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Definitions Strategic management deals with long-term planning and setting the main goals of business Achieving these objects entails inevitably growth of the business Growth can be internal/intensive or external/integrative Financing growth might prove difficult and hamper flexibility over the long-run 2

Strategy, mission, competitiveness Operational management concerns decisions about day-to-day business activities Strategic management concerns decisions about the long-term agenda, course and goals of business The company’s general objectives can be often identified in the mission statement The company’s vision is the idealistic perception of what the organization wants to be Competitive advantage (CA) of the firm is based on internal and external factors that make competition with its rivals more effective 3

Volvo as an example Vision “to be valued as the world’s leading supplier of commercial transport solutions” Mission “By creating value for our customers, we create value for our shareholders. We use our expertise to create transport-related products and services of superior quality, safety and environmental care for demanding customers in selected segments. We work with energy, passion and respect for the individual” Strategy “is based on customers’ requirements and is focused on profitable growth, product renewal and internal efficiency. Customer satisfaction is a key factor as it lays a foundation for future sales and future profitability” 4

External environment Andrew Grove: 6 th factor: Complementors Michael Porter: 6 th factor: Government 5

The 5 forces Suppliers Limited number & no alternatives Cost for supply is high Supplier is big & powerful, customers are fragmented Buyers Limited number and too powerful Product is identical, buyers easily switch The buying company can produce the product itself Existing competitors many competitors of similar size Low growth market High exit costs Competitors might merge Potential entrants Barriers to entry – brand loyalty and cost leadership of existing players Substitutes Cost and quality of substitute 6

Internal environment The value chain analysis identifies stages of business activity that create product value Primary activities include physical formation of the product, distribution and sales Support activities underpin the production process and add value indirectly 7

External (market) strategy Porter’s ‘generic’ strategies – firm will maintain CA, if it adopts one of the following tactics: Cost leadership – producing at the lowest cost will guarantee competitive price (no brand loyalty, D is elastic) Differentiation – product uniqueness creates customer loyalty, firm charges high prices Focus (niche) – products are specially designed for a small market segment. Could be either cost or differentiated focus 8

Internal (resource) strategy Core competencies are the specific skills, expertise and know-how of a firm, which are the source of its CA In order to sustain them over the long-run, CC need to be: valuable – should provide special benefit to the consumer rare – should not be possessed by competitors costly to imitate – difficult to copy non-substitutable – there is no alternative to the product/services Volvo CC – making safe and reliable cars 9

Internal growth strategies Intensive growth requires internal expansion: horizontal expansion – extending market share through product modification vertical integration – extending market share by expansion to more stages of production o achieving economies of scale o reducing transaction costs & uncertainty o establishing barriers to entry o tapered vertical integration (using both own facilities and subcontractors) conglomerate – extending product range with new products to new markets 10

Growth vector (Ansoff) matrix Market Penetration Product Development Market development Diversification 11

Growth-share (BCG)matrixStar Q mark CowDog 12

External growth strategy Integrative growth requires external expansion: Strategic alliance – horizontal or vertical cooperation between companies, which allows the participants to cut costs, maximize profits and improve their products: o joint venture – two companies create and co-own legally a new entity o consortium – created for specific (large) projects o franchising & licensing – one company produces goods (with the trade mark of the other) and pays a fee o subcontracting – one company employs another to produce or supply products o networking – informal, non-biding partnership 13

Airline Alliances 14

External growth strategy (2) External expansion can be also attained through: Merger or acquisition (horizontal, vertical, conglomerate) Why ? o Growth is far more easily achieved o Economies of scale ? o Expand market share (monopoly power?) o Access to new funds, valuable assets, expertise o Increased equity prices o Decreased market uncertainty o ‘white knight’ and ‘asset stripping’ 15

Financing growth There are 3 main sources of company finance: Retained earning – trade off b/n investment and dividend payment Borrowing – short and medium-term finance might come from a bank, interest rate sensitive Stock market – listing, new share issues Foreign funding – the EU 16

Recessionary growth? During recessions, demand and revenues sharply fall, companies need to cut costs or stimulate demand, in order to not go bankrupt. Following strategies could be applied: 17 Measure Saves Money Negative Effect Cutting staffIncreasing unemployment in recessions suppresses demand even further Minimizing staff trainingProductivity and quality might decrease (better re- adapt methods) Cutting AdvertisingCompany image might suffer (switch to other media channels) Holding existing customersAdapt product, add loyalty programs and promotions (could also attract new customers) DiversifyingEnter new markets, or launch new products to off- set losses (risky)

Sources: Lecture is based on: Business growth and strategy (Chapter 6) in Sloman, J. and Jones, E. (2011) Economics and the Business Environment (3 rd ed) UK: Pearson 18