Strategy Formulation Process
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Strategy Formulation Process as PDF for free.
More details
- Words: 1,531
- Pages: 28
The Strategy Formulation Process Strategic Assessment Analysis of Resources, Capabilities and Competence
1
Some commonly used techniques for internal analysis Single Businesses
Resource Audit Analysis of cost and profit) Benchmarking, Value Chain Analysis, (Supply Chain Analysis)
Both Single and Multiple Businesses Core Competencies Shareholder Value Analysis Distinctive Organisational Capabilities
Multiple Businesses
Assessing Parenting Advantage, Portfolio Analysis) 2
Resource Audit
Resources
Physical Human Financial Other
Quality and Quantity Unique resources A good initial analysis 3
Analysis of Costs and Profit
Current sources of profits and trends Recast standard reporting to give new insights Pragmatic approach to get value from time and effort spent A good initial analysis
4
Benchmarking
Objective comparison with best in class Benchmarking clubs common Simple in theory - Hard in practice Observed differences in performance may be due to differences in parameters Qualitative observations may be more valuable than quantitative
5
Value Chain Analysis
Basic Value chain in Elegant in theory Time-consuming in practice Revised value chain to reflect power of people and knowledge
6
Value Chain Analysis
The term value chain describes a way of looking at a business as a chain of activities that transform inputs into outputs that customers value. Customer value derives from three basic sources: activities that differentiate the product activities that lower its cost activities that meet the customer’s need quickly. Value chain analysis views the organization as a sequential process of value-creating activities, and attempts to understand how a business creates customer value by examining the contributions of different activities within the business to that value.
7
General administration Human resource management Research, technology, and systems development
M ar
gi
n
Procurement Service in
Outbound Marketing logistics and sales
ar g
Inbound Operations logistics
M
Secondary Activities
The Value Chain
Primary Activities
8
Conducting a Value Chain Analysis
Step 1. Divide the firm’s operations into specific activities or business processes, usually grouping them according to primary and support activities. Within each category, a firm typically performs a number of discrete activities that may represent key strengths or weaknesses. Step 2. Next, attach costs to each discrete activity. Step 3. Recognize the difficulty in activity-based accounting. Step 4. Identify the activities that differentiate the firm from their competitors.
9
Conducting a Value Chain Analysis
Step 5. After documenting the value chain, managers need to identify the activities that are critical to buyer satisfaction and market success. These are the activities that deserve major scrutiny in an internal analysis.
The mission should influence managers’ choice of the activities they examine in detail. The nature of value chains and the relative importance of the activities within them vary by industry. The relative importance of value activities can vary by a company’s position in a broader value system that includes the value chains of its upstream suppliers and downstream customers or partners involved in providing products or services.
Step 6. Compare to competitors.
10
Figure Revised Value Chain Firm’s infrastructure
SUPPORT ACTIVITIES Technology trapping and commercialisation Strategic Management INFORMATION SYSTEMS & KNOWLEDGE MANAGEMENT technical, price, basic skills, customer PRIMARY core management, place, know-how, ACTIVITIES technologiescompetence marketing, promotion satisfaction, loyalty sales, product strategic assets production service
revenue, profit, market share,
HUMAN RESOURCE MANAGEMENT PROCUREMENT AND SUPPLIER MANAGEMENT
Source: adapted from Porter, M (1985), Martin (1995) to reflect recent developments 11
Why talking “competencies”?
Ten years, what a difference make!
80s: restructure, declutter, delayer the corporation 90s: identify, cultivate and exploit the core competencies that make growth possible
Rethinking the Corporation
Why? Market boundaries changer quickly, targets are elusive and value capture is at the best temporary Need: Invent new markets, enter emerging markets, shift customer choice in established markets All these, require radical change in the management of major companies: focus on a portfolio of competencies (instead of a portfolio of business)
12
The Core Competence Perspective Traditional Perspective
Core Competence Perspective
Market share of present markets
Share of future opportunities
Strategic Business Unit Focus
Corporate Competence
Stand-alone
Pattern of alliances
Speed to Market term vision
Perseverance towards long-
Adapted from Hamel, G & Prahalad, C.K. (1994) Competing for the Future 13
Beyond price/performance
Japanese firms provided a good example
they have been able to generate a blizzard of features and functional enhancements that bring technological sophistication to everyday products
The return of “long run”
In the short run, a company’s competitiveness derives from the price/performance attributes of current projects In the long run, competitiveness derives from an ability to build, at lower cost and quickly, the core competencies that spawn unanticipated products
14
How competencies support products?End products 1
2
3
Business 1
4
Business 2
Core product 1
Core Competence 1
5
6
7
8
Business 3
9
10
Business 4
Core product 2
Core Competence 2 Core Competence 3
15
--- is a cross-organizational boundaries culture
Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies
Sony capacity to… Philips expertise in…
Competence is about
Harmonizing streams of technology Organization of work Delivery of value
16
How to think of competence
Successful companies seem to preside over portfolios of unrelated business in terms of customers, distribution channels, and merchandising strategy… … because they are able to integrate skills In that context, core competencies provide strategic flexibility (possibility to enter more markets) … and of course, is difficult to be imitated How many: not more than five, six… 17
From core competences to core products
The tangible link between core competencies and end products is what we call the core products
The physical embodiments of one or more core competencies Core products are the components or subassemblies that actually contribute that contribute to the value of the end products Attention to the difference between core competence – core product – end product
18
Layers of competition
At the level of core competence, the goal should be to build leadership in in the design and the development of a particular class of product functionality To sustain leadership in their core competence areas, companies seek to maximize their share in core products They also need to define a strategic architecture
A tree of the corporation organized around core products and core competencies 19
Competition for competence
Competition to develop and acquire constituent skills and technologies Competition to synthesize core competencies Competition to maximize core product share Competition to maximize end product share 20
Processes, positions and paths
Processes
Positions
Integration Learning Reconfiguration and transformation Technological assets Complementary assets Financial assets
Paths
Path-dependencies Technological opportunities 21
The Tests for Core Competence
Essential to corporate survival in short and long term Invisible to competitors Difficult to imitate Unique to the enterprise Result from a mix of skills, resources and processes A capability which the organization can sustain over time Greater than the competence of an individual Essential to the development of core products Essential to the implementation of strategic intent Essential to the strategic choices of the enterprise Marketable and commercially viable Few in number
22
Figure 10.5 The roots of core competence for a typical manufacturing business
Product or Service (as chosen by the cus Different products, parts, sub-assemblies
Rule or process based Knowledge based, provision, of knowledge person specific & functionality professional service
CORE COMPETENCE Basic technologies, bodies of knowledge, corporate or individual learning, relationship culture, strategic assets, parts, processes, raw materials, supply chain management (C) Mahen Tampoe February 6, 1996
23
Figure 10.6 The roots of core competence for typical professional services firms
Mindset
Interpersonal Skills
Task Skills
Personality
Collective knowledge of the organisation
Staff Skills
Embodied as Core Competence
Products & Services
Professional knowledge
(C) Mahen Tampoe February 6, 1996 24
Figure 10.7 Applying Shareholder Value Analysis Corporate Objective Valuation Components Value Drivers
Shareholder Return Dividends Capital Growth
Creating Shareholder Value
Cash from Operations
Duration of Value growth
Management Decisions
Discount Rate
Debt
Sales Growth Op. Profit Margin
Fixed & Working Capital investment
Cost of Capital
Operating
Investment
Financing
Adapted from Rappaport (1986) 25
Assessing Parenting Advantage
Stand-alone influence Linkage influence Central functions and service Corporate development
26
Figure 10.9 Portfolio Analysis
Market Share
High
High
Market Growth Rate
Low
?
Low
Source: Originally Boston Consulting Group. In Widespread use 27
Choosing the right tools for internal analysis
Start with simple techniques Consider all tools and identify those likely to be useful Define the competitive capabilities the enterprise needs Identify the subsystems which support these capabilities Identify core competence relative to competitive capabilities Determine changes to enhance/improve core competence Take a systemic view Adjust the methods of analysis in the light of what is
28
1
Some commonly used techniques for internal analysis Single Businesses
Resource Audit Analysis of cost and profit) Benchmarking, Value Chain Analysis, (Supply Chain Analysis)
Both Single and Multiple Businesses Core Competencies Shareholder Value Analysis Distinctive Organisational Capabilities
Multiple Businesses
Assessing Parenting Advantage, Portfolio Analysis) 2
Resource Audit
Resources
Physical Human Financial Other
Quality and Quantity Unique resources A good initial analysis 3
Analysis of Costs and Profit
Current sources of profits and trends Recast standard reporting to give new insights Pragmatic approach to get value from time and effort spent A good initial analysis
4
Benchmarking
Objective comparison with best in class Benchmarking clubs common Simple in theory - Hard in practice Observed differences in performance may be due to differences in parameters Qualitative observations may be more valuable than quantitative
5
Value Chain Analysis
Basic Value chain in Elegant in theory Time-consuming in practice Revised value chain to reflect power of people and knowledge
6
Value Chain Analysis
The term value chain describes a way of looking at a business as a chain of activities that transform inputs into outputs that customers value. Customer value derives from three basic sources: activities that differentiate the product activities that lower its cost activities that meet the customer’s need quickly. Value chain analysis views the organization as a sequential process of value-creating activities, and attempts to understand how a business creates customer value by examining the contributions of different activities within the business to that value.
7
General administration Human resource management Research, technology, and systems development
M ar
gi
n
Procurement Service in
Outbound Marketing logistics and sales
ar g
Inbound Operations logistics
M
Secondary Activities
The Value Chain
Primary Activities
8
Conducting a Value Chain Analysis
Step 1. Divide the firm’s operations into specific activities or business processes, usually grouping them according to primary and support activities. Within each category, a firm typically performs a number of discrete activities that may represent key strengths or weaknesses. Step 2. Next, attach costs to each discrete activity. Step 3. Recognize the difficulty in activity-based accounting. Step 4. Identify the activities that differentiate the firm from their competitors.
9
Conducting a Value Chain Analysis
Step 5. After documenting the value chain, managers need to identify the activities that are critical to buyer satisfaction and market success. These are the activities that deserve major scrutiny in an internal analysis.
The mission should influence managers’ choice of the activities they examine in detail. The nature of value chains and the relative importance of the activities within them vary by industry. The relative importance of value activities can vary by a company’s position in a broader value system that includes the value chains of its upstream suppliers and downstream customers or partners involved in providing products or services.
Step 6. Compare to competitors.
10
Figure Revised Value Chain Firm’s infrastructure
SUPPORT ACTIVITIES Technology trapping and commercialisation Strategic Management INFORMATION SYSTEMS & KNOWLEDGE MANAGEMENT technical, price, basic skills, customer PRIMARY core management, place, know-how, ACTIVITIES technologiescompetence marketing, promotion satisfaction, loyalty sales, product strategic assets production service
revenue, profit, market share,
HUMAN RESOURCE MANAGEMENT PROCUREMENT AND SUPPLIER MANAGEMENT
Source: adapted from Porter, M (1985), Martin (1995) to reflect recent developments 11
Why talking “competencies”?
Ten years, what a difference make!
80s: restructure, declutter, delayer the corporation 90s: identify, cultivate and exploit the core competencies that make growth possible
Rethinking the Corporation
Why? Market boundaries changer quickly, targets are elusive and value capture is at the best temporary Need: Invent new markets, enter emerging markets, shift customer choice in established markets All these, require radical change in the management of major companies: focus on a portfolio of competencies (instead of a portfolio of business)
12
The Core Competence Perspective Traditional Perspective
Core Competence Perspective
Market share of present markets
Share of future opportunities
Strategic Business Unit Focus
Corporate Competence
Stand-alone
Pattern of alliances
Speed to Market term vision
Perseverance towards long-
Adapted from Hamel, G & Prahalad, C.K. (1994) Competing for the Future 13
Beyond price/performance
Japanese firms provided a good example
they have been able to generate a blizzard of features and functional enhancements that bring technological sophistication to everyday products
The return of “long run”
In the short run, a company’s competitiveness derives from the price/performance attributes of current projects In the long run, competitiveness derives from an ability to build, at lower cost and quickly, the core competencies that spawn unanticipated products
14
How competencies support products?End products 1
2
3
Business 1
4
Business 2
Core product 1
Core Competence 1
5
6
7
8
Business 3
9
10
Business 4
Core product 2
Core Competence 2 Core Competence 3
15
--- is a cross-organizational boundaries culture
Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies
Sony capacity to… Philips expertise in…
Competence is about
Harmonizing streams of technology Organization of work Delivery of value
16
How to think of competence
Successful companies seem to preside over portfolios of unrelated business in terms of customers, distribution channels, and merchandising strategy… … because they are able to integrate skills In that context, core competencies provide strategic flexibility (possibility to enter more markets) … and of course, is difficult to be imitated How many: not more than five, six… 17
From core competences to core products
The tangible link between core competencies and end products is what we call the core products
The physical embodiments of one or more core competencies Core products are the components or subassemblies that actually contribute that contribute to the value of the end products Attention to the difference between core competence – core product – end product
18
Layers of competition
At the level of core competence, the goal should be to build leadership in in the design and the development of a particular class of product functionality To sustain leadership in their core competence areas, companies seek to maximize their share in core products They also need to define a strategic architecture
A tree of the corporation organized around core products and core competencies 19
Competition for competence
Competition to develop and acquire constituent skills and technologies Competition to synthesize core competencies Competition to maximize core product share Competition to maximize end product share 20
Processes, positions and paths
Processes
Positions
Integration Learning Reconfiguration and transformation Technological assets Complementary assets Financial assets
Paths
Path-dependencies Technological opportunities 21
The Tests for Core Competence
Essential to corporate survival in short and long term Invisible to competitors Difficult to imitate Unique to the enterprise Result from a mix of skills, resources and processes A capability which the organization can sustain over time Greater than the competence of an individual Essential to the development of core products Essential to the implementation of strategic intent Essential to the strategic choices of the enterprise Marketable and commercially viable Few in number
22
Figure 10.5 The roots of core competence for a typical manufacturing business
Product or Service (as chosen by the cus Different products, parts, sub-assemblies
Rule or process based Knowledge based, provision, of knowledge person specific & functionality professional service
CORE COMPETENCE Basic technologies, bodies of knowledge, corporate or individual learning, relationship culture, strategic assets, parts, processes, raw materials, supply chain management (C) Mahen Tampoe February 6, 1996
23
Figure 10.6 The roots of core competence for typical professional services firms
Mindset
Interpersonal Skills
Task Skills
Personality
Collective knowledge of the organisation
Staff Skills
Embodied as Core Competence
Products & Services
Professional knowledge
(C) Mahen Tampoe February 6, 1996 24
Figure 10.7 Applying Shareholder Value Analysis Corporate Objective Valuation Components Value Drivers
Shareholder Return Dividends Capital Growth
Creating Shareholder Value
Cash from Operations
Duration of Value growth
Management Decisions
Discount Rate
Debt
Sales Growth Op. Profit Margin
Fixed & Working Capital investment
Cost of Capital
Operating
Investment
Financing
Adapted from Rappaport (1986) 25
Assessing Parenting Advantage
Stand-alone influence Linkage influence Central functions and service Corporate development
26
Figure 10.9 Portfolio Analysis
Market Share
High
High
Market Growth Rate
Low
?
Low
Source: Originally Boston Consulting Group. In Widespread use 27
Choosing the right tools for internal analysis
Start with simple techniques Consider all tools and identify those likely to be useful Define the competitive capabilities the enterprise needs Identify the subsystems which support these capabilities Identify core competence relative to competitive capabilities Determine changes to enhance/improve core competence Take a systemic view Adjust the methods of analysis in the light of what is
28
Related Documents
Strategy Formulation Process
May 2020 8
Strategy Formulation
November 2019 19
Strategy Making, Strategy Executing Process
June 2020 5
Strategy Formulation A Case Study
May 2020 18
More Documents from "Peter Hong Leong Cheah"
Basic Concepts
May 2020 22
Database System Concepts And Architecture
May 2020 15
Databases And Database Users
May 2020 15
Algorithms For Query Processing And Optimization
May 2020 10
