~ MANAGING INTERNAL OPERATIONS: ACTIONS THAT PROMOTE GOOD STRATEGY EXECUTION ~

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Managing for continuous improvement:

• Benchmarking
• Process reengineering
• Six sigma quality programs
• Total quality management (TQM)
• Best practices

Business Process Reengineering

- Involves radically redesigning and streamlining work effort, flows and processes to achieve dramatic improvements in performance.

- Uses cross-functional teams, cutting-edge technology and information systems to reset and refocus the organization's strategy.

Total Quality Management (TQM)

Creating a total quality culture bent on continuously improving the performance of every task and value chain activity.

Is a long-term race without a finish in which success comes slowly in small steps forward ( kaizen )

Six sigma programs: utilize statistical methods to improve quality by reducing defects and variability in business process.

Six sigma principles: 

• All work is a process.
• All processes have variability.
• All processes create data that explain variability.

~Building Organization Capable of Good Strategy Execution:~

People, Capabilities, and Structure

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TMA 2

1110820

Before we start this chapter, we do some revision about previous chapter we have learned before.

''If we have an bombastic idea, but we don't have an efficient employees, thus, we can't apply that ideas.'' 

The 10 basic tasks of the strategy execution process:

Paramount Actions are :

• Staffing the organization
• Acquiring, developing, and strengthening key resources and capabilities.
• - develop capabilities internally : first, strengthen the firm's skills, knowledge, and intellect. Second,  coordinate and integrated the efforts of work groups and departments.
• - acquire capabilities through mergers and acquisitions
• - access capabilities via collaborative partnerships : First, outsource the function requiring the capabilities to a key supplier or another provider. Second, collaborate with a firm that has complementary resources and capabilities. Lastly, engage in a collaborative partnership for the purpose of learning hoe the partner does things.
• Structuring the organization and work effort.
• - decide which value chain activities to perform internally and which ones to outsource.
• - align the organizational structure with the strategy.
• - decide how much authority to centralize at the top and how much to delegate to down-the-line managers and employees.
• - facilitate collaboration with external partners and strategic allies.

Matching Type Of Organizational Structure To Strategy Execution Requirements.

• Simple structure ( line-and-staff ) 
• Functional structure ( departmental or unitary ) - chosen strategy
• Multidivisional structure ( divisional M-form ) - capabilities and competencies
• Matrix structure ( composite or combination ) - centralized or decentralized control

1. A simple structure consists of a central execution who handles all major decisions and oversees all operations all operations with the help of a small staff.
2. A functional structure is a organized into functional departments, with departmental managers who report to the CEO and small corporate staff.
3. A multidivisional structure is a decentralized structure consisting of a set of operating divisions organized along business, product, customer group, or geographic lines, and a central corporate headquarters that allocates resources, provide a support functions, and monitors divisional activities.
4. A matrix structure combines two or more organizational forms, with multiple reporting relationships. It is used to foster cross-unit collaboration.

~ CORPORATE CULTURED AND LEADERSHIP: ~

KEYS TO GOOD STRATEGY EXECUTION

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TMA 2

1110820

Corporate culture refers to the shared values, ingrained attitudes, core beliefs and company traditions that determine norms of behavior, accepted work practices, and styles of operating.

Perpetuating the culture by :

• Systematic indoctrination of new members.
• Vocal support by senior managers.
• Rewarding those who display cultural norms.
• Ceremonies honoring employees.
• Telling and retelling of the firm's legends.
• Screening and selecting new employees.

Causes of cultural change are :

1. New or revolutionary technologies.
2. Diversification into new businesses.
3. Rapid growth of the firm.
4. Merger or acquisition of another firm.
5. Shifting internal conditions.
6. New challenges in the marketplace.

In a strong-culture company, deeply rooted values and norms of behavior are widely shared and regulate the conduct of the company's business.

The development of a strong culture with founder or strong leader with strong values and commitment by the firm to ethical behavior.

Changing the culture of an organization.

Top executive and upper management behaviors.

Ceremonial events to honor exemplary employees.

Physical symbols that represent the new culture.

MAKING CORRECTIVE ACTIONS SUCCESSFULLY REQUIRES:

A through analysis of the situation.

Good business judgment in deciding what actions to take.

Good implementation of the corrective actions.

CORPORATE STRATEGY

DIVERSIFICATION AND THE MULTIBUSINESS COMPANY

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TMA 2

1110820

In this chapter we learned about corporate strategy and actually the diversification strategy must have or entail four (4) steps which is:

First in step 1, picking new industries to enter and deciding on the means of entry.

Step 2, pursuing opportunities to leverage cross-business value chain relationships and strategic fit into competitive advantage.

Step 3, establishing investment priorities steering corporate resources into the most attractive business units.

Lastly in step 4, initiating actions to boost the combined performance of the cooperation's collection of business.

After that, we look into the options of strategic diversification such as:

- sticking closely with the existing business lineup and pursuing opportunities presented by these business.

- broadening the current scope of diversification by entering additional industries.

- divesting some businesses and retrenching to a narrower collection of diversified businesses with better overall performance prospects.

-restructuring the entire firm by divesting some businesses and acquiring others to put a whole new face on the firm's business lineup.

About the testing:

• The attractiveness test: Are the industry's profits and return on investment as good or better than present business ?
• The cost of entry test: is the cost of overcoming entry barriers so great as to long delay or reduce the potential for profitability ?
• The better-off test: how much synergy will be gained by diversifying into the industry ?

The advantages and disadvantages Acquisition of an Existing Business are:

Advantages: - Quick entry into an industry.

                       - Barriers to entry avoided.

                       - Access to complementary resources and capabilities.

Disadvantages: - Cost of acquisition.

                             - Overestimating the acquisitions potential to deliver added shareholder value.

                             - Underestimating costs for integrating acquired firm.

The core concept an acquisition premium is the amount by which the price offered exceeds the preacquisition market value of the target firm.

The advantages of new venture development are avoids pitfalls and uncertain in costs of acquisition and allows entry into a new or emerging industry where there are no available acquisition candidates.

The disadvantages of intrapreneurship are must overcome industry entry barriers, requires extensive investments in developing production capacities and competitive capabilities, may fail due to internal organizational resistance to change and innovation.

STRATEGIES FOR COMPETING IN INTERNATIONAL MARKETS

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Why companies decide to enter foreign markets ?

- To gain access to new customers.

- To achieve lower costs through economies of scale, experience, and increased purchasing power.

- To further exploit core competencies.

- To spread business risk across a wider market base.

- To gain access to resources and capabilities located in foreign markets.

Why competing across national borders makes strategy making more complex.

• Different countries have different home-country advantages in different industries.
• Location-based value chain advantages for certain countries.
• Differences in government policies, tax rates, and economic conditions.
• Currency exchange rate risks.
• Differences in buyer tastes and preferences for products and services.

The Diamond of National Advantage:

Home Country Advantages: 

Demand conditions - Home market size and growth rate, buyers' tastes.

Related supporting industries - Proximity of suppliers, end users, and complementary industries.

Factor conditions - Availability and relative prices of inputs.

Firm strategy, structure, and rivalry - Different styles of management and organization, degree of local rivalry.

The core concept,

-Political risks stem from instability or weaknesses in national governments and hostility to foreign business.

-Economic risks stem from the stability of a country's monetary system, economic and regulatory policies, the lack of property rights protections.

-Greenfield venture is a subsidiary business that is established by setting up the entire operation from the ground up.

Collaborative strategies involving alliances or joint ventures with foreign partners are a popular way for companies to edge their way into the markets of foreign countries.

Cross-border alliances enable a growth-minded company to widen its geographic coverage and strengthen its competitiveness in foreign markets, at the same time, they offer flexibility and allow a company to retain some degree of autonomy and operating control.

COMPETING INTERNATIONALLY: THREE STRATEGIC APPROACHES

1. Multidomestic strategy
2. Global strategy
3. Transnational strategy

Build competitive advantage in international markets

• Use international location to lower cost or differentiate product.
• Share resources and capabilities.
• Gain cross-border coordination benefits.

Core concepts for profit sanctuaries are country markets that provide a firm with substantial profits because of a strong or protected market position.

Core concept for cross-market subsidization is supporting competitive offensive in one market with resources and profits diverted from operations in another market.

DUMPING AS A STRATEGY:

Dumping - selling goods in foreign markets at prices that are either below normal home market prices or below the full costs per unit.

Dumping is not a fair-trade practice:

Governments can be expected to retaliate against such practices by foreign competitors.

The World Trade Organization (WTO) actively polices dumping to discourage such practices.

~STRENGTHENING A COMPANY’S COMPETITIVE POSITION: STRATEGIC MOVES, TIMING, AND SCOPE OF OPERATIONS~

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TMA 2

1110820

The strategic offensive principles are:

• Focus on relentlessly building competitive advantage and then converting it into sustainable advantage. 
• Apply resources where rivals are least able to defend themselves.
• Employ the element of surprise as opposed to doing what rivals expect and are prepared for.
• Display a strong bias for swift, decisive and overwhelming actions to overpower rivals.

We can see that the best offensive use a company's most powerful resources and capabilities to attack rivals the areas where they are weakest. We also can chose which rivals to attack through the best target for offensive attack such as:

1. Market leaders that are in vulnerable competitive positions.
2. Runner-up firms with weaknesses in area where the challenger is strong.
3. Struggling enterprises on the verge of going under.
4. Small local and regional firms with limited capabilities.

Blue-Ocean strategy- A special kind of offensive

The business universe is divided into two which is, an existing market with boundaries and rules in which rival firms compete for advantage. 
A ''blue ocean'' market space, where the industry has not yet taken shape, with no rivals and wide-open long-term growth and profit potential for a firm that can create demand for new types of products.
The examples of blue ocean are 1 malaysia for youth (im4u), ebay, and FedEx.

A blue-ocean strategy offers growth in revenues and profits by discovering or inventing industry segments that create altogether new demand.
Good defensive strategies can help protect a competitive advantage but rarely are the basis for creating one.

Purpose of Defensive Strategies

1. Lower the firm's risk of being attacked.
2. Weaken the impact of an attack that does occur.
3. Influence challengers to aim their efforts at other rivals.

The core concept is about because of the first-mover advantages and disadvantages, competitive advantage can spring from when a move is made as well as from what move is made.
Horizontal scope is the range of product and service segments that a firm serves within its focal market.
Vertical scope is the extent to which a firm's internal activities encompass one, some, many or all of the activities that make up an industry's entire value chain system, ranging from raw-material production to final sales and service activities.

Horizontal Merger And Acquisition Strategies
- Merger: Is the combining of two or more firms into a single corporate entity that often takes on a new name.
- Acquisition: Is a combination in which one firm, the acquirer, purchases and absorbs the operations of another firm, the acquired.

SPAC is the acronym for special purpose acquisition company. SPAC is a company that is initially listed with no operations but formed exclusively to make acquisitions using cash raised based primarily on the prior track record of the individuals forming the management team who promote the venue.

Vertical Integration Strategies

• Vertical integrated firm - is one that participates in multiple segments or stages of an industry's overall value chain.
• Vertical integrated strategy - can expand the firm's range of activities backward into its sources of supply or forward toward end users of its products.

Types of Vertical Integration Strategies

1. Full Integration: a firm participates in all stages of the vertical activity chain.
2. Partial Integration: a firm builds positions only in selected stages of the vertical chain.
3. Tapered Integration: Involves mix of in-house and outsourced activity in any stage of the vertical chain.

Benefits of a vertical integration strategy are add materially to a firm's technological capabilities, strengthen the firm's competitive position, and boost the firm's profitability.

The core concepts of 

• Backward integration involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system.
• Forward integration involves entry into value chain activities closer to the end user.
• Outsourcing involves farming out value chain activities to outside vendors.
• Strategic alliance is a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective.
• Joint venture is a partnership involving the establishment of an independent corporate entity that the partners own and control jointly, sharing in its revenues and expenses.

~ THE FIVE GENERIC COMPETITIVE STRATEGIES ~

WHICH ONE TO EMPLOY ?

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TMA 2

1110820

MGB4013 STRATEGIC MANAGEMENT

Why strategies differ ?

The key factors that distinguish one strategy from another :

1. Is the firm's market target broad or narrow ? or
2. Is the competitive advantage pursued linked to low costs or product differentiation ?

The Five (5) Generic Competitive Strategies.

• Low-Cost Provider : Striving to achieve lower overall costs than rivals on products that attract a broad spectrum of buyers. ( give a lower price to buyers )
• Broad Differentiation : Differentiating the firm's product offering from rivals' with attributes that appeal to a broad spectrum of buyers. ( the unit factors that different from other companies )
• Focused-Low Cost : Concentrating on a narrow price-sensitive buyer segment and on cost to offer a lower-priced product. ( focus more on target market )
• Focused Differentiation : Concentrating on a narrow buyer segment by meeting specific tastes and requirements of niche members.
• Best-Cost Provider : Giving customers more value for the money by offering upscale product attributes at a lower cost than rivals.

Figure 5.1  The Five Generic Competitive Strategies

Major avenues for achieving a cost advantage.

Low-cost advantage : A firm's cumulative costs across its overall value chain must be lower than competitors' cumulative costs.
How to gain a low-cost advantage :
- Perform value chain activities more cost-effectively than rivals.
- Revamp the firm's overall value chain to eliminate or bypass cost-producing activities.

Cost driver is a factor with a strong influence of a firm's costs. Its can be asset or activity-based.

Figure 5.2  Cost Drivers : The Keys to Driving Down Company Costs

Core Concept :

• The essence of a broad differentiation strategy is to offer unique product attributes that a wide range of buyers find appealing and worth paying for.
• A uniqueness driver is a factor that can have a strong differentiating effect.

Figure 5.3  Uniqueness Drivers : The Keys to Creating a Differentiation Advantage.

Revamping the value chain system to increase differentiation.

• Approaches to enhancing differentiation through changes in the value chain system.

1. Coordinating with channel allies to enhance customer perceptions of value.
2. Coordinating with suppliers to better address customer needs.

When the differentiation strategy work best ?

Pitfalls to avoid in pursuing a differentiation strategy :

• Relying on product attributes easily copied by rivals.
• Introducing product attributes that do not evoke an enthusiastic buyer response.
• Eroding profitability by overspending on efforts to differentiate the firm's product offering.
• Offering only trivial improvements in quality, service or performance features deal than the product of rivals.
• Adding frills and features such that the product exceeds the needs and use patterns of most buyers.
• Charging too high a price premium.

Focused ( or market niche ) Strategies.

Focused strategy approaches :
- Focused low-cost strategy

- Focused market niche strategy

Core Concept : Best-cost provider strategies are hybrid of low-cost provider and differentiation strategies that aim at providing desired quality, features, performance, service attributes while beating rivals on price.