1. Enterprise Process Analysis Lecture 2 Strategy Reading D-1 & D-2

2. SUMMARY OF LECTURES 2 TO 7 L2
Strategy L3
Internet
L4/5
B2C
B2B L7
ERP
Value Chain L6

3. Strategy What is Strategy???
Strategy comes from the greek word ‘strategos’ meaning “general”
Though originally used in war terminology, strategy in business takes the form of a plan designed to help an organisation outperform its competitors - this is achieved by creating new opportunities rather than beating rivals
Michael E. Porter (Reading D-1) defines strategy as: “Strategy is the creation of a unique and valuable position, involving a different set of activities”

4. Strategy What is Strategy???
Strategy is also about “making trade-offs in competing. The essence of strategy is choosing what not to do”
Strategy is also about “creating fit among a company’s activities”
Strategy goes far beyond the pursuit of best practices. It involves the configuration of a tailored value chain - the series of activities required to produce and deliver a product or service than enables a company to offer a unique value

5. Strategy - a misled word?
Root of problem is the failure to distinguish between operational effectiveness and strategy
You may have heard of terms like TQM (total quality management), benchmarking, time based competition, outsourcing, partnering, reengineering, change management which have been coined to address productivity, quality and speed
In the bid to stay competitive, managers have now moved towards such management tools BUT inevitably move father away from viable competitive positions.

6. Operational Effectiveness versus Strategy
Both are essential to superior performance but they work in different ways
Operational Effectiveness (OE) means performing similar activities better than rivals perform them
OE includes but is not limited to efficiency. OE basically includes any activity that allows companies to utilise its inputs better and producing better products faster
However, strategic positioning (SP) refers to how a company can perform different activities from rivals or performing similar activities in different ways.

7. Operational Effectiveness versus Strategy
Example, Company A produces brown bread roll at a cost of $2 and selling price of $4 at a turnover rate of 100 rolls per day
To achieve OE., Company B produces the same brown bread roll at a cost of $1.20 and selling price of $4 at a turnover rate of 120 rolls per day
However, to achieve SP, Company B needs to either produce a special kind of brown bread or perhaps mass-produce the brown bread to increase production

8. So what are companies really doing?
Companies are embracing OE through programs such as TQM, time-based competition, and benchmarking
However, imitators have been quick to follow over a long period of time and hence you lose your competitive edge
What you need is a strategic outlook - yeah, ok, but how do I invent a strategy?

9. Firm-Specific Resources and Capabilities
Competitive
Market
Dynamics
Firm-Specific Resources and Capabilities
SWOT
Perspective
Mission
Position
Business Strategy
Plan
Performance Goals and Measures
Patterns
Actions
Hierarchy of Business Strategy

10. Strategic Analysis
A SWOT analysis is undertaken to provide a snapshot of a company’s current performance to that of its competitors
The left hand side gives the positive features and the right hand side gives the negative features.

11. Strategic Analysis
Strengths
Weaknesses
Opportunities
Threats

12. Competitive Market Dynamics
Analysing Opportunities and Threats
Answering the questions:
What is the nature of the market?
Who are the major competitors?
What are the rules of the game?
How great is the potential for profit?
Porter’s “five forces” model is a useful framework:-
Threat of new entrants
Bargaining power of suppliers
Bargaining power of customers
Availability of substitute products or services
Rivalry in the market

13. Firm-Specific Resources and Capabilities
Analysing Strengths and Weaknesses
Answering the questions:
Looking at the Balance Sheet (Statement of Financial Position) to analyse the type of assets
Assets is a resource, owned or controlled by the entity that will yield future economic benefits, e.g. plant, equipment, cash, inventory
Type of Assets
Current Assets-Cash, Marketable securities, Accounts receivable etc.
Non-Current Assets-Plant, Equipment etc.
Intangible Assets-Copyrights, Patents, Goodwill etc.
Intangible Resources-Distinctive internal capabilities, market franchises etc

14. 4 ‘Ps’ of strategy : Mission
Strategy as Perspective
Creating a Mission:
Mission refers to the broad purpose or reason that a business exists
At the most basic level, a company’s mission is recorded in its legal charter or Articles of incorporation
However, senior managers may pass down their ideals and core values to their employees
A mission statement provides an overarching perspective to all activities of a firm.

15. 4 ‘Ps’ of strategy : Business Strategy
Strategy as Position
Answering the questions:
How do we create value for our customers?
How do we differentiate our products and services from those of our competitors?
>>>Adopt one of 3 strategic moves

16. Strategic Moves
Adoption of one of the three Porter (1980) strategies with respect to competitive position gives a firm indicator of the ability to dismiss pressures exerted by competitors:
Industry leadership (esp. cost leadership)
Product differentiation
Niche marketing

17. Strategic Moves 1) Industry leadership through-
Cost leadership
Technological superiority
High quality
Economics of large scale production
These factors allow the firm to resist competitive pressures through price cutting and because the competitors cannot match the technological expertise that has been created

18. Strategic Moves 2) Product differentiation
Manufacturing of multiple products each branded and fiercely promoted
Competitors are forced to compete simultaneously on many fronts
Competitors must overcome brand loyalty through price cutting

19. Strategic Moves 3) Niche marketing
To target niche markets, ignored by larger and less flexible operators, companies can compete strongly
Focusing on cost or quality and responding to customer needs in a restricted market

20. 4 ‘Ps’ of strategy : Performance Goals and Measures
Strategy as Plan
Business need to set up plans to communicate intended strategy to all in organisation
Goals are the ends or results that management desires to achieve in implementing the business strategy
E.g. Increase Market Share, Reduce Expenses, Open New Stores etc.
Need to set measures of scale to determine extent to which firm has met goals

21. 4 ‘Ps’ of strategy : Actions
Strategy as Pattern
Potential for new strategies to emerge in organisations
Could be due to changing patterns of action in their business
E.g. Changing focus from production of chips to production of high-value-added microprocessors (Intel Corp)

22. So…what strategic options do companies have?
First, strategic positioning can be based on producing a subset of an industry’s products or services – variety-based positioning.
E.g. (Reading D-1) Jiffy Lube International and Vanguard Group – customers visit these businesses to access a superior value chain for a particular type of service
Second, strategic positioning can be tailored to meet the needs of a particular group of customers – needs-based positioning.
E.g. (Reading D-1) Ikea, Beverage Companies, Bessemer Trust and Citibank– these businesses meet the needs of its target customers and not just a subset of them

23. Strategic Positioning
Thirdly, strategic positioning can be made to segment customers who are accessible in different ways – access-based positioning.
E.g. (Reading D-1) Carmike Cinemas – providing theatre entertainment to a small community

24. Sustainable Competitive Advantage
To achieve sustainable competitive advantage, trade-offs are essential. There are essentially three types of trade-offs
Firstly, inconsistencies in image or reputation. Companies which have known to deliver a kind of product may confuse customers
Secondly, trade-offs arise from activities themselves. Different positions require different product configurations, different equipment, different employee behaviour, different skills, and different management systems
Thirdly, trade-offs arise from limits on internal coordination and control – companies that try to do everything and anything confuse employees who make everyday decisions

25. Sustainable Competitive Advantage
Fit is also essential to maintain sustainable competitive advantage.
Fit drives both competitive advantage and sustainability
There are three types of fit
First-order fit is simple consistency between each activity and the overall strategy e.g. Vanguard
Second-order fit occurs when activities are reinforcing e.g. Neutrogena
Third-order fit occurs when coordination and information exchange across activities to eliminate redundancy and minimise wasted effort e.g. Gap stores