - if people understand the needs for change and what is involved they are more likely to co-operate.
• (2) Participation and involvement - to encourage people to feel ownership of the change.
• (3) Facilitation and support - listening to the real concerns of people affected.
• (4) Negotiation and agreement - agreement and compromise if necessary.
• (5) Manipulation - e.g. “buying off” leaders of resistance.
• (6) Explicit and implicit coercion - threats where necessary but this is a high risk strategy.
(source: Kotter and Schlesinger In HBR 1979)
Monitor and review
• Adapt as necessary
• Recording and monitor the changes
• Measure progress against targets
• Have the desired results been achieved?
• Has the process been successful?
• How do those affected feel about the new situation?
• What might have been done differently?
• How can those not responding well to the change be helped?
• Sustain the change.- prevent any back sliding
Kotter’s change phases model
• Establish a sense of urgency
• Create a coalition
• Develop a clear vision
• Share the vision
• Empower people to clear obstacles
• Secure short term wins
• Consolidate and keep moving
• Anchor the change
Change management failures
What not to do
Ways to increase resistance to change:
Managers can increase resistance by:
• Failing to specific about a change
• Failing to explain why change is needed
• Not consulting
• Keeping people in the dark
• Creating excess work pressure
• Expecting immediate results
• Not dealing with fears and anxieties
• Ignoring resistance
Reasons why change can fail
• Employees do not understand the purpose or even the need for change
• Lack of planning and preparation
• Poor communication
• Employees lack the necessary skills and/ or there is insufficient training and development offered
• Lack of necessary resources
• Inadequate/inappropriate rewards
Eight common reasons for failure of change management:
• Allowing too much complexity
• Failing to build a substantial coalition
• Failing to understand the need for a clear vision
• Failure to clearly communicate that vision
• Permitting roadblocks against that vision
• Not planning for short term results and not realising them
• Declaring victory too soon
• Failure to anchor changes in corporate culture
(John Kotter)
strategy - core competencies
Introduction
Core competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for analysing core competencies is recognising that competition between businesses is as much a race for competence mastery as it is for market position and market power. Senior management cannot focus on all activities of a business and the competencies required to undertake them. So the goal is for management to focus attention on competencies that really affect competitive advantage.
The Work of Hamel and Prahalad
The main ideas about Core Competencies where developed by C K Prahalad and G Hamel through a series of articles in the Harvard Business Review followed by a best-selling book - Competing for the Future. Their central idea is that over time companies may develop key areas of expertise which are distinctive to that company and critical to the company's long term growth.
'In the 1990s managers will be judged on their ability to identify, cultivate, and exploit the core competencies that make growth possible - indeed, they'll have to rethink the concept of the corporation it self.' C K Prahalad and G Hamel 1990
These areas of expertise may be in any area but are most likely to develop in the critical, central areas of the company where the most value is added to its products.
For example, for a manufacturer of electronic equipment, key areas of expertise could be in the design of the electronic components and circuits. For a ceramics manufacturer, they could be the routines and processes at the heart of the production process. For a software company the key skills may be in the overall simplicity and utility of the program for users or alternatively in the high quality of software code writing they have achieved.
Core Competencies are not seen as being fixed. Core Competencies should change in response to changes in the company's environment. They are flexible and evolve over time. As a business evolves and adapts to new circumstances and opportunities, so its Core Competencies will have to adapt and change.
Identifying Core Competencies
Prahalad and Hamel suggest three factors to help identify core competencies in any business:
What does the Core Competence Achieve? Comments / Examples
Provides potential access to a wide variety of markets The key core competencies here are those that enable the creation of new products and services.
Example: Why has Saga established such a strong leadership in supplying financial services (e.g. insurance) and holidays to the older generation?
Core Competencies that enable Saga to enter apparently different markets:
- Clear distinctive brand proposition that focuses solely on a closely-defined customer group
- Leading direct marketing skills - database management; direct-mailing campaigns; call centre sales conversion
- Skills in customer relationship management
Makes a significant contribution to the perceived customer benefits of the end product Core competencies are the skills that enable a business to deliver a fundamental customer benefit - in other words: what is it that causes customers to choose one product over another? To identify core competencies in a particular market, ask questions such as "why is the customer willing to pay more or less for one product or service than another?" "What is a customer actually paying for?
Example: Why have Tesco been so successful in capturing leadership of the market for online grocery shopping?
Core competencies that mean customers value the Tesco.com experience so highly:
- Designing and implementing supply systems that effectively link existing shops with the Tesco.com web site
- Ability to design and deliver a "customer interface" that personalises online shopping and makes it more efficient
- Reliable and efficient delivery infrastructure (product picking, distribution, customer satisfaction handling)
Difficult for competitors to imitate A core competence should be "competitively unique": In many industries, most skills can be considered a prerequisite for participation and do not provide any significant competitor differentiation. To qualify as "core", a competence should be something that other competitors wish they had within their own business.
Example:Why does Dell have such a strong position in the personal computer market?
Core competencies that are difficult for the competition to imitate:
- Online customer "bespoking" of each computer built
- Minimisation of working capital in the production process
- High manufacturing and distribution quality - reliable products at competitive prices
A competence which is central to the business's operations but which is not exceptional in some way should not be considered as a core competence, as it will not differentiate the business from any other similar businesses. For example, a process which uses common computer components and is staffed by people with only basic training cannot be regarded as a core competence. Such a process is highly unlikely to generate a differentiated advantage over rival businesses. However it is possible to develop such a process into a core competence with suitable investment in equipment and training.
It follows from the concept of Core Competencies that resources that are standardised or easily available will not enable a business to achieve a competitive advantage over rivals.
crisis management - dealing with risk
Risk management The identification and acceptance or offsetting of the risks threatening the profitability, or even the existence, of an organisation
Contingency planning A plan for back up procedures, emergency response and post disaster recovery
Crisis management The process of responding to an event that might threaten the operations, staff, customers, reputation or the legal and financial status of an organisation. The aim is to minimise the damage

Risk
Risk is:
• The possibility of incurring misfortune or loss
• A threat that an event, action or failure to act will adversely affect an organisation’s ability to achieve its business objectives and execute its strategies effectively
• The chance of something happening that will have an impact on objectives
How risk differs from uncertainty
• Risk is defined as the chance or probability of danger, loss, injury or other adverse consequence
• Uncertainty is “not knowing (or not known), unreliable, changeable or erratic”. The result could be adverse
The difference is that:
• In the case of risk, a measure of probability can be attached to the various outcomes
• In the case of uncertainty, the probabilities of an event happening are too vague to quantify
Options for dealing with risk
• Ignore it - adopt a wait and see approach
• Avoid or reduce risk - reduce probability of risk
• Reduce or limit the consequences
• Share or deflect the risk e.g. by insurance
• Make contingency plans - prepare for it
• Adapt in order to maintain performance
• Treat it as an opportunity- if it affects competitors, then flexibility leads to competitive advantage
• Move to another environment
[adapted from D. Waters, Operations Strategy]
Risk management
Risk management involves:
• The identification of where and how things can and might go wrong
• Appreciating the extent of any downside if things go wrong
• Devising plans to cope with the threats
• Putting in place strategies to deal with the risks either before or after their occurrence
Key elements of risk management
• An on-going process for identifying, evaluating and managing significant risk
• Annual process for reviewing the effectiveness of the system of internal control
• A process to deal with the internal control aspects of an significant problems
• An embedded system in all the activities of the organisation and forms part of its culture
• A system for responding quickly to evolving risks
• Procedures for reporting any significant control failings to appropriate levels of management
Probability-impact matrix

Risk-performance trade off



Minimising the risk


mckinsey growth pyramid
Introduction
This model is similar in some respects to the well-established Ansoff Model. However, it looks at growth strategy from a slightly different perspective.
The McKinsey model argues that businesses should develop their growth strategies based on:
• Operational skills
• Privileged assets
• Growth skills
• Special relationships
Growth can be achieved by looking at business opportunities along several dimensions, summarised in the diagram below:



• Operational skills are the “core competences” that a business has which can provide the foundation for a growth strategy. For example, the business may have strong competencies in customer service; distribution, technology.
• Privileged assets are those assets held by the business that are hard to replicate by competitors. For example, in a direct marketing-based business these assets might include a particularly large customer database, or a well-established brand.
• Growth skills are the skills that businesses need if they are to successfully “manage” a growth strategy. These include the skills of new product development, or negotiating and integrating acquisitions.
• Special relationships are those that can open up new options. For example, the business may have specially string relationships with trade bodies in the industry that can make the process of growing in export markets easier than for the competition.
The model outlines seven ways of achieving growth, which are summarised below:
Existing products to existing customers
The lowest-risk option; try to increase sales to the existing customer base; this is about increasing the frequency of purchase and maintaining customer loyalty
Existing products to new customers
Taking the existing customer base, the objective is to find entirely new products that these customers might buy, or start to provide products that existing customers currently buy from competitors
New products and services
A combination of Ansoff’s market development & diversification strategy – taking a risk by developing and marketing new products. Some of these can be sold to existing customers – who may trust the business (and its brands) to deliver; entirely new customers may need more persuasion
New delivery approaches
This option focuses on the use of distribution channels as a possible source of growth. Are there ways in which existing products and services can be sold via new or emerging channels which might boost sales?
New geographies
With this method, businesses are encouraged to consider new geographic areas into which to sell their products. Geographical expansion is one of the most powerful options for growth – but also one of the most difficult.
New industry structure
This option considers the possibility of acquiring troubled competitors or consolidating the industry through a general acquisition programme
New competitive arenas
This option requires a business to think about opportunities to integrate vertically or consider whether the skills of the business could be used in other industries.
global business - competitiveness
International competitiveness
This refers to the ability of a country (or firm) to provide goods and services which provide better value than their overseas rivals.
This is competitive advantage but on a international scale.
As there is constant threat from foreign competition it is essential for business to strive to improve competitiveness.
Although there is a tendency to look to government to play a role in maintaining the competitiveness of UK business, in the final analysis it is a matter for individual firms.
Some determinants of International competitiveness
• Price relative to competitors
• Productivity - output per worker
• Unit costs
• State of technology
• Investment in capital equipment
• Technology
• Quality
• Reliability
• Lead time
• Entrepreneurship
• Exchange rate
• Relative inflation
• Tax rates
• Interest rates
Increasing competitiveness
Firms can increase their international competitiveness by:
• Rationalisation output to get rid of high cost plants
• Relocating to places where labour costs are lower
• Process innovation
• Product innovation
• Incorporating the latest technology into investment
• Sourcing from abroad where appropriate
• Seeking out new market opportunities
• Improving relationships with suppliers and customer
Government’s role to improve international competitiveness
Governments seek policies which aim to:
• Encourage R&D spending (e.g. through tax breaks)
• Improve the skills base
• Improve the economic infrastructure
• Promote competition between firms
• Operate macro-economic policies favourable to business expansion
• Reduce interest rates to stimulate investment
• Reduce tax rates to stimulate enterprise, effort and investment
• Deregulation to promote competition
• Reduce bureaucracy
• Encourage sharing of ideas and best practice
• Reduce protectionist barriers to stimulate competition
• Encourage investment in human capital
global business - globalisation
Background
During the last decades of the 20th century many barriers to international trade fell and a wave of firms began pursing global strategies to gain competitive advantage.
Rather than thinking in terms of national markets and national economies, leaders of business thought in terms of global markets.
Let us first consider why there has been such a rapid expansion of overseas trade in recent decades.
Causes of rapid expansion of trade
• Rising real living standards
• Trade liberalisation (World Trade Organisation, expansion and deepening of the European Union)
• Transition to market systems in Eastern Europe
• Rapid growth in the Asian Tigers and more recently in China and India
• Privatisation in and liberalisation of domestic markets
• Deregulation of international capital markets
• Fall in transport costs
• Improvement in global communications
What is globalisation?
Globalisation is a business philosophy based on the belief that the world is becoming more homogeneous - national distinctions are fading and will eventually disappear.
Globalisation is an increase in interconnectedness and interdependence of economic activity and social relations.
If the world is homogeneous then companies need to think globally and standardise their strategy across national boundaries.
Globalisation concerns:
• Trade in goods and services
• Investment
• Labour force movement
• Products
• Production
• Technology
• Research and development
• Exchange of ideas and knowledge
• Intellectual property
Key features of globalisation
• Rapid expansion of international trade
• Internationalisation of products and services by large firms
• Growing importance of multinational corporations
• Increase in capital transfers across national borders
• Globalisation of technology
• Shifts in production from country to country
• Increased freedom and capacity and firms to undertake economic transactions across national
• boundaries
• Fusing of national markets
• Economic integration
• Global economic interdependence
Growth of multinational enterprise:
There are various forces driving the growth of MNCs:
• The search for growth markets
• Globalisation of markets
• Desire to reduce production costs
• Desire to shift production to countries with lower unit labour costs
• Desire to avoid transportation costs
• Desire to avoid tariff and non tariff barriers
• Forward vertical integration
• Extension of product life cycles
• Deregulation of capital markets

strategic planning - setting objectives
Introduction
Objectives set out what the business is trying to achieve.
Objectives can be set at two levels:
(1) Corporate level
These are objectives that concern the business or organisation as a whole
Examples of “corporate objectives might include:
• We aim for a return on investment of at least 15%
• We aim to achieve an operating profit of over £10 million on sales of at least £100 million
• We aim to increase earnings per share by at least 10% every year for the foreseeable future
(2) Functional level
e.g. specific objectives for marketing activities
Examples of functional marketing objectives” might include:
• We aim to build customer database of at least 250,000 households within the next 12 months
• We aim to achieve a market share of 10%
• We aim to achieve 75% customer awareness of our brand in our target markets
Both corporate and functional objectives need to conform to the commonly used SMART criteria.
The SMART criteria (an important concept which you should try to remember and apply in exams) are summarised below:
Specific - the objective should state exactly what is to be achieved.
Measurable - an objective should be capable of measurement – so that it is possible to determine whether (or how far) it has been achieved
Achievable - the objective should be realistic given the circumstances in which it is set and the resources available to the business.
Relevant - objectives should be relevant to the people responsible for achieving them
Time Bound - objectives should be set with a time-frame in mind. These deadlines also need to be realistic

strategy - analysing competitive industry structure
Defining an industry
An industry is a group of firms that market products which are close substitutes for each other (e.g. the car industry, the travel industry).
Some industries are more profitable than others. Why? The answer lies in understanding the dynamics of competitive structure in an industry.
The most influential analytical model for assessing the nature of competition in an industry is Michael Porter's Five Forces Model, which is described below:


Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are
- The threat of entry of new competitors (new entrants)
- The threat of substitutes
- The bargaining power of buyers
- The bargaining power of suppliers
- The degree of rivalry between existing competitors
Threat of New Entrants
New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include
- Economies of scale
- Capital / investment requirements
- Customer switching costs
- Access to industry distribution channels
- The likelihood of retaliation from existing industry players.
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on:
- Buyers' willingness to substitute
- The relative price and performance of substitutes
- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials & other products into the industry.
The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive. The bargaining power of suppliers will be high when:
- There are many buyers and few dominant suppliers
- There are undifferentiated, highly valued products
- Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening to set up their own retail outlets)
- Buyers do not threaten to integrate backwards into supply
- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people / organisations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry
- Products are standardised
- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyer's industry
- The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on:
- The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry
strategy - the strategic audit
In our introduction to business strategy, we emphasised the role of the "business environment" in shaping strategic thinking and decision-making.
The external environment in which a business operates can create opportunities which a business can exploit, as well as threats which could damage a business. However, to be in a position to exploit opportunities or respond to threats, a business needs to have the right resources and capabilities in place.
An important part of business strategy is concerned with ensuring that these resources and competencies are understood and evaluated - a process that is often known as a "Strategic Audit".
The process of conducting a strategic audit can be summarised into the following stages:
(1) Resource Audit:
The resource audit identifies the resources available to a business. Some of these can be owned (e.g. plant and machinery, trademarks, retail outlets) whereas other resources can be obtained through partnerships, joint ventures or simply supplier arrangements with other businesses. You can read more about resources here.
(2) Value Chain Analysis:
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings: (1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and (2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities. Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("outsourced"). You can read more about Value Chain Analysis here.
(3) Core Competence Analysis:
Core competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for analysing core competencies is recognising that competition between businesses is as much a race for competence mastery as it is for market position and market power. Senior management cannot focus on all activities of a business and the competencies required to undertake them. So the goal is for management to focus attention on competencies that really affect competitive advantage. You can read more about the concept of Core Competencies here.
(4) Performance Analysis
The resource audit, value chain analysis and core competence analysis help to define the strategic capabilities of a business. After completing such analysis, questions that can be asked that evaluate the overall performance of the business. These questions include:
- How have the resources deployed in the business changed over time; this is "historical analysis"
- How do the resources and capabilities of the business compare with others in the industry - "industry norm analysis"
- How do the resources and capabilities of the business compare with "best-in-class" - wherever that is to be found- "benchmarking"
- How has the financial performance of the business changed over time and how does it compare with key competitors and the industry as a whole? - "ratio analysis"
(5) Portfolio Analysis:
Portfolio Analysis analyses the overall balance of the strategic business units of a business. Most large businesses have operations in more than one market segment, and often in different geographical markets. Larger, diversified groups often have several divisions (each containing many business units) operating in quite distinct industries.
An important objective of a strategic audit is to ensure that the business portfolio is strong and that business units requiring investment and management attention are highlighted. This is important - a business should always consider which markets are most attractive and which business units have the potential to achieve advantage in the most attractive markets.
Traditionally, two analytical models have been widely used to undertake portfolio analysis:
- The Boston Consulting Group Portfolio Matrix (the "Boston Box");
- The McKinsey/General Electric Growth Share Matrix
(6) SWOT Analysis:
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats. SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment. Read more about it here.
stakeholders - interests and power
Common and conflicting interests of stakeholders
The different stakeholder groups have different interests some in common with other stakeholders and some in conflict.
Examples of common interests:
• Shareholders and employees have a common interest in the success of the organisation.
• High profits which not only lead to high dividends but also job security.
• Suppliers have an interest in the growth and prosperity of the firm.
Examples of conflicting interests
• Wage rises might be at the expense of dividend.
• Managers have an interest in organisational growth but this might be at the expense of short term profits.
• Growth of the organisation might be at the expense of the local community and the environment.
Thinking about stakeholder power
The study of stakeholders should not be limited to a description of the way in which the organisation impacts upon the stakeholders.
In the context of strategy, what is more important is the power and influence that a stakeholder has over the organisation and its objectives.
Stakeholder influence:
Current and future strategies of the organisation are affected by:
• External pressure from the market place, including competitors, customers, suppliers, shareholders, pressure groups threatening a boycott, the government (through taxation and spending).
• Internal pressures from existing commitments, managers, employees and their trade unions.
• The personal ethical and moral perspectives of senior managers
(adapted from Newbould and Luffman, Successful Business Policies 1979).
The importance of profit maximisation
Traditional economic theory is based on the assumption that firms seek to maximise profits.
It must be appreciated that this does not mean “any old level of profits” or even a certain target level of profits but it means squeezing the last penny of profits out of the firm’s operations.
This assumption was based on the circumstances of 19th century business where owners acted as managers and could ignore the interests of stakeholders such as the employees and the community.
Stakeholder theory
The profit maximising theory of the firm that characterised Neo-Classical Economics has to be modified to taken into account the power and influence of stakeholders.
Various writers have put forward theories based on an alternative to the profit maximising aim:
• Baumol (1959) put forward a theory based on a sales maximising objective.
• Williamson (1964) offered a theory based on managers setting the objectives to maximise their personal satisfaction.
• Marris (1964) offered theory based on growth as the key concern.
In all three cases:
• The objective the result of managerial power over decision making.
• Reflected the interests of managers rather than shareholders.
• There was a limiting factor- these objectives are pursued subject to producing a satisfactory level of profits.
Behavioural theory
In “A Behavioural theory of the Firm” (1963) Cyert and March argued the goals of an organisation are a compromise between members of a coalition made up of the stakeholders.
The outcome of decision making is a compromise or “trade off” between the interests of the various stakeholder groups.
In the process leading to compromise much will depend on the relative power of the different stakeholder groups.
Satisficing
The Cyert and March theory of decisions being a compromise between the different stakeholders has certain features in common with the idea of satisficing behaviour which is associated with Herbert Simon.
Simon argued that decisions are taken in conditions of uncertainty and ignorance.
Rather than an exhaustive search for the best or ideal solution, decision makers seek an acceptable or satisfactory outcome.
This is chosen because of the internal and external constraints such as time pressure, lack of information and the influence of powerful stakeholder.
Shareholders influence
In small private firms shareholders are in direct contact with managers and in, many cases, are directors of the company. They have the ability to influence the objectives and directions of the organisation.
But the individual shareholder in a large public company has very little influence.
In theory they can exert influence through voting at the annual shareholders meeting but unless individuals group together their votes will have little impact.
In any case they are likely to be outvoted by the big institutional investors (e.g. pension funds) who own large blocks of shares.
However, shareholders can exert influence through threatening to “vote with their feet” by selling shares. As a result, managers and directors must at least keep shareholders satisfied.
Determinants of stakeholder power
For stakeholders to have power and influence the desire to exert influence must be coupled with the means to exert leverage on the company.
How much power the stakeholder can exert will reflect the extent to which:
• The stakeholder can disrupt the organisations plans.
• The stakeholder causes uncertainty in the plans.
• The organisation needs and relies on the stakeholder.
Levers operated by internal stakeholders
Internal stakeholders have their own interests which they might pursue - e.g. managers might seek organisational growth over profits, employees seek high wages and favourable working conditions.
Managers make decisions and therefore have extensive power.
Internal stakeholders
• Have negative power to impede the implementation of strategy.
• Can threaten industrial action
• Can threaten to resign
• Might refuse to relocate.
Levers operated by connected stakeholders
• Shareholders have voting rights and can sell shares thus making the company vulnerable to take over.
• Creditors can refuse credit, charge high interest rates, take legal action for non-payment and, in extreme cases, initiate moves to liquidate the company.
• Suppliers can refuse future credit.
• Customers can seek to buy goods/services elsewhere and enjoy consumer protection rights.
Levers operated by government & pressure groups
The government can exert influence through taxation, government spending, legal action, regulation and threatened changes in the law.
Community and pressure groups can exert influence by:
• Publicising business activities they regard as unacceptable.
• Political pressure for changes in the law
• Refusing to buy goods/services fro named firms
• Illegal actions such as sabotage
Stakeholder analysis
“All animals are equal but some are more equal than others” [George Orwell, Animal Farm]
Inequality of influence:
It is naïve to believe that the stakeholders have equality in terms of power and influence.
Managers have more influence than environmental activists.
At the same time the institutional investor with 25% of shares will have a greater influence that the small shareholder.
Banks have a considerable impact on firms facing cash flow problems but can be ignored by a cash rich firm.
Primary and secondary stakeholders
A distinction can be drawn between the two groups of stakeholders.
Primary stakeholders;
• Those most vital to the organisation.
• A group without whose continuing participation the company cannot survive as a going concern.
• e.g. customers, suppliers.
Secondary stakeholders:
Those without whose continuing participation the company can still exist. e.g. the community.
Active and passive stakeholders
This is an alternative categorisation of stakeholders.
Active stakeholders
Seek to participate in the organisation’s activities. e.g. managers, employees, pressure groups.
Passive stakeholders
Do not normally seek to participate in an organisation’s policy making. e.g. most shareholders, government, local communities
strategy - SWOT analysis
Definition:
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.
Once key strategic issues have been identified, they feed into business objectives, particularly marketing objectives. SWOT analysis can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. It is also a very popular tool with business and marketing students because it is quick and easy to learn.
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors. For example, a strength could be your specialist marketing expertise. A weakness could be the lack of a new product.
Opportunities and threats are external factors. For example, an opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products. A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete.
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment. Accordingly, SWOT analysis is best used as a guide and not a prescription. Adding and weighting criteria to each factor increases the validity of the analysis.
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths, Weaknesses, Opportunities and Threats are listed in the example SWOT analysis below:


strategic planning - values and vision
Introduction to Values and Vision
Values form the foundation of a business’ management style.
Values provide the justification of behaviour and, therefore, exert significant influence on marketing decisions.
Consider the following examples of a well-known business – BT Group - defining its values:
BT's activities are underpinned by a set of values that all BT people are asked to respect:
- We put customers first
- We are professional
- We respect each other
- We work as one team
- We are committed to continuous improvement.
These are supported by our vision of a communications-rich world - a world in which everyone can benefit from the power of communication skills and technology.
A society in which individuals, organisations and communities have unlimited access to one another and to a world of knowledge, via a multiplicity of communications technologies including voice, data, mobile, internet - regardless of nationality, culture, class or education.
Our job is to facilitate effective communication, irrespective of geography, distance, time or complexity.
Source: BT Group plc web site
Why are values important?
Many Japanese businesses have used the value system to provide the motivation to make them global market leaders. They have created an obsession about winning that is communicated at all levels of the business that has enabled them to take market share from competitors that appeared to be unassailable.
For example, at the start of the 1970’s Komatsu was less than one third the size of the market leader – Caterpillar – and relied on just one line of smaller bulldozers for most of its revenues. By the late 1980’s it had passed Caterpillar as the world leader in earth-moving equipment. It had also adopted an aggressive diversification strategy that led it into markets such as industrial robots and semiconductors.
If “values” shape the behaviour of a business, what is meant by “vision”?
To succeed in the long term, businesses need a vision of how they will change and improve in the future. The vision of the business gives it energy. It helps motivate employees. It helps set the direction of corporate and marketing strategy.
What are the components of an effective business vision?
Davidson identifies six requirements for success:
- Provides future direction
- Expresses a consumer benefit
- Is realistic
- Is motivating
- Must be fully communicated
- Consistently followed and measured