Strategic Management: Issues and Cases

Strategic Issues At Toyota – A Case Study
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compdeepsbumblesva.gq/map10.php The intended generic learning outcomes. On successfully completing the module students will be able to: 9. Pre-requisites None. Restrictions None. Overview Details Method of assessment Indicative reading Learning outcomes. Overview Leadership and Corporate Strategy aims to provide an understanding of strategic analysis, strategic decision-making and strategic processes within organisations. The module content comprises two complementary components. The first involves the understanding and learning of the main strategic management concepts and theories.

The second implies its application in organisations. These two core components of the course are then divided into four main sections: 1 Strategy development: comprising topics on how strategies are developed; 2 Strategic decision-making: introducing students to concepts and theories on strategic methods; evaluation including risk assessment and management , and implementation and change; 3 Strategic context: introducing issues of leadership and their impact on strategy; 4 Strategic content: comprising topics on management issues such as resource management.

Topics on this module include: 1 Strategic leadership 2 Identification of strategic issues and options 3 Evaluation of strategic options 4 Implementation of strategic options For each of these topics the students will be introduced to the main concepts and theories. The analysis of the environment can be segmented into four interactive elements.

What kind of industry is the firm competing in? Having examined its business environment, the issue then arises: how is the firm to compete in its industry? What is to be the unique source of its competitive positioning that will give it an edge over its competitors? Will it go for a broad market position, competing on a variety of fronts, or will it look for niches?

Will it compete on the basis of cost or on the basis of added value, differentiating its products and charging a premium? What is the range of options that managers have to choose from? How are they to prioritize between these options? Having identified the major forces affecting its environment, how is the firm to approach the future?

Organizational analysis can also be thought of as fourfold. How is the firm organized? What is the structure of the organization, who reports to whom, how are the tasks defined, divided and integrated? How do the management systems work, the processes that determine how the organization gets things done from day to day — for example, information systems, capital budgeting systems, performance measurement systems, quality systems?

What do organizational members believe in, what are they trying to achieve, what motivates them, what do they value?

Description:

What is the culture of the organization? What are the basic beliefs of organizational members? Do they have a shared set of beliefs about how to proceed, about where they are going, about how they should behave? What resources does the organization have at its disposal — for example, capital, technology, people?

A concept that bridges internal and external analyses is that of stakeholders, the key groups whose legitimate interests have to be borne in mind when taking strategic decisions. These can be internal groups, such as managers themselves and employees, or the owners of the firm, shareholders. They can also be external groups: the stock market if it is a quoted company, banks, consumers, the government. Increasingly important here is the issue of corporate responsibility, how the organization defines and acts upon its sense of responsibility to its stakeholders. Sometimes the various interest groups may be at odds with each other and management will have to perform a delicate political balancing act between them.

Having chosen a strategy, there is the issue of implementation. Very few schemes go totally or even approximately according to plan. The business environment changes, new issues emerge — green ones, for example. Strategic management in the public sector and the not-for-profit company Most of what we will say in this book concerns the business firm looking to profit as the source of its survival. We would, however, contend that much of what we say can be applied to the public-sector organization or the not-for-profit firm. Similar principles of internal and external analysis apply.

The Growth Vector Strategic management involves decisions concerning what a company might do, given the opportunities in its environment; what it can do, given the resources at its disposal; what it wants to do, given the personal values and aspirations of key decision makers; and what it should do, given the ethical and legal context in which it is operating. A firm needs a well defined sense of where it is going in the future and a firm concept of the business it is in.

This specifies the particular products or services of the firm and the market s it is seeking to serve. One qualification is necessary here. Source: adapted from Ansoff vector assumes that the firm is indeed growing. The growth vector illustrates the key decisions concerning the directions in which a firm may choose to develop.

Market penetration comes about when the firm chooses as its strategy to increase its market share for its present product markets. If the firm pursues product development it sets out to develop new products to complement or replace its current offerings while staying in the same markets. It retains its current mission in the sense of continuing to attempt to satisfy the same or related consumer needs In market development the firm searches for new markets with its existing products. If a strategy of diversification is chosen, the firm has decided that its product range and market scope are no longer adequate, and it actively seeks to develop new kinds of products for new kinds of markets.

Let us illustrate the growth vector with an example concerning product—market strategy options in retailing. A retailing firm might decide to consolidate its position in its current markets by going for increased market share, perhaps through increased advertising. It might choose to develop new markets, perhaps expanding geographically into other areas, or even overseas, but retaining its current product range. It might choose to develop new retail products but stay in the same line of business — for example, increase its product range in clothing.

It might choose to redefine the nature of these products. For example, the running shoe market was radically altered and expanded by redefining running shoes as leisure items, not merely as sports equipment. The range of product—market strategy options in retailing is illustrated in figure 1. Governing the choice between strategic options should be the notion of competitive advantage. The firm has to identify unique opportunities for itself in its chosen area s. It has to identify particular characteristics within its approach to individual product—markets which will give it a strong competitive position.

It might go for a large market share that would enable it to dominate particular markets and define the conditions of competition in them, for instance, as regards pricing policy. It might go for a better quality of product and service. In the automobile industry, Japanese manufacturers have rewritten the rules of the game regarding the quality of products and thus revolutionized consumer expectations.

In the process they have made major inroads into Western markets historically dominated by Western firms. Only a clear definition of the mission of the organization makes possible clear and realistic business objectives, because the mission defines the purpose of the firm in terms of its enduring sense of its reason for being. The mission defines the long-term vision of the organization in terms of what it wants to be and whom it wants to serve.

The mission statement has to be backed up with specific objectives and strategies, but these objectives and strategies are far more likely to be acted upon when there is a clear sense of mission informing action. Drucker illustrates the importance of a sense of mission with his story of three people working on a building site. All three were doing the same job but when asked what their job was gave very different answers.

Drucker himself highlights the need to link a sense of mission with clear, achievable objectives. Our goal is to be widely recognized as the best specialist retailer and manufacturer of quality confectionery. Missions can be extremely visionary and challenging. Fall in love with new ideas. It claimed that firms with clear motivating mission statements were likely to perform better than those without.

Source: adapted from Financial Times, 3 April Is the very idea of a mission statement somehow inappropriate for the British context? Or is it equally useful in the United Kingdom and Europe? If you think it inappropriate, is there an alternative? Setting a clear, definable target for the organization to aim at, such as the moon the NASA moon mission statement!

Defeat of the common enemy guides strategic choice, e. Honda was so successful in its mission that Yamaha actually made a public apology for its claim that it would defeat Honda. Sometimes used by smaller companies that model themselves on dominant players in their industry. In the computer industry IBM and Apple have provided — at least, until recently — very different kinds of models.

Used by older organizations faced with the need for radical change. This kind of mission has as its starting point the admission that its current mission is out of tune with the new realities it is facing. In the large complex organization a sense of mission can serve as unifying factor. The mission tells employees what the company is about.

It can also serve to give other stakeholders a sense that the company is clear about what it is doing and where it is going. The danger with missions is that they can come to be seen as empty rhetoric if senior management does not live according to their principles. As the Ford case illustrates, strategy links with values when we consider mission. Public and private-sector organizations are likely to think of these differently. Do you agree? Identity Mission and values are increasingly recognized as reflecting the identity of an organization — its central, enduring and distinctive character, and that which makes it unique.

There is evidence that those organizations that do survive and prosper over the longer term do have a clear sense of identity, although they are also skilful enough to know when an existing identity needs to change as a result of major changes in the environment. For example, US railroads needed to recognize that the future was perilous if they clung to the identity of a railroad company. They could perhaps have coped better with a changing environment if they had refashioned themselves as a transport businesses, competing with the roads and the airlines.

Such a change might have required major change, for new transport technologies might well have rendered their railroad identity obsolete. Firms can change too slowly and become increasingly vulnerable to change or lose out on major opportunities. Xerox is a case in point. It had all the knowledge and technical skills to become a major player in the computer industry but failed miserably see chapter 8 because it could not see a way beyond its identity as a copier company.

Other firms struggle to create a new identity at times of change. When external reality changes and the business model is taken for granted, then crisis and possibly failure ensue. Personal computers changed the driving force from hardware to software; lean manufacturing changed the economics of long runs, and the market for clothes became more of a lifestyle issue. In these situations adopting management recipes such as Total Quality Management, benchmarking, re-engineering and other management fads are not enough: the organization has to go back to re-examine its theory of the business.

Drucker argues that the theory of the business has three parts. This fits well with our model of strategy and with the resource-based view of the firm see chapter 7. But strategy alone is not enough. Strategy Evaluation Strategy can be neither formulated nor adjusted to changing circumstances without a process of strategy evaluation. Whether performed by an individual or as part of an organizational review procedure, strategy evaluation forms an essential step in the process of guiding an enterprise.

For many executives strategy evaluation is simply an appraisal of how well a business performs. Has it grown? Is the profit rate normal? Despite its unassailable simplicity, this line of reasoning misses the whole point of strategy — that the critical factors determining the quality of current results are often not directly observable or simply measured, and that by the time strategic opportunities or threats do directly affect operating results it may well be too late for an effective response.

Thus strategy evaluation is an attempt to look beyond the obvious facts regarding the short-term health of a business and appraise instead those more fundamental factors and trends that govern success in the chosen field of endeavour. A strategy is a set of objectives, policies and plans that, taken together, define the scope of the enterprise and its approach to business.

Rumelt suggests that three questions are central to the challenge of strategy evaluation: 1 Are the objectives of the business appropriate? The strategy must not present mutually inconsistent goals and policies. The strategy must represent an adaptive response to the external environment and to the critical changes occurring within it. The strategy must neither overtax available resources nor create insoluble problems. A key function of strategy is to provide coherence to organizational action.

A clear and explicit concept of strategy can foster a climate of tacit co-ordination that is more efficient than most administrative mechanisms. Many hightechnology firms, for example, face a basic strategic choice between offering high-cost products with high custom-engineering content and lower-cost products that are more standardized and sold at higher volume. If senior management does not enunciate a clear, consistent sense of where the corporation stands on these issues, there will be continuing conflict between sales, design, engineering and manufacturing people.

Source: Rumelt A strategy must be evaluated against each of these criteria; if it fails to meet one or more of them, the strategy is flawed. We will have more to say about strategy evaluation in the chapters that follow. The Book in Brief Overall, the chapters that follow provide a brief history of the evolution of thinking about strategy.

In chapters 4—5 we turn to the management process aspects of strategy, looking first of all at organizational issues such as structure and culture, then the management of strategic change. In chapter 7 we focus on current major debates in strategy — core competence and management; chapter 8 consists of ten case studies which you may like to read first. As in chapter 1, the following chapters are interspersed with examples, cases historical and current and questions. There is, therefore, no one right answer to the questions posed.

Strategic management means coping with complexity and ambiguity. The examples, illustrations and questions are meant to foster critical thought on the issues under discussion and to help you reflect critically on your own experience of strategy in action. Such analysis forms part of the background to which strategic decisions are made and provides insight into the difficulties of implementing strategic change.

Figure 2.

Strategic Management Issues of Multinational Companies (MNCs): A Case Study on Coca-Cola Company

The diagram represents the position of the organization relative to its external and internal environments — the greater the distance from the organization, the less direct effect there is on it. At the extreme the general environment concerns factors that not only affect the organization and its industry, but also the general business sector. More closely related to the organization is the competitive environment, which is concerned with issues like the position of suppliers, buyers and direct rivals. At the centre of the diagram we see the internal environment with organization-specific factors.

While figure 2. The environment should not simply be viewed as given i. Rather the organization may be in a position deliberately to change the environment to its benefit — particularly the internal and the competitive environment. Scanning the General Environment The first step is to undertake a general audit of environmental influences affecting the organization.

This process should be on-going and give initial indication of changes in the environment that may signal the need for changes in strategy. The process can throw up opportunities and warn of threats. Obviously different organizations will face different key forces. The intention is to consider how environmental forces affect the organization, and give some initial thought to how the firm might try to use these forces.

Each set of environmental factors should be considered in turn. The following list may be useful as a checklist for identifying key forces: 1 Economic factors: a disposable income, b interest rates, c exchange rates, d business cycles, e economy growth rates, f unemployment levels, g energy and basic raw material prices. Initially the scope should be broad. Once key changes have been identified, more detailed analysis should follow to determine the importance of the factor.

Developments in the broad environment cannot be underestimated in regard to the impact they can have on competition in an industry. As an illustration of this, exhibit 2. In this case BT appears relatively secure in its position as the dominant player in fixed-line telephony in the United Kingdom. However, all that could be about to change as new entrants take advantage of a technical innovation that makes it simple to switch telecom supplier. Customers will no longer need to dial a prefix number or install an auto-dialler box to make cheaper calls.

According to the industry regulator OfTel, about 1. Many of the customers that have already switched have moved to services offered by other telecoms companies such as Centrica owner of One. Residential competition has been led by the cable television companies, principally Telewest and NTL. However, their growth has stalled. Initially fragmented, they developed a poor reputation for customer service and, in recent years, have been distracted by the financial problems caused by debt and over-expansion. However, to access these services customers need to dial a prefix number or install an auto-dialler.

This has posed a sufficient obstacle to deter many potential customers. The associated hassle, along with consumer ignorance of the potential cost savings, has thus far limited the success of resellers. However, with the introduction of hassle-free CPS services and intense marketing effort by some of the best known companies in the United Kingdom, all could be about to change. It faces the choice of maintaining its price structure but losing market share or cutting prices to keep market share but in the process losing revenue.

Either way its profits from the traditional residential market look set to fall. But it still has opportunities to expand other services to consumers, notably through rolling out its broadband highspeed Internet services and wi-fi services high-speed wireless technology for laptop users , and thereby keep one step ahead of the chasing pack. The Nature of the Environment Since strategic decisions are made in situations of uncertainty, the strategist must attempt to understand the nature of the environment facing the organization.

The more dynamic rapidly changing or complex the environmental conditions are, the more uncertainty increases. Modern organizations are increasingly finding that they are facing both a dynamic and highly complex environment. Complexity comes in different forms. First, it can result from the sheer diversity of environmental influences faced by an organization e. Second, it can arise because of the amount of knowledge required to handle environmental influences. Third, it can be due to the different environmental influences which are, in themselves, interconnected e. Lowest uncertainty exists where the conditions are static and simple e.

Here technical progress is straightforward, competition may be limited and markets may operate the same over time. In these circumstances if change occurs it is likely to be fairly predictable. Different methods are required for handling each type of environment. In a fairly static and simple situation it makes sense to undertake a detailed analysis of past environmental influences and use quantitative forecasting techniques to predict changes with reasonable certainty.

Dynamic environment The more the situation becomes dynamic, the less that can be learned from past circumstances, and therefore the focus should switch to considering the future and use of judgemental forecasting methods involving scenario planning. Strategic analysis can then be undertaken on each of the scenarios, with different strategies developed for the different possible futures. Monitoring of the environment then provides the insight into which of the scenarios is likely to be most appropriate. Scenario planning is essentially a qualitative approach.

The analysis should show how the organization would respond to each scenario and formalize this in terms of contingency plans see exhibit 2. The organization must regularly scan the environment, checking for signals that suggest the onset of a particular scenario. This monitoring acts as an early warning device so that the appropriate strategies can be implemented in good time.

Complex environment In a complex environment the aim is simply to reduce the complexity! Structural analysis can involve sophisticated techniques such as model building and simulation. These techniques focus directly on the key influences and attempt to model the relations between them, with the aim of simulating the effects on an organization of different environmental conditions.

Definition

Another leading strategy guru, Gary Hamel , argues that the best strategy is geared towards radical change and creating a new vision of the future in which you are a leader rather than a follower of trends set by others. Library resources about Strategic management. Who captures the value that the resource creates? A robust competitive position cumulates from many activities which should fit coherently together. Business entities. Toyota follows low-cost pricing strategy, and has focused on the cost-leadership generic strategy for the attainment of competitive advantage against its rivals in the automotive industry. Pressure will be greatest when: a Firms producing substitutes are reducing costs e.

Companies are increasingly replacing forecasts with a range of scenarios against which to test their plans for the future. Traditionally, Shell planners would forecast refining plant requirements for several years ahead by extrapolating from current demand. However, the volatility in the oil market makes accurate prediction difficult. The diagram shows how Shell underestimated oil demand in the s and s, and overestimated it in the s.

Forecasting is still used, but only to suggest possible scenarios — as seen in the s projections. According to Kees van der Heijden , a former Shell planner, the benefits of scenario planning for Shell have been more robust strategic decisions, better thinking about the future, enhancing corporate perception of events as an emerging pattern, improving communication throughout the company, and as a means to provide decision making and leadership for the organization. At a practical level, it is claimed that scenario planning has helped Shell to respond more quickly and effectively to major events and crises because of its prior examination of such situations, or at least similar ones, in respect of scenario analysis.

Whether this came by war, or accident, or by religious fundamentalism, did not really matter to us, as the net effect is the same. What probability do you assign to likelihood of them arising? Are you worried? Structural Analysis of the Competitive Environment The third stage in analysing the environment is to place all the key influences and their degree of relevance within a framework of analysis which provides a structure to gauge the nature and intensity of competition. The framework is based on the view that forces facing the industry play a key role in determining the profitability and success of an organization.

Understanding the industry structure and how the forces operate can aid performance if the organization can take Potential entrants Threat of new entrants Industry competitors Bargaining power of suppliers Bargaining power of buyers Suppliers Buyers Rivalry among existing firms Threat of substitute products or services Substitutes Figure 2. Then the task of the strategist is to determine which of the forces are of greatest importance to the organization and which can be influenced by the strategic decisions of the management.

There are five key forces to be considered: 1 Entry barriers. How easy is it for a new firm to enter the industry? Therefore, existing firms should be concerned with how easy it is to entry the industry. High entry barriers are generally required to maintain high industry profits. When possible, firms should seek to prevent deter new entry. The following conditions make entry difficult: a Significant economies of scale. What is minimum efficient size and what are the consequences of operating below this level?

The industry is characterized by a high degree of product differentiation either technical or perceived, say through advertising. Are there significant costs if they decide to switch? Are initial investment costs high? New firms often face this problem in vertically integrated industries, e. Established firms have absolute cost advantages over a new entrant, e.

Existing firms would retaliate aggressively against a new entrant. For example, a firm contemplating entry may be put off entering the industry if it believes that the existing firms would react with a price or advertising war. How intense is competition in the industry? The following are industry conditions usually associated with very intense rivalry and, in turn, low profitability: a Slow growth.

Phase II: Forecast-based Planning

With many competitors, each may fight aggressively for sales to gain scale and gain efficiency — avoidance of competition is very difficult. This creates pressure to use capacity, which encourages industry to overproduce, leading to lower prices possibly through price wars.

In this situation competition is head-to-head, nothing distinguishes one firm from another so price becomes the chief weapon used in competition — which invariably proves very destructive to profits for the whole industry. In industries characterized by significant product differentiation e.

If it is difficult to leave the industry, excess capacity may be a problem in the industry and result in low profitability.

STRATEGIC MANAGEMENT

What substitutes pose a threat to industry profitability? Pressure on an industry will be stronger the more close substitutes i. In considering their influence, the strategist needs to examine substitutes on their price—performance, their mark-ups and costs of production. Pressure will be greatest when: a Firms producing substitutes are reducing costs e. How much bargaining power do buyers possess? Profit margins will be squeezed if the buyers have a strong bargaining hand. Buyer power is likely to be strong in the following situations: a There are only a few buyers, each of which buys in large volume.

How much bargaining power do suppliers possess? The points here are similar to those of buyer power. The power of suppliers is likely to be strong in the following circumstances: a There are only a few suppliers. This may give them the power to dictate prices, quality and terms of trade.

The strength of these five forces will vary between industries, and consequently so do levels of industry profitability. The forces range from intense in industries like tyres, paper and steel — where no firms earn spectacular returns — to relatively mild in industries like oilfield equipment and services, cosmetics, and toiletries — where high returns are quite common. Exhibit 2. This exhibit highlights the competitive significance of the power of retail grocery chains. The intensity of competition within the industry is quite high, with regular advertising wars taking place; on the other hand sales are increasing and the products are perceived as differentiated.

On the plus side there are quite high barriers to entry due to the high capital requirements required for production and distribution, increasingly advanced and specialized technology, lack of access to distribution, and strong consumer loyalty to recognized brands. A final, but very critical point to bear in mind is that the forces themselves change over time — sometimes in a predictable way, other times not. But it is usually possible for the firms to have some influence over these changes. If action no action is taken to counter the forces, it is extremely likely that the forces will grow stronger over time.

Strategic action is called for. Each firm needs to consider the actions that it could take to counter the forces, or position itself in such a way as not to face their full impact. For example, merging with a rival not only eliminates a competitor but also reduces the number of competitors in the market as a whole — something that can benefit all rivals by reducing competitive intensity.

Sales of such products account for around 15 per cent of all beverages consumed and almost 50 per cent of all soft drinks sold in the United Kingdom. The products are sold to consumers through over , outlets. It is estimated that over firms operate in the production and distribution of carbonated drinks. However, two companies, Coca-cola Enterprises maker of Coca-cola, with 15 per cent market share and Britvic Soft Drinks maker of Pepsi, with 11 per cent market share , dominate the industry, with 40 per cent and 20 per cent of the total market by volume respectively.

In addition to these major brand producers, a number of smaller producers exist making well known brands, including A. The remainder of the industry is made up of mainly small specialist producers, perhaps promoting a specialist product line such as Vimto or providing a local speciality. Threat of entry Entry into the market on a large scale is difficult. The major companies have essentially tied up the distribution channels in major grocers, public houses and fast food outlets that collectively account for most sales.

Entry as an own-label producer might be possible, but it would demand a large-scale operation to keep costs down and be as competitive as the existing large own-label producers. Threat of substitutes There are a number of substitutes for carbonated soft drinks, e. However, carbonates have generally been gaining market share at their expense and this trend does not appear set to reverse.

In addition, carbonated soft drinks have a particularly strong appeal to the youth market ten to eighteenyear-olds , where much of the sales comes from. Overall, the threat appears relatively weak, especially to the core youth market. Power of suppliers Again, relatively weak pressure with the exception of sugar producers and plastic suppliers e. Du Pont. The work force is not highly organized, nor is it militant.

Power of buyers Over 65 per cent of sales are sold through multiple grocers. The top five grocery chains account for nearly 70 per cent and increasing of all grocery sales and are thus in a strong bargaining position. Competitive rivalry Rivalry is intense, particularly between the two dominant companies. But, rather than damaging price competition, the rivalry is usually in terms of very heavy promotion including advertising and sponsorship , which serves to increase the size of the market. Segmentation is a key feature of the market, with the products falling into distinct categories such as colas, lemonade, mixers and others such as fruit-based, cream sodas and ginger beer , type regular v.

Such segmentation, backed with brand promotion, tends to reduce price sensitivity in the market. Competition is also in terms of new product development, which occurs regularly in most categories, such as in the cola segment, where brand introductions have included vanilla and lemon. Again, this form of competition extends the size of the whole market. Thus segmentation and differentiation are key aspects of rivalry in the market and particular firms dominate particular segments, lessening the intensity of direct head-to-head price competition overall. Conclusion The strongest pressures come from the power of buyers and the fairly intense non-price competition within the industry.

Nevertheless, overall the industry looks to be in a fairly healthy position: the leading firms are very profitable and industry growth is expected to be steady at around 8 per cent by value over the period —7. Cola as a product appears to be reaching maturity but other segments offer prospects of development and growth. At the same time, the firms are actively competing on quality and bringing new products to market, as well as being innovative in terms of reducing costs by investing in new technology and machinery, developing new forms of packaging and offering better distribution services.

In this situation profits are likely to deteriorate rapidly if destructive head-to-head price competition becomes the main competitive instrument. A further example would be credibly threatening to support alternative suppliers to counter supplier power, e. Also, countering consumer buyer power might be achieved by limiting their willingness or ability to switch providers, such as introducing penalties in mortgage redemption policies or encouraging repeat purchases with store loyalty cards. All these and a raft of other measures may lessen the impact of the forces taking profits away from the industry.

Rank order 1—5 each category from the most to the least significant. State your reasons for this choice. What measures might the firms be capable of making to weaken the significance of these forces? The first exercise might be to compare the effect environmental influences identified by the audit have on the firm and its main competitors.

It assesses the overall impact the changes are likely to have on the companies. Overall they appear to be in a reasonably good position to meet the changes. Such an exercise serves a useful introduction to understanding the positions of competitors. We briefly outline three frameworks commonly used: the life-cycle model, strategic group analysis and market share segmentation analysis. The model is based on the view that conditions in the market place, in terms of growth and maturity of markets, fundamentally affect market conditions and competitive behaviour.

For instance, the nature of the game changes substantially when one moves from the growth phase, where firms develop independently, to the mature phase, where growth can come about only at the expense of rivals. In the decline phase this problem is even more pronounced and it will be difficult for firms avoiding price wars when there is excess capacity and marginal firms are reluctant to leave the industry or face exit barriers due to costs associated with exiting — see exhibit 2.

The model is designed to be of use in considering the life cycle of a firm but more often the life cycle of the product s it produces. The picture is, of course, only a stylized representation. Some products may experience explosive growth then sudden collapse, e. Meanwhile, other products may have very long stages of development possibly over hundreds of years and have yet to enter the decline phase, e.

It is also possible that rather than entering the decline phase, some mature products can receive a sudden impetus due to further product differentiation and innovation, which leads to further industry growth — the so-called rejuvenation phase. An example might be ice cream: once mainly the preserve of children, the product category received a boost in sales with the introduction of up-market brands Haagen Das, Mars, etc. It is a surprisingly well managed industry, especially in managing distribution, wholesale and retailer relations to maximize circulation.

Yet the newspapers are facing a troubled future. Even the present offers gloomy news, with the publishing groups reporting deteriorating financial performance. Meanwhile operating profit at the market leader, News International, publisher of the Sun, the Times and the Sunday Times, fell 37 per cent in the last quarter of compared with the same period of Circulation revenue at the Sun, the largest national daily, has been battered by a price war with the Mirror.

All this against a background where journalists are being fired, pay packets and expense accounts frozen and pension schemes slimmed. One reason for the deteriorating financial performance is a slump in advertising revenue, the mainstay of income for newspapers. Following a bumper year in , when advertising revenue across the British newspaper industry soared by 12 per cent, it dropped by 2 per cent in and a further 3 per cent in Some newspapers have fared worse than others. For example, advertising revenue at the Financial Times fell by 23 per cent in , after a 20 per cent decline in Newspapers are losing readers, too.

In the second half of circulation fell from the same period of at all but three of the national titles, and at every one of the broadsheet newspapers. This is part of an apparent long-term trend that appears to set to continue. Overall national newspaper readership has dropped by a fifth since , according to the National Readership Survey NRS. With declining newspaper readership, advertising spend is slowly going elsewhere.

Most worrying of all for the industry, young people are just not buying newspapers the way previous generations did. The number of newspaper readers under the age of twenty-four has declined by over a third since , while the number of those over sixty-five has fallen by only 6 per cent. The Daily Telegraph boasts the oldest average readership, 29 per cent of which is now over the age of sixty-five. But the share of older readers is growing faster at other papers, including the Independent, the Times and the Mirror.

The worrying implication is that the industry is simply not nurturing its future readers. A generation is growing up with no particular brand loyalty to any newspaper, nor any entrenched habit of reading daily over the breakfast table. In the face of apparent long-run decline, what strategies should the industry participants pursue? This has yielded some success. Of the three daily tabloids that bucked the circulation decline in the second half of , two the Express and the Star were his; the other was the Sun.

Circulation at the Star increased by 17 per cent. However, pulling off a shift to a new market position is far from easy. It is now hunting readers in the overcrowded middle ground, where the line between broadsheet and tabloid is blurring. Finding a position where there is little direct competition yet sufficient demand to make the position viable is difficult in such a crowded market.

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A second option, which comes to pass in many declining markets, is to fight on price, treating competition as a market share game or dog-eat-dog attrition battle. But as the ongoing tussle between the Sun and the Mirror shows, and previously between the Times and the Telegraph, this simply risks bleeding revenue where the loss of coverprice income is not compensated for by additional advertising income even if circulation increases. A third idea is to launch new titles. However, there have been notable and costly launches in the past, such as the European, which have failed badly.

Accordingly, this seems an unlikely strategy to consider, especially in a declining market. However, it can work. Metro, a free sheet launched in by Associated Newspapers, publisher of the Daily Mail and the Evening Standard, has started to make a profit. Others may follow suit.

But the inevitable conclusion appears to be that there will be too many papers chasing fewer and fewer readers, and something will have to give. Commentators have questioned whether it is indeed sustainable to have nearly a dozen national newspapers in the United Kingdom, given the decline in circulation. If one or more does ultimately exit, it will certainly be big news. Sadly for the industry, fewer people than at present will read about it in a national newspaper. Strategic group analysis The aim here is to focus on the group of firms that are the closest rivals to the organization in respect of the strategic positions they find themselves in.

Specifically, a strategic group will generally share similar strategic characteristics, follow similar strategies and compete on similar bases. An industry could be composed of many, some or just one strategic group, depending on the extent to which firms are clustered together, pursuing the same strategies as, or different strategies from, others in the industry.

It is usual to define groups using two sets of characteristics as a basis of competition. When constructing such a map the characteristics should be chosen to show distinct groupings of firms i. These characteristics will depend to a large extent on the history and development of the industry and the competitive forces at work in the industry. As well as giving a good understanding of the competitive characteristics of competitors, this form of analysis allows one to ask how likely or possible it is to move from one strategic group to another.

For example, in the grocery retail industry exhibit 2. III Limited-line hard discounters. IV Neighbourhood convenience stores. Even pricing policy has an important barrier to mobility element. It might be thought that pricing policy could simply be changed and that would allow a firm to join a different group. But it is not quite as straightforward as may appear. First, pricing policy is a key aspect of the retail brand i.

Changing pricing policy may necessitate wholesale change of the brand image — something that will prove expensive and take time. Second, the stores themselves in respect of location and appearance may not be suited to a different pricing policy, e. But for a firm wanting to escape a group, barriers to mobility work against the firm wanting to change its position in the industry. It is not just the desire of moving to a different group that may appeal; moving to an area of strategic space not yet covered by any other firm may offer the prospect of establishing a unique and potentially highly valuable position.

Consider the areas unoccupied in regard to exhibit 2. Is it barriers to mobility that prevent a firm moving to unoccupied space or simply that such a position would not be profitable?

Do other groupings emerge? Which is the more useful of these maps for strategic considerations? Having identified the most appropriate groupings, give a brief assessment of how easy it is for a firm to enter your group and how easy it is for your organization to move to another group or even move to an area of strategic space where there are no other firms. Market share analysis It is widely held, and with much justification, that market share is a measure of market power. A high market share bestows benefits on a firm in the form of reduced costs due to economies of scale, buying power and experience.

Market share analysis attempts to map out the relative power of competitors according to shares held in market segments. This should help the strategist identify where its strengths and weaknesses lie. Breaking the market into segments should also help in identifying opportunities open to the firm and its competitors! A market can be segmented in various ways. The strategist may want to experiment with different classifications, since each basis could give rise to a different assessment of environmental opportunities. As with strategic group analysis, the basis of segmentation should hopefully discriminate between the firms.

Which classification appears to be most appropriate? Are rivals in a stronger position to exploit these? If yes, what do you think your company should do? This should then provide guidance for assessing the suitability of particular strategies i. The capability of any organization is fundamentally determined by how well it links together its various activities — such as designing, marketing, delivering, and supporting its products and services.

Here the amount of value added, rather than costs, is assigned to each activity. Value chain analysis considers where and how a firm adds value i. The primary i. Source: Porter The primary activities are generally quite distinct, having different economies and, in large organizations, separate cost centres. The capability of the organization depends on the quality of co-ordination across these activities, not just on competence in each individual activity.

The linkages are harder to identify than the separate activities.

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A good example is provided by just-in-time production, where parts procurement and assembly are tightly linked. It is often such linkages that provide competitive advantage. Building further linkages will increase value added. This should enable management to decide on how well the resources are being utilized — i.

These include buildings, materials, production facilities, production techniques, information systems, distribution networks, research facilities. Efficiency will concern capacity fill, unit costs, yield, layout and materials flow. Effectiveness should be measured by the match between the various resources. Relative position will be in respect of benchmarking against rivals, e. This is in terms of the number of employees, their productivity set against wages and salaries , the extent and balance of technical and other skills also competence, versatility, flexibility, adaptability , knowledge awareness , experience, attitudes commitment, loyalty, degree of interest and effort, team spirit, management style and their demographic characteristics age structure.

Key indicators include educational, technical and professional qualifications of employees, compensation and pay relative to the industry, record on labour disputes and employee turnover rate. The financial capability depends on factors like financial size, growth pattern, profitability, use of working capital, price—earnings ratio, asset structure and capital structure.

The analyst will need to assess the costing system, budgets and investment appraisal procedures. These cover two aspects: the stock of technology and the resources for innovation. The former is concerned with the form of proprietary technology e. The latter relates to research facilities and technical and scientific employees. Effectiveness depends on how well this exploited, e. Key indicators of reputation with customers might include brand recognition, premium over competing brands, percentage of repeat buying and the level and consistency of company performance.

In addition the company might consider objective measures of company performance with respect to other interested parties, such as suppliers including material suppliers, banks and other lenders, and employees , government and regulatory bodies, and with the community. The main problem will not be lack of data; rather, it will concern turning all the quantitative especially the financial measures into a meaningful i.

The end result of the analysis should be the identification of the key issues — the major strengths and weaknesses — and their strategic importance. In considering the core competence of the organization one should not forget the links with external parties which provide key services to the organization, as these links can provide a useful source of competitive advantage if they are successfully organized and controlled.

The firm should examine whether these business services are more usefully carried out externally to the organization i. Even for manufacturing firms the range of business services used can now be extensive, and service activities are important at all stages of the value chain. Many companies choose to contract out some services that could be handled equally well in-house so that they can focus on the core business.

As Porter argues, the drive to de-integrate business services appears to be growing with the exception of legal services. The reason for this is the increasing capital intensity of service firms, which were traditionally extremely labourintensive. Information technology and the use of computers and computerized techniques have revolutionized the manner in which functions are undertaken, leading to better control operations and increased employee productivity. The advantage of using the specialized service firm over an in-house unit is essentially twofold.

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First, the specialist provider faces competition for the account and has the incentive to raise productivity and quality while keeping costs down. The captive in-house service department, on the other hand, is a cost centre and does not face such competitive pressures to ensure that productivity and quality is optimum. Second, the service provider, being specialized and concentrating its efforts, can often hire and train people more effectively, employ better methods, use more up-to-date equipment and perform the service cheaper and better.

Meanwhile, the in-house service department may be regarded as of peripheral concern to the core activities of the business and lack the necessary flexibility if it is constrained to the guidelines of the other functions of the organization.

Strategic Management for Competitive Advantage

This ultimately leads to an inefficient and ineffective service compared with what could be provided by an independent firm. The one potential disadvantage with using outside service providers concerns communication and thus effective control. The development of large, specialist firms has, however, led to a more professional relationship with clients, and technology has allowed communication to become more instantaneous.