B111 module 1-4 for individual test

megatrends

• megatrends = holistic overlaying issues and concerns that affect the world at large

  • implications for responsibility, ethics, sustainability and ethics

• megatrends = major patterns or movements emerging in the macroenvironment (Monash, 2021)

past ways of business

direct orders from managers, information back up the line (military model), certainty/predictability, protectionism, economy based on mining, agriculture and manufacturing

present ways of business

open markets, fierce competition, new business models, economy based on service, knowledge and information

factors necessitating change in how business is conducted

volatility, uncertainty, complexity and ambiguity

impacts of megatrends on business ways

major trend → rethink of operating philosophies, strategies and tactics → new ways of measuring return on investment | replacing short term thinking with innovation

megatrend 1: climate change

• five contributing factors: Industrial processes, power plants, aeroplanes, deforestation, emissions of heat-trapping gases by vehicles

• RWE: floods in Thailand in 2011 → supply chains disrupted eg Toyota’s manufacturing → Toyota lost US$1.55 billion in earnings

• RWE: Hurricane Sandy in New York in 2012 → electricity lost for four days → total cost to the public and private sector = US$19 billion

• responses: clean tech, investing in improving an organisation’s carbon footprint, innovative production processes

megatrend 2: globalisation

• better transportation, communication and deregulation → allows trading systems → more competition → more customisation, efficiency, productivity, quality and service from organisations

• one global market → transnational not multinational companies → less control over companies by any one nation

• economic power shifting from the West to Asia — 3of the 4most populous countries are India, China and Indonesia AND 5of the 20 largest economies are China, India, Japan and South Korea

• RWE: Asia accounts for 80% of Australia’s trade

• risks for organisations: dependence on overseas systems means organisations are at greater risk of climate events, epidemics have a greater chance of disabling part of a company’s workforce, PR crises for organisations which exploit workers

impacts of globalisation

• cultural/lifestyle factors

• environmental and biological —shifts polluting industries to developing countries

• political systems — pressure on authoritarian and protectionist states to open up

• social — more movement of people, changes in the nature of work, employment, prosperity

• spatial — changes in work patterns impact the structure of cities eg. greater online focus

megatrend 3: information technology, communications technology, biotechnology and nanotechnology

• rapid development of technology — computers have only been around for ~40 years but now the economy would struggle to overcome a day without them

• built in analytics allow businesses to adapt to consumer behaviour patterns → more quality and efficiency

• Marshall McLuhan (1962): “The new electronic interdependence re-creates the world in the image of a global village”

  • don’t need workers to all be in one place → one person can belong to multiple teams

megatrend 4: the knowledge and service economy

• service economy = tertiary sector (services to the general population and business) — 70% of OECD countries

• knowledge economy = quaternary sector (information and finance oriented eg. professional services, scientific research, education, insurance, IT etc)

• costs less to manufacture so businesses focus on generating profits from their service divisions = structural shift

• 2nd industrial revolution: Henry Ford mastering the moving assembly line and mass production

• until the 1980s: tangible assets = 80% of a company’s worth | now: 80% is intangible assets eg intellectual capital, culture, capabilities and organisation structure

factors responsible for the growing knowledge and service economy

• consumer demand for high value-added, knowledge-intensive products and services

• technology

• globalisation

• also enabled by deregulation and privatisation

intellectual capital

• intellectual capital (meaning not on the balance sheet) = human capital + relationship capital + structural capital

  • human capital = competence, health, motivation, productivity of workers

  • relationship capital = value of connections with suppliers, customers and professional services partners

  • structural capital = organisation’s knowledge database (what remains with the organisation when employees leave)

resource scarcity (as a megatrend)

• flow on effects of the increasing scarcity of fossil fuels and some minerals eg copper and gold → companies need to eliminate wasted resources → ore sustainability → CSR

megatrend 5: societal changes

• greater aging population, more migration, longer life expectancy, increasing diversity, less people getting married, lower fertility rates

• impacts work priorities and motivations

the gig economy

• zero hour contracts = agree to be available for work when required, but no minimum hours of work

• 2016 survey by McKinsey (Manyika et al., 2016) believes 20-30% of the labour force in Europe and the US are gig workers

  • gig workers: self employed, paid by task not hours, short term client relationships

    • eg Uber drivers, freelance workers (varying levels of pay — consulting to Uber driving)

types of gig workers

• types of gig workers: free agents who seek independence and flexibility, casual earners (gig economy is a side hustle), reluctants who work casually between full-time jobs, financially strapped who have no alternative

gig economy advantages

• advantages: mitigates unemployment, more productivity, stimulates demand, more flexible to specific customer demands, autonomy and flexibility for workers

  Can offer products or services more individually tailored Offers autonomy and flexibility Creates jobs

gig economy disadvantages

• disadvantages (Rubery et al., 2016): no consistency for workers (must change plans for work), reallocates work to less skilled workers (less training due to a lack of long term employment), lack of contract and low pay means the government gets less revenue, no income security → feel exploited

Long-term committed employment partnerships are replaced ‘Short notice’ demands on workers and family Little to no work/income security Potential issues with tax revenue

gig economy impacts

• technically self-employed but lack control of their working lives, belief that companies are cutting costs but maintaining the same control over labour

• consequence: polarisation of the labour market into high-paid workers in full-time employment and low-paid gig workers — particularly bad given that gig workers lack the legal rights of employees

impact of globalisation on employment

• IMF argues that globalisation contributes to employment growth everywhere and unemployment is a function of government macroeconomic and labour policies

• 2020: covid led unemployment rates among migrant workers to increase in more than 75% of OECD countries

shifts in work during covid

• shifts in work during covid: more shorter meetings with more participants, more emails sent with more recipients, less commuting time and costs, less need for office space, more work done outside of normal hours (negative implications for work-life balance)

post covid workplace advantages

• Reducing commuting times and costs

• Autonomy

• Reduced need for office space in some firms

• Continued hybrid working practices

post covid workplace disadvantages

• Loneliness and anxiety from missed socialization opportunities

• Video conference fatigue

• Complexity in finding appropriate working spaces at home

• Home and work problems due to the extension of the working day

nature of business models

• business models are not static, they are subject to continuous improvement and innovation

  • especially because external considerations are always changing → businesses must pivot and adapt → add value → increase profits, improvements should benefit customers too

business model definitions

• defining a business model: make sure we consider that not all organisations are for profit

• three definitions of a business model

  • “A business model defines the way a company generates value (value creation) and how it captures some of this value as profit (value capture).” (Matzler et. al., 2013, p.30)

  • “The essence of a business model is in defining the manner by which the enterprise deliver value to customers, entices customers to pay for value, and converts those payments to profit. It thus reflects management’s hypothesis about what customers want, how they want it, and how the enterprise can organize to best meet these needs, get paid for doing so, and make a profit” (Teece, 2010, p. 172)

  • “Business models are important as they communicate what s important to the business. It directs how a company operates, creates value for stakeholders, and aims to capture value. It provides logic in how the value proposition is articulated, the target market is identified, and the revenue mechanisms and the entire value chain are defined.” (Shams et al., 2021)

need for business models and literature on them

• shift in focus of literature from the products and markets serviced to how value is created ← needed given strong globalization and technological development which have changed the ways in which businesses operate

  • recognition that “companies compete at a business model level rather than at product/service level”

• internet-based companies (eg Meta, Spotify) are able to leverage the data they collect and generate value accordingly

• “a product or a technology itself does not create value without an effective and valuable business model”

components of business models

• Lindgardt et al. (2009): business models have 2 elements: value proposition and an operating model

  • value proposition = target segments (audience), good/service, revenue model

  • operating model = value chain, cost model, organization

• OR Trott 2017:

  • value creation: how the good/service fulfils the needs of the market segment

  • value configuration: interdependent resources which underlie the value proposition (systems of the organization, use of technology)

  • value capture: cost structure, revenue stream, how profit is made (in the case of for-profits)

Business model canvas components

• business model canvas (BMC) framework (Osterwalder & Pigneur, 2010): strategic tool for developing/improving business models, has 9 elements:

  • customer segments — target audience

  • value propositions — customer needs being addressed/utility being provided, can be qualitative or quantitative

  • channels — how customers will be reached

  • customer relationships — how customers are interacted with eg personal assistance, self service, co-creation etc

  • revenue streams — what are customers willing to pay for what (consumer demand), different ways of generating revenue

  • key activities — what needs to be done eg advertising as a channel, R&D, PR

  • key resources — what is needed to accomplish the key activities eg offices, labour

  • key partners — external companies/suppliers

  • cost structure — cost or value driven business: minimising costs or increasing value (quality or prestige)

innovation and business models

• innovation needed to increase competition, create value, differentiate businesses

• business model innovation = “improvement and adjustment of one or more elements of the business model (Chesbrough, 2010; Hock-Doepgen et al., 2020)”

• innovative business models are particularly beneficial in times of crisis and high competition ← companies can avoid direct competition and differentiate their products → more challenging than product innovation but more advantageous

  • RWE: Dominos changing from 2010 to 2017, digital revolution eg tracking delivery status

considerations when evaluating business models

• strategic management — levels of strategy = corporate, business and functional (Santoro, 2019)

• patterns and outcomes of innovative business models — noting that innovative business models can be formed by new and existing companies (Massa & Tucci, 2013)

• digital business models — longer term opportunities, more efficiency

• entrepreneurship and business models — key decisions of entrepreneurs are how value is created, captured, for who (all relevant to the business model) (Shams & Kaufmann, 2016)

• sustainable business models: impact of climate change (links to mega trends!), sustainability targets often not met so business models should be reconsidered to align incentives and revenue mechanisms (Franceschelli et al., 2018)

• internationalisation of innovative business models — globalisation, why startups may find it difficult to expand internationally

• new marketing strategies to foster business model scalability — new strategies aim to create strong demand in a short time = growth hacking

• financing methods of innovative business models — funding from third parties required to scale business models

• fostering business model innovation in large multinational companies — path dependency and organisational rigidity can make MNCs less adaptable

• frameworks for developing and testing new business models — adapting as business models adapt, potentially beyond the BMC

organisational goals

• profit is not the only measure of success for businesses ← entrepreneurs have ideals of what they want to achieve, social objectives

• organisation = goal-directed social entity, deliberately structured to meet organisational goals

  • purpose — reason behind the organisation, a goal

  • process — tasks divided in order to achieve goals, systems

  • people — vested interest in the performance of the organisation

types of organisations (based on aims)

traditional business = purely commercial, market driven, economic value, return for investment

traditional charity	social enterprise	traditional business
primary aim is social value	measurable social impact and financial return	primary aim is to achieve financial value
funding from grants, donations and endowments, could sell goods and services down the line	mission driven, for profit and self sustaining (earn revenue), profits are often reinvested	attracts mainstream investors (high returns), corporate social responsibility (CSR)

value creation

• value creation = Describes what is offered and how value is created for customers, partners, and other participants. How are targeted customer segments needs fulfilled and problems solved

  • value creation = consumers get something that is good

value configuration

• value configuration = What various interdependent resources and activities in the value chain underlie the value proposition? It explains what the resources are, how they are linked and combined, and who performs them

value capture

• value capture = Describes the cost structure of the resources and activities and the revenue streams from customers and other parties. It also depicts how the value (profit or proceeds) will be apportioned between stakeholders and other parties or back into the firm

  • value capture = businesses get something back, usually money

BMC, value proposition, need for partnerships

• BMC = tool that helps discuss, design and invent business models

• value proposition for each customer segment = the product

• key partnerships because not all resources or activities will be sourced or carried out internally

value capture/creation matrix application

• strategy to enter a market: high value, low capture → build to high capture

  • uber as a key example, made a loss for a long time, high start up costs too → destroyed the traditional taxi market

• monopolies can fit into the category of high capture, low value ← they have no incentive to improve their products because they won’t lose their customer base

  • NFTs, casinos, scams too

Business Model Canvas

• BMC = Osterwalder et al. (2010) suggest that a business model can best be described by nine basic building blocks that show the logic of how a business intends to make money. → in four categories:

  • customers

  • value proposition (offer)

  • infrastructure

  • financial viability

• relevant to capturing value: cost structure + revenue streams

• many businesses start from the cost structure BUT they should instead start from customer segments

• key costs: production, transport, advertising

• effective pricing model: make recurring purchases more expensive

Putake

• Putake = the origin or reason for being

  • can be profit (as with traditional businesses) or more unique reasons including the management of collectively-owned resources and whakapapa based groups

  • might hold, manage, develop and/or grow profit from Māori resources eg people, collectively owned resources — eg Shotover Jet owned by Ngai Tahu tourism

multiple bottom line

• multiple bottom line' = social, cultural, environmental, spiritual, and economic goals are identified in mission statements and annual reports alongside profit-related goals and reporting and incorporated into everyday business operations.

  • cultural goals might be to foster pride in the Māori culture, cultural expression and creative practice → often in the area of tourism, Kaupapa Māori education

  • While such enterprises may look for profit to be self-sustaining, social or cultural goals are central to their existence

Māori business development

• Māori business developed in 3 waves

  • wave 1: land based businesses following return of land

  • wave 2: iwi businesses following settlements

  • wave 3: Māori entrepreneurship

• money comes in behind to support rather than being the primary factor in determining business direction

• decisions made to create wealth for whanau and generations

• collective long term approach to business

modern business environment

• modern environment = high degree of change, complexity, uncertainty and resource scarcity

  • resource scarcity more acknowledged now given the sociocultural shift toward sustainability efforts

• confidence depends on the understanding managers have of the environment they are operating in

PEST and limitations

• PEST = political/legal, economic, sociocultural, technological → addition of environmental/ecological and legal

• model has limitations: can artificially compartmentalise influences, the model is deterministic (forgets that managers also influence the environment), is static (doesn’t consider the unknowns)

aspects of the specific environment

• aspects of the specific environment: customers, competition, suppliers, industry regulation, advocacy groups

  • social media gives advocacy groups more power

external environment

• external environment = “all events outside a company that have the potential to influence of affect it” (p45)

  • for example streaming services impacting movie tickets → businesses need to continuously adapt and innovate

environmental change

• environmental change = “the rate at which a company’s general and specific environments change” (p46)

  • stable environment (slow change) — funeral industry is relatively constant

  • dynamic environment (fast change) — can be due to tariffs, technology etc

  • punctuated equilibrium theory = “the theory that companies go through long periods of stability (equilibrium), followed by short periods of dynamic, fundamental change (revolutionary periods), and then a new equilibrium” (p46)

environmental complexity

• Environmental complexity - “the number and the intensity of external factors in the environment that affect organizations” (p47)

  • simple environments have few factors | complex environments have many factors

  • dynamic example = small delivery services

  • simple environments tend not to be impacted by international markets, few things can change

resource scarcity (part of environment)

• resource scarcity = the limited amount of critical organizational inputs in an organization’s external environment

  • abundance or shortage

  • influences prices, market equilibrium

uncertainty

• uncertainty = “extent to which managers can understand or predict which environmental changes and trends will affect their businesses” (p48)

  • lowest when change, complexity and scarcity are low → confident managers

  • highest when change and complexity are high, scarcity causes problems → less confident managers

general environment

• general environment = “the economic, technological, sociocultural and political/legal trends that indirectly affect all organizations” (p49)

  • same for all business

specific environment

• specific environment = “the customers, competitors, suppliers, industry regulations and advocacy groups that are unique to an industry and directly affect how a company does business” (p49)

  • different for each industry

general environment: growing economy and confidence

• growing economy → favourable to business growth (more consumption, investment, high employment) → greater business confidence

  • business confidence indices = “indices that show managers’ level of confidence about future business growth” (p50)

    • eg Conference Board’s CEO Confidence Index = quarterly survey which asks the CEOs of 100 large companies

    • eg Wall Street Journal/Vistage Small Business CEO Survey

    • confidence preferred to economic statistics as it provides a general idea of what other managers will do and therefore what the industry will do

general environment: technology

• technology = “the knowledge, tools, and techniques used to transform inputs into outputs” (p51)

  • improves quality and/or efficiency

  • eg shift from petrol to electric cars is a technological threat for producers of petrol cars

general environment: sociocultural

• sociocultural component = “the demographic characteristics, general behaviour attitudes, and beliefs of people in a particular society” (p52)

  • responses to aging populations, changes in beliefs concerning sustainability

general environment: political/legal

• political/legal component = “the legislation, regulations, and court decisions that govern and regulate business behaviour” (p52)

  • sometimes managers are not aware of or do not follow specific requirements eg concerning workers’ rights

  • prevention/education are the best strategies for managers to avoid legal threats

specific environment: customer component

• customer component → businesses must monitor the wants and needs of customers to remain competitive → can do so proactively or reactively

  • RWE: reactive — Ikea buying TaskRabbit which assembles the furniture, helps time-poor customers

  • reactive = listening closely and responding to customer complains

  • RWE: proactive — Spotify having options to share music, buy concert tickets, personalised playlists → artists can also use this information to inform their tours

specific environment: competitor component

• competitor component — keeping tabs on competitors to ensure you keep up and that your products better satisfy customer needs

  • competitive analysis = “deciding who your competitors are, anticipating competitors’ moves, and determining competitors’ strengths and weaknesses” (p54)

  • mistakes made: only identifying larger companies as competitors, underestimating the capabilities of competitors

specific environment: supplier component

• suppliers = “companies that provide material, human, financial and informational resources to other companies” (p55)

• supplier dependence = “the degree to which a company relies on a supplier because of the importance of the supplier’s product to the company and the difficulty of finding other sources of that product” (p55)

  • RWE: China has produced 75-95% of all rare-earth metals over the last 10 years

• buyer dependence = “the degree to which a supplier relies on a buyer because of the importance of that buyer to the supplier and the difficulty of finding other buyers for its products” (p55)

  • RWE: Samsung’s growing OLED business depends on Apple which is its largest customer

• both of the above show the interrelation of businesses

• high degree of either dependence → opportunistic behaviour = “a transaction in which one party in the relationship benefits at the expense of the other” (p56) eg a significant buyer can pressure a supplier to cut prices

• OR relationship behaviour = “the establishment of mutually beneficial, long-term exchanges between buyers and suppliers” (p56) eg going back and forth with prices when external impacts are significant

specific environment: industry regulation

• industry regulation = “regulations and rules that govern the business practices and procedures of specific industries, businesses and professions” (p57)

  • RWEs: Airbnb regulations in France (limits on nights someone can host per year)

specific environment: advocacy groups

• advocacy groups = “concerned citizens who band together to try to influence the business practices of specific industries, businesses and professions” (p57)

  • try to influence businesses but cannot force — however reputational damage may follow

  • public communications = advocacy tactic that relies on the news media and advertising industry voluntarily helping

  • media advocacy = when issues are framed as public issues, buying media time, creating controversy which would receive news coverage

  • product boycott = advocacy tactic whereby a group stops buying a business’ goods and tries to convince others to do the same → gains attention and reduces revenue

environmental scanning

• environmental scanning = “searching the environment for important events or issues that might affect an organization” (p59) → allows for businesses to adapt proactively → better performance overall

• scan → interpret → change/adapt → better performance

• acting on threats and opportunities: more likely to act when confidence is high

PESTLE framework introduction

• management framework + diagnostic tool → impact strategy and business decisions

• political — country’s government policies and political stability

• economic — trade rates, growth/decline, inflation, interest, costs of living, globalisation

• social — cultural norms and expectations eg work life balance, demographics

• technological — impact data storage, security levels, distracting technology, shift toward AI

• legal — employment law, industry regulations

• environmental — resources used, CSR, ethical sourcing of goods and services (impact on supply chain management)

macro environment

• macro environment = “factors outside of the industry that influence the survival of the organisation” (p36)

  • businesses can have influence over the macroenvironment eg through lobbying but cannot control it

PESTLE: political forces

• lobbying for favourable treatment, a ‘light touch’ approach to legislation, the government as a market itself, ability of political issues to impact international marketing by firms

• larger organisations have a greater ability to actively engage in politics rather than only monitor it

PESTLE: economic forces

• affect the amount of money spent and how it is spent

• income, prices, savings, debt, availability of credit (interest rates)

• can change quite quickly eg exchange rates

• interest rates significantly impact confidence and consumption/investment

PESTLE: sociocultural forces

• factors which influence a population’s attitudes, beliefs, behaviours, preferences, customs and lifestyles

• businesses should adapt to demographic changes

• RWE: changing attitude toward the environment → businesses will be better received by consumers if they show they care for the environment

PESTLE: technological forces

• anything that “enhances the way people interact, communicate and live” (p38)

• more connected online → more opportunities for marketers to connect with customers

• changes how suppliers work eg stock levels are easier to track, deliveries also tracked

PESTLE: legal forces

• laws and regulations are closely connected to politics

• categories for most legislation significant to businesses

  • privacy

  • fair trading

  • consumer safety

  • prices

  • contract terms

  • intellectual property

• preventing legislation from being passed by having private industry watchdogs and regulations ← self regulation is often cheaper and more specific to industry needs

PESTLE: environmental forces

• RWE: Kaikoura reliant on the tourism industry → 2016 earthquake

Māori business values

• kaitiakitanga: guardianship, connection to the natural environment, taonga

• whanaungatanga and manaakitanga: relationships with people, hospitality, respecting tikanga sets businesses on the right track

• hua whai rawa/profit: tikanga increases reputation and mana so attracts customers, hua = to bear fruit, be abundance, whai = to participate, rawa = goods

defining strategy

• “The long-term direction of the organization. (Johnson et al., 2017, p. 4)”

• “The determination of long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. (Chandler, 1962, p. 3)

hierarchy of intentions

• vision — overall future intentions, perhaps principles and values

• mission statement — core values and purpose

• goals — broad statements of intent

• strategies — how the goals are achieved

  • external factors

  • internal strengths and weaknesses, responses to O and T

  • product of decision making

  • generating options and evaluating them

• objectives — using key performance indicators (KPIs)

types of strategy

• corporate strategy — organization as a whole, especially relevant for businesses with diversified products

• business strategy — decisions related to particular products and markets that can be differentiated from others in the organization

• functional strategy — activities of business eg innovation, operations, marketing, HRM, finance, accounting

approaches to strategy: rational

• scientific and rational process, using technological forecasting, portfolio analysis, environmental impact analysis, sensitivity analysis

• aim is usually profit maximisation

• contingency theory = strategic fit between the firm and its environment determines the firm’s performance

• often uses a SWOT analysis → disadvantages of a SWOT analysis

  • assumes information is accurate and available

  • doesn’t allow for a complex and dynamic environment

  • sometimes managers are not aware of strengths and weaknesses

  • decision making becomes subjective and political

  • firms make similar decisions → less innovation

approaches to strategy: flexible

• scenario planning: plotting different scenarios to be prepared in a dynamic environment ← recognises that uncertainty will always be there

• strategies to survive: cutting costs or playing the market

approaches to strategy: creative

• stresses the importance of imagination → more innovation

• avoid ‘paralysis through analysis’

approaches to strategy: behavioural

• using psychology and being realistic about how people think, feel, make decisions

• decisions generally made by management, involve negotiation with other groups

• roles of cognitive biases are considered

• likely to lead to satisfactory outcomes rather than maximising ones ie compromise has occurred

approaches to strategy: incremental/emergent

• a small amount of objectives are gradually modified → accepting the external environment for what it is → strategies change

  • process = negotiation between parties

• four parameters that determine business = uncertainty, ambiguity, paradox, chaos

approaches to strategy: no conscious strategy

• challenging times → strategy becomes important BUT sudden development of strategy can be too little too late

planning styles

• formalized planning

• negotiation and consultation

• entrepreneurship

• size/nature of firm ← informs which is best → can also depend on the type of work (eg operations vs R&D) OR circumstance eg strong union presence → negotiation and consultation

purpose of strategies

• formalized planning

• negotiation and consultation

• entrepreneurship

• size/nature of firm ← informs which is best → can also depend on the type of work (eg operations vs R&D) OR circumstance eg strong union presence → negotiation and consultation

contingency theory

• contingency theory = strategic fit between the firm and its environment determines the firm’s performance

Porter’s 5 forces: threat of new entrants

• threat of new entrants = how easily a new business can establish itself in the market

  • particularly high if the new entrant is a well established firm diversifying into the new market

  • can be low due to high start up costs, existing market power of firms, challenge of finding suppliers, EoS by existing firms

  • also barriers to exit — links to shut down price theory → bail outs when firms are too big to fail

Porter’s 5 forces: threat of substitute products

• price or performance advantage → bigger threat

• would replace the whole industry

Porter’s 5 forces: bargaining power of suppliers

• rare products/skills → few suppliers → more supplier power → higher salaries/prices

Porter’s 5 forces: bargaining power of buyers

• more substitutes → buyers have more power ← especially when little cost to change product

• power increases with volume bought

• when buying as part of the supply chain and as customers

• relationships and product differentiation are important

Porter’s 5 forces: competitive rivalry

• large number of equally sized firms → more rivalry

• firms compete on same basis (eg price) → doesn’t differentiate products BUT is costly → dilutes profits

assessment of Porter’s 5 forces model

• Porter: model shows division of value created within the industry → determines long-run profit potential

  • amount bargained by buyers and suppliers vs retained by industry

• strength = represents immediate situations, allows consideration of how forces might change over time

• weaknesses: rational not always reality, other approaches place more emphasis on customers, can simplify strategy ← needs more than just this analysis

environmental threats and opportunities: complicating factors

• threats to one part of an organization can be opportunities for another

• defence against a threat depends on environmental standing and internal resourcing — easier for larger firms to survive threats, take opportunities

• limited abilities to identity O and T

organisation aspects of strategy

• resource profile → can see whether O, T, management expectations can realistically be met

  • gap analysis = difference between what management would like to do and what management can do

• effective use of resources and effectively linking resource elements of the organization together → competitive advantage

interaction of strategy and organisation

• formulation of strategy can be heavily influenced by ownership variables — more powerful people have the final say → small business owners resist growth to retain personal control OR acquisitions to obtain control

• most responsive firms have an organic structure ie open and flexible

• larger organizations: more challenging to develop strategy (collaboratively) and ensure it is implemented properly

resource based view of competitive advantage

• resource based view (RBV) (of competitive advantage) = how a firm uses its resources to gain competitive advantage

  • traditional approach - environmental considerations more important than resources

  • four key elements

    • physical capital — products, brands, patents, location etc

    • human capital

    • organization capital — structure, planning, relationships etc

    • financial capital

resource heterogeneity

• “some firms are more skilled at using their resources than others”

resource immobility

• resources/capabilities are difficult to copy or take a long time to develop at a great cost → firm with said resources and capabilities finds long lasting competitive advantage

VRIO framework

• VRIO framework: assesses competitive advantage based on resource heterogeneity and immobility

  • value (activities that create customer value)

  • rarity (not many companies have said elements)

  • imitability (value and rarity can be copied)

  • organization (method to reach potential)

dynamic capabilities

dynamic capabilities = “ability of the firm to recreate its resources and capabilities to meet the needs of a changing environment in ways that are different from its competitors” ← can be integrated into formal structure via training and R&D

core competencies

• core competencies = “activities of a firm that make a difference and give the firm a competitive edge” ie good operating systems, reputation etc

  • knowledge, skill, technology combine to create value

  • broken into 3 types

    • architecture (internal and external relationships)

    • reputation

    • innovative ability

the value chain, Porter’s 5 primary activities and support activities

• he value chain =full production process + disposal after use

  • value from the links between different parts of the process should be used to gain competitive advantage

  • firms are seen as a system and a process

  • Porter’s 5 primary activities

    • inbound logistics (receiving goods)

    • operations

    • outbound logistics

    • marketing and saes

    • services (support before + after sales activities)

  • support activities

    • procurement/purchasing (acquisition of resources)

    • technology development (for products, training workers)

    • human resource management

    • firm infrastructure (all systems used)

  • criticism of the value chain: focuses too much on improving existing resources and links rather than more radical change

portfolio analysis

• portfolio analysis = assessment of current standing of the firm’s products and in relevant markets, future directions → balancing different growth rates, levels of risk

BCG matrix

• question marks = clear potential but resources needed to reach it

• stars = idea position, but costly to maintain this position

• cash cows = growth has stabilised, greatest ROI, EoS achieved

• dogs = drain on resources, more likely to be sold/dropped → more diversified companies can revitalise dogs

• criticisms: imprecise (there can be a lot of range within each category), results often depend on how broadly a market is defined