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DHV 2004

DHV 2004. Frameworks and Concepts for Strategic Analysis. Review. Comments on the general structure of strategy Strategy formulation process Strategy and the organization Course structure and expectations. This Session. A model of value creation Strategic analysis frameworks

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DHV 2004

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  1. DHV 2004 Frameworks and Concepts for Strategic Analysis

  2. Review Comments on the general structure of strategy Strategy formulation process Strategy and the organization Course structure and expectations DHV'04

  3. This Session A model of value creation Strategic analysis frameworks Porters strategic framework The resource based view of the firm Market focus view of the firm DHV'04

  4. The Value Creation Zone Can I Protect The Advantage? Can I capture the value? (Scarcity) (Appropriability) Value Creation Zone Is there a Market for the Offering? (Demand) DHV'04

  5. Strategic Formulation Frameworks Structure-Conduct-Performance Competitive Forces analysis (Porter) Game Theoretic Complexity Competition and Cooperation Resource Based View Of The Firm Core Competency (Prahalad & Hamel) DHV'04

  6. Two Purposes of Strategy for Sustainable Competitive Advantage • The external positioning of a firm relative to its competitors in an industry e.g. Porter’s five forces and industry analysis Generic strategies (differentiation and low cost) Entry barriers Mobility barriers • The internal alignment of a firm’s activities and investments e.g. Marketing and R&D DHV'04

  7. Determinants Of Competitive Pressure SUPPLIERS INDUSTRY ENTRANTS SUBSTITUTES COMPETITORS BUYERS DHV'04

  8. Generic strategies COMPETITIVE ADVANTAGE COMPETITIVE Lower Cost Differentiation SCOPE Broad Cost leadership Differentiation target Differentiation Narrow Cost Focus Focus Target DHV'04

  9. Value Chain FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT SERVICE INBOUND OUTBOUND LOGISTICS LOGISTICS MARKETING OPERATIONS SALES DHV'04

  10. Environment And Industry Analysis FIRM STRATEGY, STRUCTURE AND RIVALRY DEMAND FACTOR CONDITIONS CONDITIONS RELATED AND SUPPORTING INDUSTRIES DHV'04

  11. Bidding Game: Strategic Form $1000 $500 Boeing – Low price Boeing – Low Cost $500 $0 Airbus- High Price Airbus- Low Price $750 $0 Boeing – High Cost Boeing – High price $1000 $750 Airbus- Low price Airbus- High Price DHV'04

  12. Bidding Game:Dominant Strategy/Nash Equilibrium #4: $1000 $500 Boeing – Low price Boeing – Low Cost #1: $500 $0 Airbus- High Price Airbus- Low Price $750 #3: $600 Boeing – High Cost Boeing – High price #2: $1000 $750 Airbus- Low price Airbus- High Price DHV'04

  13. Resource Based View of the Firm The firm’s ability to create value is dependent on its stock of unique resources and the organization’s skill in using them. These both develop over time and depend on the firm’s history. Persistent asymmetries in real, or consumer perceived, unique resources exist during the period of a firm’s sustainable advantage. Possessing unique resources is necessary but not sufficient condition for creating a sustainable competitive advantage. DHV'04

  14. Resource Based View of the Firm • Sustainable competitive advantage is possible if a firm possesses distinctive competencies • Distinctive competencies enable but don’t guarantee competitive advantage • Distinctive competencies are a hard to imitate set of resources that are create value for the consumer • Efficiency • Effectiveness • Differentiation DHV'04

  15. What Are Resources? • Tangible assets • Intangible assets • Organizational capabilities DHV'04

  16. Evaluation Criteria for a unique resource • Valuable to the customer • Durability • Scarcity • Imperfect imitability • Imperfect tradability • Substitutability • Competitive advantage • Appropriability DHV'04

  17. Resource-Based View • A resource must meet all four conditions to produce a sustainable competitive advantage • The identification of firm strengths and weaknesses will sort resources according to their capacity for producing a sustainable competitive advantage • Current view is to outsource activities that do not create a competitive advantage DHV'04

  18. Investing in Resources As all resources depreciate, a corporate strategy requires continuous investment to expand a firm’s critical resources However, choosing resources to invest in requires careful analysis of a firm’s strategic position and competitors’ moves Difficulty for the firm to make decisions (Tradeoffs): 1. Continuity (for stability of present business) and adaptability (for future change in the market) 2. Commitment (locked into the investment strategy) and flexibility (to maintain a slack for unexpected events) DHV'04

  19. Try This RBV Evaluation Matrix Potential Unique Resources A unique resource must satisfy all the evaluation criteria. DHV'04

  20. Why Are Distinctive Competencies Hard to Imitate? • Physical uniqueness • Path dependency • Causal ambiguity • Economic deterrence DHV'04

  21. Evolutionary process Regional specificity Firm specificity Hybridization How do you invest in core competencies? How Does a Firm Go About Building Core Competencies? DHV'04

  22. Core Products • The standardized building block that translates competencies into valuable products and services. Creates flexibility to enter new markets. Potential for appropriability along the value chain. • The embodiment of a core competency. A focus for investment which builds core competencies. • Competition is for market share in core products. DHV'04

  23. When Core Competencies Become Core Rigidities • Innovation obsoletes core competencies during periods of “creative destruction.” • As competitive pressure rises the firm tends to invest more in its core competency. This may lead to excess capacity. • The capability gap may be perceived but the organizational capability is hard to change. Acquiring the technology is easier than changing the organizational capability. • Most firms have failed to sustain leadership after a period of technological substitution. DHV'04

  24. Considerations in Resource Allocation Distinctive or necessary resources Make or buy decision Outsourcing alternatives Value creating: Should we invest in all positive NPV projects? DHV'04

  25. Takeaway Strategy formulation is about creating alternatives and selecting the highest valued alternative Strategic alternatives can be formulated from several perspectives Frameworks organize the strategic analysis process The hierarchy of strategies provide a roadmap for creating value, allocating resources and organizational structure The resource based view of the firm will be our primary strategic framework. DHV'04

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