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INTL 4400
David Weitzner

providesChapter 2 General Environment: general elements in the external environment that have bearing on the company competitive environment: produce similar products and services, sell to similar customers, and use similar methods of production - all products that satisfy the customer's same needs Enhance environmental awareness by • Environmental scanning ◦ surveillance of external environment to predict future environmental changes and detect changes already underway ▪ successful: alerts to events and trends that will affect .. ▪ listen, pay attention, and follow trends in reality and digitally ▪ Trends: gobalization, shifting roles and responsibilities, time to market • Environmental Monitoring ◦ tracks evolution of trends, events, or streams of activities ◦ must give closer scrutiny to what was found while scanning - how dramatically are they changing the competitive landscape? • Competitive intelligence ◦ better define nd understand industry, and identify strengths and weaknesses of rivals ^^^ little use unless they are reliable enough to make accurate forecasting • Environmental forecasting ◦ predict change ◦ Boieng/airbus/embraer/bombardier example about its own vision future ◦ Scenario analysis ▪ more in depth • Swot Analysis ◦ stimulate group discussion on how to best set up firm for success ◦ Strengths/weakness ▪ internal ▪ where it excels, and where there are disadvantages ◦ Opportunities/threats ▪ environmental conditions external to the firm General Enviornment • demographic/psychographic ◦ root of many changes in society ◦ attitudes ◦ aging popultations ◦ ethinic composition/education/distrubtion • sociocultural ◦ value eliefs, and lifestyles ◦ higher percentage of women, dual income families, temporary workers, health, environment, postponing children • political/legal ◦ regulations that industries must comply with ◦ environment, safety, health, immigration, tariffs, minimum wages • technological • economic ◦ interest, unemployment, gdp, net disposable income ◦ stoack market index increase: consumer confidence and spending increases • global ◦ exchnage rates, global trade Porter's 5 forces for competitive assessment • helps managers assess the industry and see if it is right for them • provides rationale for increasing or decreasing resource commitments threat of new entrants • possibility that profits may be eroded by a new entrant • extent depends on existing barriers and combined reactions from existing competitors • 6 major sources ◦ economies of scale ▪ spreading costs of production over large number of units ◦ product differentiation ▪ when you have a brand ◦ capital requirement ▪ you have to invest a lot ◦ Switching cost ▪ the one time cost a buyer faces when switching to another supplier (unique inputs, specialized equipments) ◦ Access to distribution channels ▪ need to secure distribution ◦ Cost advantages independent of scale ▪ propriety product ▪ favourable access to raw materials ▪ government subsidies ▪ favourable government policies the bargaining power of buyers • power depends on attributes of the market situation and the importance of that groups' purchases to the industry's overall business • buyer is powerful under the following conditions ◦ purchases large volumes relative to a suppliers' total sales ◦ the products it purchases are standard or undifferentiated ◦ the buyer faces few switching costs ◦ it earns low profits ◦ the buyer poses credible threat of backward integration ◦ the industry's product is unimportant to the quality of the buyer's product Bargaining Power of Suppliers • raise prices, alter terms of supply, lower number of goods, reduce quality • will be powerful if ◦ he supplier industry is more concentrated than the industry it sells to / dominated by few companies ◦ the industry is not an important customer of the supplier ◦ the supplier's product is an important input to the buyer's business ◦ the suppliers products are differentiated, r it has built up switching costs for the buyer ◦ the s upper poses a credible threat of forward integration The threat of substitutes • puts a ceiling on that firms in the industry can charge • price-performance ration • same function/satisfy same need • air travel vs camera (teleconferencing) Intensity of Rivaly • result of ◦ numerous or equally balanced competitors ◦ slow industry growth: fight for market share ◦ high fixed costs which leads to increased capacity which leads to increased price cutting ◦ lack of differentiation or switching costs: commodity or perceived as commodity - purchase based on price ◦ capacity augmented in large increments: apacity additions can be very disruptive to the supply-demand balance ◦ high exit barriers: economic, strategic and emotional factors that keep firms from competing, even though they may be earning low or negative returns on their investment Five forces assumes a zero-sum game don't use to declare attractive or unattractive complementers • products and services that have possible impact on the value of a firm's own products and services Strategic groups: groups of firms that are most similar to ech other • help a firm identify barriers to mobility, which protect a group from attacks by other groups ◦ factors that deter the movements of firms from one strategic position to another • helps identify those with tenuous or marginal competitive positions • help chart future direction of firm strategies • thinking through implication of each industry tend Chapter 3 Value Chain Analysis views the firm as a sequential process of value-creating activities • dissagragates a firm into it's various activities to help understand the ways all inputs are deployed and costs incurred inc reading its products • value is the amount customers are willing to pay for a product or service ◦ measures by total revenue, a reflection of the price a firm's product demands and the quantity it can sell ◦ porter describes two categories of activities ▪ five primary activities: inbound logistics, operations, outbound logitiscts, marketing and sales, and service ▪ contribute to the physical creation ▪ support activities: procurement, technology development, HR management and firm infrastructure ▪ add value • managers must be aware of how value is created for other organizations that are involved in the supply chain or distribution channel that the firm participates in • value is created via relationships that exist within the organization, and with external players • seek ways to add unique value through their various activities inbound logistics • associated with receiving, storing and distributing inputs • shipping, warehouses, distribution facilities • JIT to maximize utlility capialization • minimizing inventory costs • automated materials handling to maximize Operations • transforming inputs into the final product • efficient plant designs to handle employee stress, minimize costs, increase speed work • maximize use of plant equipment, etc • environmentally friendly operations Outbound Logistics • collecting, storying, and distributing final goods • everything that has to do with shipping - increasing efficiency lowering costs etc Marketing & Sales • strong marketing analysis • CRM • innovating advertising and promotions Service • enhancing and maintaing value of the product, • effective handling of customer's needs Support Activities • support primary activities and make sure they happen efficiently/effectively • General Administration ◦ supports entire value chain ◦ Effective information systems, staying in touch with regulatory bodies ◦ strategic management systems for goals and objectives ◦ relationships with stakeholders ◦ control activities • HRM ◦ effective recruiting ◦ quality work environment ◦ incentive programs • Technology Development ◦ Enhance creativity and innovation ◦ Qualificatyion of personnel • Procurement ◦ purchasing inputs to be used in the value chain ◦ formal reviews to suppliers by microsoft Resource Based View of the Firm • combines two perspectives ◦ the internal analysis of phenomena within the company ◦ external analysis of the industry and its competitive environment • useful to gain insights into why some firms are more profitable than others • think of the firm as a bundle of resources • tangible resources ◦ easy to identify, measure and value ◦ physical assets such as cash and real estate ◦ value arises from physical characteristics • Intangible Resources ◦ harder to identify and quantify ◦ human resources, innovation resources (Expertise), reputation resources, firm's culture • Organizational capabilities ◦ competencies and skilsl a firm applies to to transform assets into outputs ◦ make decisions, coordinate use of assets, etc ◦ lean manaufacturing, innovation processes, flexibility in manufacturing processes etc For a resource to provide a firm with potential for a sustainable competitive advantage, four critter: • Is the resource valuable? ◦ valuable when they contribute to the fulfillment of a customer's needs at a price the customer is willing to pay ◦ when they can be deployed to meet underserved needs better than the competitors, and the cost od deployment is lower than the value placed upon it by the consumer. ◦ Firm can: minimize threats, exploit opportunities, improve on efficiency and effectiveness • Is the resource rare? ◦ possessed by few competing firms • Can the resource be imitated easily? ◦ inimatibility contrains competition ◦ Inimiatibly is usually forthcoming, so employ these strategies to lag the time ▪ physical uniqueness ▪ path dependancy ▪ these resources are unique and scarce because of several developments in the course of their development or accumulation. ▪ creating brand loyalty, ▪ Causal Ambiguity ▪ Hard to disentangle what the valuable resource is or how it can be recreated ▪ Social complexity ▪ firm culture, reputation, relationships between employees • Are substitutes readily avialble? ◦ two valuable resources are strategically equivalent when each one can be exploited separately to implement the same strategies Employee wages • employee bargaining power: if they are vital to a firm's unique capability • employee replacement cost: if skills are rare • employee exit costs: if the employee faces high costs if he leaves, or his expertise are so unique, then his bargaining power decreases • manager bargaining power: depends on how well they create resource-based advantages Evaluating Firm Performance • financial ratio analysis ◦ short term solvency and luquidity ◦ longterm solvency measures ◦ asset management (or turnover)_ ◦ profitabilty ◦ market value ◦ make sure to ▪ analyze ow ratios change overtime and how they are interrelated ▪ also ▪ historical comparisons ▪ this provides a means of evaluating trends ▪ comparison with industry norms ▪ may pale in comparison to other players int he industry ▪ Comparison with key competitors need to look at value that is being created, not just money being spent Balanced Scorecard • customer perspective ◦ must articulate goals for ▪ time ▪ quality ▪ performance ▪ service • internal business perspective ◦ whart must firm do internally to meet demands of customers ◦ processed, deicsiona, dna ctions that occur throughout organizations in a coordinated fashion ◦ look at factors that affect time, quality, employee skills and productivity (things that affect the consumer) • innovation and earning perspective: can we continue to improve and create value? ◦ ability to learn and innovate is tied directly to value ◦ only by developing new products and services, greater value for customers, and increasing operating efficiencies, can a company penetrate new markets, increase revenues and margins, and strengthen shareholder valuer. ◦ 3 categories of intangible assets are important ▪ human capital, information capital, organizational capital • financial perspective: how do we look to shareholders? ◦ are strategies contributing to the TBL ◦ profitability, growth, shareholder value Strategy Maps • link strategic objectives with activities and anticipated outcomes Assessing the intellectual assets of the firm - chapter 4 How are intellectual assets vitally connected to a firm's value creation activities? knowledge workers are the primary resource of the economy overall - valuable for the long term prosperity of a firm Waterloo is successful it created an environment that promoted education and rewarded entrepreneurship, not for creating barriers for foreign entrants. The central role of intellectual capital in today's economy • 50% of the GDP is knowledge based • R&D, product design, marketing, logistics, technological innovation, etc provide most preponderance of value added • now, things are ancillary, knowledge is central • in the knowledge economy, the effective management of intellectual assets and knowledge workers, instead of financial and physical assets • Difference between market value and book value is far greater for knowledge intensive corporations • intangible assets/intellectual capital is measured by the difference of a firm's market value and book value ◦ inlcudes reputation, loyalty, values, commitment, etc • How do you create value in the knowledge intensive economy? ◦ ability to manage intellectual assets and effectively leverage human capital through mechanisms that create products and services of value • intellectual capital: intangible assets (human capital , social, brand, trademarks), which all contribute to the firm;s ability to create value through new knowledge and its useful applications ◦ entails whole life cycle of creation, codification, valuation, protection, and leveraging of such assets. • human capital: individual capabilities, knowledge, skills, and experience of employees. • social capital: the networks of relationships that individuals have throughout the organization. • knowledge ◦ ecplicit: codified, documented, easily reproduced, widely distributed ◦ tacit: in the minds of employees • intellectual property: knowledge can only lead to sustainable competitive advantage if protected, and prevent others from copying or reproducing. • Explicit knowledge is the computer, implicit knowledge is the software engineers sharing ideas to innovate. • socially complex processes, like leadership, culture, and trust, also have a role to play in building knowledge. • people are less likely to leave the team if there are effective structures to promote information sharing and team work Human Capital • to be successful: ◦ proper sets of skills and abilities, right values and attitudes ◦ continue to delevoop, strengthen and reinforce, and motivate them to focus on organization goals and objectives • three vital process to build and leverage human capital ◦ hiring ▪ lock and key approach usually used: but this focuses mostly on motor skills with lack of attention to broad general knowledge and experience, social skills, values and beliefs ▪ Believed that if firms can focus hiring on key employee mindsets, attitudes, social skills, etc, than the motor skills can be learned in relatively short order ▪ hire for attitude, train for skill ▪ most fatal hiring mistake is to hire inidivuals with the right skills but the wrong mindset as personality largely reflects your future behaviour ◦ develop human capital ▪ effective development leads to widespread involvement, monitoring of progress, and continuous evaluation and feedback ▪ requires active involvement of leaders throughout the whole organization ▪ tracking individual progress is essential ▪ 360 evaluation and feedback systems ▪ intenral and external customers, leaders, colleagues, etc ▪ complements team work, employee involvement, and organization flattening ▪ evaluation systems should not come at the cost of of compromising the firm's core values ▪ ◦ reating human capital ▪ employees are like frogs in a wheelbarrow ▪ people who identify with a company's mission and values are less likely to leave ▪ flat organization ▪ intrinsic motivation: the motivation to work on something because it is interesting, personally challenging, etc. ▪ money is not the most important aspect ▪ people who come for money will leave for none Social Capital • not the stock of human capital that is important, but the extent to which it is combined and leveraged • development of social capital helps tie individuals to one firm • knowledge workers develop greater loyalty to peers and profession rather than the company they work for • must find ways to create ties among workers • resource based view: competitive advantaged are harder to copy if they are based on unique bundles of resources • if employees are working effectively in teams, sharing their knowledge, and learning from each other, likely to add more value to the firm and be tied together • nucor - encourages knowledge sharing within and between plants • How does it help attract and retain human capital? ◦ pied piper effect: teams or networks are leaving one company for another ◦ trend is to look for candidates at the pinnacle of social networks in organization, so they can bring with them high talent. ▪ hiring via personal networks ◦ problem: groupthink, can be expensive to manage Using technology to leverage human capital and knowledge • email • virtual teams Codifying knowledge for competitive advantage • one challenge for firms is codifying the knowledge that is held by its employees • use technology to codify knowledge so it becomes easy and cheap to share • also allows to integrate internal value chain activities with its customers and suppliers Retaining knowledge when employees leave • information technology ◦ customer relations software ◦ groupwise applications (lotus notes) • LOOK AT PAGE 111 FOR IMPORTANT QUESTIO S Dynamic capabilities: the ability of an organization to to challenge the conventional wisdom within its industry and market, learn and innovate, adapt to the changing world, etc. Chapter 5 • Without competitive advantages, firms are only able to each economic profits: the level of normal returns one could expect from any investments that have the same level of risks • achieve superiority ◦ superiority is manifested in the marketplace's response to firm's products and services ◦ sustainability usually results from the ongoing relevance and robustness of the competitive advantage against the assaults of competitor's, and the firm's ability to continuously outpace them Types of Competitive Advantage and Sustainability • Porter's 3 strategies that a firm to align best with the 5 forces and achieve competitive advantage ◦ overall cost leadership ▪ creating a low cost position relative to peers ▪ manage relationships throughout value chain and be committed to lowering costs at all points ▪ efficient scale facilities, cost reductions, tight cost and overhead control, cost minimization in al activities ▪ use the value chain to analyze the behaviour of specific cost drivers and assess the relative costs of competitors to be able to identify where a firm can develop cost advantages ▪ economies of scale ▪ experience curve: how a firm lower costs over experience ▪ five forces: ▪ achieve above average returns despite competition ▪ protects against rivalry because the firm has lower costs ▪ protects against buyers ▪ buyers can exert power to drive down prices only to the level of the next most efficient producer ▪ also allows more flexibility to cope with demands from powerful supplier for input cost increases ▪ Barriers to entry ▪ puts it in a favourable position against substitutes ▪ pitfalls: ▪ two much focus on one or a few value chain activities ▪ need to explore all value chain aspects ▪ vulnerability to raw material costs ▪ vulnerable to price increases in the factors of production ▪ cannot pass on price increases because customers are more price sensitive ▪ jetsgo and rising fuel costs ▪ a strategy that is initiated easily ▪ become easy to imitate ▪ a lack of parity on differentiation ▪ use reputation or quality ▪ ◦ differentiation ▪ create products that are unique, and are valued us such by consumers ▪ emphasis is on non-price attributes that customers will be willing to pay a premium for ▪ forms: ▪ prestige or brand image ▪ quality ▪ technology ▪ innovation ▪ features ▪ customer service ▪ dealer network ▪ firms achieve and sustain differentiation advantages when their price premiums exceed the extra costs in being unique ▪ must attain a level of price parity ▪ reduce costs in all areas that do not affect differentiation ▪ Five Forces ▪ rivaly: brand loyalty lowers customer sensivity to price and raises customer switching costs ▪ by increasing margins, lowers need for a low cost position ▪ buyers lack comparable alternatives ▪ barriers: customer loyalty and unique products ▪ supplier: prestige comes with supplying to highly differentiated… ▪ less threat from substitutes ▪ pitfalls ▪ uniqueness that is not valuable: must be valued by customers ▪ too much differentiation: ▪ too high a price premium ▪ differentiation that is easily imitated ▪ dilution of brand identification through product line extension: gucci ▪ perceptions of differentiation that vary between buyers and sellers: customer may view product as a commodity even when firm sees it as a unique product ▪ ▪ • when one strategy is chosen, firm must be able to stay at par with peers when it comes to other strategies. • Focus ◦ choosing a narrow competitive sope within an industry ◦ select a segment and tailor a strategy to serve them ◦ chieves competitive advantages by focusing solely on these segments ◦ essence is the exploitation of a specific market niche that is unique ◦ two variants ▪ cost focus ▪ create a cost advantage in its target segment and serve customers within that segment with lower prices than prices of rivals who serve larger targets. ▪ exploits differences in cost behaviour and takes advantages of potentially lower costs from limiting customer base ▪ Staples: providing bigger packs ▪ Differentiation Focus ▪ differentiation within a narrow segment ▪ Hermes, Keg ◦ Five Forces ▪ Low cost position or/and high differentiation: ▪ niches that are less vulnerable to substitutes and competitors ▪ high barriers to entry because of loyalty ▪ lower cost structure should decrease supplier power as they can absorb costs ◦ Setbacks ▪ erosion of cost advantages within a narrow segment ▪ possible competition from new entrants and imitation ▪ too much focus on satisfying buyer needs: product or service that becomes too narrow • Combination Strategies ◦ those that don't choose strategies are known as stuck in the middle ◦ integrated strategy is hard to imitate ◦ providing two types of value to customer ◦ goal becomes to provide unique value in an efficient manner ◦ three approaches ▪ automated and flexible manufacturing strategies ▪ manufacture unique products in relatively small quantities at low costs (mass customization) ▪ exploiting the profit pool concept ▪ the total profit of an industry at all points along the industry's value chain ▪ warranties, financing, etc ▪ Coordinating the extended value chain by way of IT ▪ use IT to link own value chain with that of customers and suppliers ▪ create own value and then pass it on to customers and suppliers ◦ Pitfalls ▪ failing to attain both strategies and ending up 'stuck in the middle', eaton's ▪ understanding the challenges nd expenses associated with coordinating value creating activities in the extended value chain ▪ Miscalculating sources of revenues and profit pools in the firm's industry ▪ because of: ▪ manage bias ▪ focuses to narrowly on conic analysis • Evaluating Business Strategy ◦ Consistency ▪ is the strategy aligned with the firm's objectives and goals? ▪ Levdoes it pull the organization into competing dimensions? ◦ Consonance ▪ fit between strategy and external environment ▪ trends, stakeholders, et ◦ ADVANTAGES ▪ competitive stance of the strategy and whether it is creating and exploiting competitive advantages that are both educing and difficult to duplicate. ◦ Feasibility Chapter 6 Making Diversification Work • must be justified by the creation of value for shareholders • Why bother? ◦ synergy ▪ can diversify into related business ▪ benefit: sharing tangible and intangible resources across multiple businesses, leading to cost efficiencies ▪ enhance market power by increasing dominance in the market, becoming a more critical supplier, or by increasing hold on business via vertical integration ▪ unrelated bueisness ▪ benefit: value created from corporate office ▪ Information systems, It practice ▪ not mutually exclusive • Related Diversification ◦ benefit from economies of scope ▪ cost savings from leveraging core competencies, sharing resources, sharing related activities among businesses within the corporation (Reputation, expert staff, etc) ◦ Leveraging core competencies ▪ can be viewed as the glue that binds existing businesses together or as the engine that drives business growth ▪ reflect collective learning in the organization: how to coordinate production skills, integrate multiple streams of technology, and market and merchandise products ▪ transferring accumulated skills and expertise across business units ◦ for a core competency to create value ▪ Enhance competitive advantage by creating superior customer value ▪ develop strength relative to the competition ▪ Different businesses int he corporation must be must be similar in at least one important way related to their core competence ▪ at least ONE part of their value chain must require similar skills in creating competitive advantage if the firm is to capitalize not he core competence. ▪ Loblaw and its knowledge of the canadian consumer, all it strands of grocery stores ▪ Must be difficult to imitate • Sharing Activities ◦ can also achieve synergy by sharing activities across business units ◦ can have two payoffs ▪ cost saving ▪ called hard synergies: level of achievement is high ▪ economies of scale or consolidation can lead to lower costs ▪ highest when one company acquires another in the same industry in the same country ▪ only worry is compromises that must be made to allow for sharing ▪ Enhanced revenue and differentiation ▪ achieve higher sales growth together, than what would be able on own ▪ via distribution channels (gillette and duracell) ▪ sharing can lead to better differentiation, and lower cost of differentiation ▪ sharing can have negative effects ▪ Diamler- Diamler, where customers perceived sharing between the two leads to lower quality • Market Power ◦ working with milar business, or affiliation with strong parent, leads to: ▪ enhanced position with customers and suppliers ▪ enhanced position with competition ▪ Eg: nestle vs the local grocer ◦ Consolidating the industry can also lead to greater market power ◦ Setbacks ▪ Pepsi buying Pizza Hut, KFC and Taco Bell : no more mcdonalds ▪ government can sometimes restrict business from gaining large segments of market • Vertical Integration ◦ expansion or extension of the firm by integrating preceding or successive productive processes ◦ backward integration: incorporate more processes toward the original source of raw materials ◦ forward: toward the ultimate consumer ◦ Benefits ▪ a secure source of raw materials or distribution channels that cannot be 'held hostage' to external markets where costs fluctuate all the time ▪ protection and control of assets and services required to produce and deliver valuable products and services ▪ access to new business opportunities and new forms of technology ▪ imrpoved coordination of activities across the value chain ◦ isks ▪ increased costs ▪ inability to respond quickly to changes int he market place due to fixed assets ▪ unbalanced capacities or unfilled demand ◦ ask four questions ▪ Is the value provided by present suppliers and distributors satisfactory? ▪ activtiies int he value chain that are being outsourced or performed independently by others a viable source of profit? ▪ Is there relative stability in demand for the firm's products? ▪ are the fixed costs worth it? ▪ is there a source of core competence for the activity that is considered for outsourcing or vertical integration? ▪ walmart takes care of all of its logistics ◦ analyzing ▪ transaction-cost perspective ▪ every market transaction involves some transaction costs ▪ search costs: purchase an input from an outside source ▪ negotiating ▪ contract costs ▪ monitor each other ▪ enforcement costs ▪ many of these costs can be avoided via vertical integration ▪ must also consider transaction-specific investments, related to customized inputs being bought ▪ administrative costs ▪ coordinating different stages of the now internalized value chain makes admin costs go up ▪ So? ▪ if administrative costs are lower than transaction costs, go for vertical integration! ▪ mcdonald's: world's largest buyer of beef, but does not raise cattle because transaction costs are low ▪ further consideration ▪ will vertical integration have any effects on existing and future customers, suppliers, and competitors? • Unrelated Diversification ◦ two sources of synergies ▪ corporate office can contribute to parenting and restructuring of businesses ▪ corporate office can add value by viewing businesses as a company portfolio and allocating resources to maximize corporate goals of profitability, cash flow and growth ◦ parenting ▪ the parenting advantage ▪ create value through management expertise ▪ improve plans and budgets, and provide especially competent central functions ◦ restructuring ▪ look for poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive changes ▪ Restructuring can involve: ▪ assets ▪ involves the sale of unproductive assets or whole lines of businesses that are peripheral ▪ capital ▪ involves changing the debt-equity mix, ▪ management restructuring • Portfolio Managemnet ◦ BCG growth /share matrix ▪ each circle represent sbusiness unit and size ▪ relatibe market share (business units' size to that of its largest competitor) horizontal axis ▪ market share is central: high relative market share leads to unit cost reduction (due to experience sand learning curve effects) ▪ stars: long-term growth potential and should contintue to receive investments ▪ Question mark: competing in high-growth industries but with low market share. Should be invested in to enhance competitive positions and allow them to become stars, or else will become dogs and should be divested ▪ cash cows: high market share in low growth industry. used to invest in question mark and stars ▪ Dogs: weak and low potential ◦ GE Matrix ▪ vertical axis looks at overall attractiveness of market ◦ Benefits ▪ provides a snapshot ▪ expertise from corporate office to help identify good acquisitions ▪ corarprot office provides funds to business units ▪ high quality review and coaching from corp. ▪ Develop reward systems based on portfolio analysis (award question marks more than cash cows) ◦ Limitations ▪ analyzing based on two measures which is very limited ▪ looks at each SBU as a separate business, ignoring synergies ▪ ignore core competencies ▪ can become a largely mechanical process ▪ too simplistics ◦ Page 178 ◦ Chapter 7 • the diamond of national advantage ◦ factor endowments: nation's position in factors of production necessary to compete in a given industry ▪ must be developed that are industry and firm specific ▪ pool of resources is less significant than the speed and efficiency in which they are deployed ▪ firm specific knowledge and and skills, that are inimitable, etc are what ultimately leads to nation's competitive advantage ▪ Japan has little space for warehouses. created JIT management. ◦ demand conditions: nature of home-market demand ▪ consumers who demand specific, sophisticated products and services force firms to create innovative, advanced products to meet demand ▪ firms are better understanding of consumer's needs because of this, and companies can better predict future demand conditions to remain relevant and competitive ◦ related and supporting industries: the presence or absence in the nation of supplier industries and other related industries that are internationally competitive ▪ manage inputs more efficiently ▪ compeittive supplier base encourages efficient downstream activities ▪ better working relations with suppliers ▪ joint efforts among firms ▪ related industries increase probability of new entrants into industries, creating increased competition. ▪ Italy: shoe suppliers near manufacturer ◦ firm strategy, structure, and rival: the conditions in the country governing how companies are created, organized, and managed, as well as the nature of rival ▪ find new sources of competitive advantage because of rivalry ▪ look outside home market for new markets, globalization ▪ strongest indicator of global market success ▪ firms that have experienced intense domestic competition are more likely to develop strategies to allow them to successfully compete in world markets ◦ firms that succeeded globally first succeeded in their home markets ◦ governments act as facilitators or inhibitors • bottom of the pyramid ◦ 5 billion ppl ◦ 14 trillion in spending power ◦ micro-credit, cheaper products ◦ rethink costs, quality, scale of operations, etc • International Expansion ◦ Motivations ▪ increase size of potential markets ▪ increasing revenue and asset base = economies of scale ▪ spreading of fixed costs ▪ deducting cost of research, development, operations ▪ arbitrage opportunities ▪ buying from somewhere cheap selling somewhere expensive ▪ extend life cycle of a product that is in its maturity stage at home ▪ optimize physical location for e
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