Block 1920A SDV Summary
Exploring Strategy Textbook
Cloé Assman
HOTELSCHOOL THE HAGUE
,1
,Table of Contents
Chapter 1: Introducing Strategy ....................................................................................... 5
1.1 What is Strategy? ............................................................................................................... 5
1.1.1 Three-Horizons Framework ...................................................................................................................5
1.1.2 The Purpose of Strategy ........................................................................................................................5
1.1.3 Strategy Statements ..............................................................................................................................6
1.1.4 Levels of Strategy...................................................................................................................................6
1.2 The Exploring Strategy Framework...................................................................................... 6
Chapter 2: Macro-Environment Analysis........................................................................... 7
2.1 PESTEL Analysis .................................................................................................................. 7
2.2 Forecasting......................................................................................................................... 7
2.2.1 Forecast Approaches .............................................................................................................................7
2.2.2 Directions of Change .............................................................................................................................8
2.3 Scenario Analysis................................................................................................................ 8
Chapter 3: Industry and Sector Analysis...........................................................................10
3.1 Introduction ..................................................................................................................... 10
3.2 The Competitive Forces .................................................................................................... 10
3.2.1 Porter’s Five Forces Framework ......................................................................................................... 10
3.2.2 Implications of the Five Forces Framework ....................................................................................... 12
3.3 Defining the industry ........................................................................................................ 12
3.3.1 Steps in an Industry Analysis (Page 75) .............................................................................................. 13
3.4 Industry Types and Dynamics ............................................................................................ 13
3.4.1 Industry Types .................................................................................................................................... 13
3.4.2 Industry Structure Dynamics .............................................................................................................. 13
3.5 Competitors and Markets ................................................................................................. 14
3.5.1 Strategic Groups ................................................................................................................................. 14
3.5.2 Market Segments ............................................................................................................................... 14
3.5.3 Critical Success Factors and ‘Blue Oceans’ ......................................................................................... 15
Chapter 4: Resources and Capabilities .............................................................................16
4.1 Introduction ..................................................................................................................... 16
4.2 Foundations of Resources and Capabilities ........................................................................ 16
4.2.1 Threshold and distinctive R&C ........................................................................................................... 16
4.3 Distinctive R&C as a Basis of Competitive Advantage (assessing R&C) ................................ 17
4.3.1 V – Value of R&C ................................................................................................................................. 17
4.4 Diagnosing R&C ................................................................................................................ 17
4.4.1 VRIO analysis ...................................................................................................................................... 17
4.4.2 The Value Chain and Value System .................................................................................................... 17
4.4.3 Activity Systems .................................................................................................................................. 18
4.4.4 Benchmarking ..................................................................................................................................... 19
4.5 Dynamic Capabilities ........................................................................................................ 19
Chapter 7: Business Strategy and Models ........................................................................20
7.1 Introduction ..................................................................................................................... 20
2
, 7.2 Generic Competitive Strategies ......................................................................................... 20
7.2.1 Cost-Leadership Strategy.................................................................................................................... 20
7.2.2 Differentiation Strategy ...................................................................................................................... 21
7.2.3 Focus Strategy .................................................................................................................................... 21
7.2.4 Hybrid Strategy ................................................................................................................................... 21
7.2.5 The Strategy Clock .............................................................................................................................. 22
7.3 Interactive Strategies........................................................................................................ 23
7.3.1 Interactive Price and Quality Strategies ............................................................................................. 23
7.3.2 Cooperative Strategy .......................................................................................................................... 23
7.3.3 Game Theory ...................................................................................................................................... 24
7.4 Business Models ............................................................................................................... 24
7.4.1 Value Creation, Configuration and Capture ....................................................................................... 24
7.4.2 Business Model Patterns .................................................................................................................... 25
Chapter 8: Corporate Strategy and Diversification ...........................................................26
8.1 Introduction ..................................................................................................................... 26
8.2 Strategy Directions ........................................................................................................... 26
8.3 Diversification Drivers ...................................................................................................... 27
8.4 Diversification and Performance ....................................................................................... 28
8.5 Vertical Integration .......................................................................................................... 28
8.5.1 Forward and Backward Integration .................................................................................................... 28
8.5.2 To Integrate or to Outsource? ............................................................................................................ 28
8.6 Value Creation and the Corporate Parent .......................................................................... 28
8.6.1 Value-adding and Value-destroying Activities of Corporate Parents................................................. 28
8.6.2 Types of Corporate Parents ................................................................................................................ 30
8.7 Portfolio Matrices ............................................................................................................ 31
8.7.1 The BCG (growth/share) Matrix ......................................................................................................... 31
8.7.2 The Directional Policy (GE-McKinsey) Matrix ..................................................................................... 31
8.7.3 The Parenting Matrix .......................................................................................................................... 32
Chapter 9: International Strategy ....................................................................................33
9.1 Introduction ..................................................................................................................... 33
9.2 Internationalisation Drivers .............................................................................................. 33
9.3 Geographic Sources of Advantage ..................................................................................... 33
9.3.1 Locational Advantage: Porter’s Diamond ................................................................33
9.3.2 The International Value System ......................................................................................................... 34
9.4 International Strategies .................................................................................................... 34
9.5 Market Selection and Entry............................................................................................... 35
9.5.1 Country and Market Characteristics................................................................................................... 35
9.5.2 Competitive Characteristic ................................................................................................................. 36
9.5.3 Entry Mode Strategies ........................................................................................................................ 36
9.6 Subsidiary Roles in an International Portfolio .................................................................... 37
9.7 Internationalism and Performance .................................................................................... 37
Chapter 11: Mergers, Acquisitions and Alliances..............................................................39
11.1 Organic Development ..................................................................................................... 39
3
, 11.2 Mergers & Acquisitions ................................................................................................... 39
11.2.1 Types of M&A ................................................................................................................................... 39
11.2.2 Timing of M&A.................................................................................................................................. 40
11.2.3 Motives for M&A .............................................................................................................................. 40
11.2.4 M&A Processes ................................................................................................................................. 41
11.2.5 M&A Strategy Over Time.................................................................................................................. 42
11.3 Strategic Alliances .......................................................................................................... 42
11.3.1 Types of Strategic Alliance................................................................................................................ 42
11.3.2 Motives for Alliances ........................................................................................................................ 43
11.3.3 Strategic Alliance Processes ............................................................................................................. 43
11.4 Comparing Acquisitions, Alliances and Organic Development .......................................... 44
Key Success Factors.........................................................................................................44
Chapter 12: Evaluating Strategies ...................................................................................45
......................................................................................................................................45
12.1 Introduction ............................................................................................................45
12.2 Organisational Performance....................................................................................45
12.2.1 Performance Measures .................................................................................................................... 45
12.2.2 Performance Comparisons ............................................................................................................... 45
12.2.3 Gap Analysis...................................................................................................................................... 46
12.2.4 Complexities of Performance Analysis ............................................................................................. 46
12.3 Suitability ....................................................................................................................... 46
12.3.1 Various ways to assess suitability ..................................................................................................... 47
12.4 Acceptability ...........................................................................................................48
12.4.1 Risk .................................................................................................................................................... 48
12.4.2 Return ............................................................................................................................................... 48
12.4.3 Reaction of Stakeholders .................................................................................................................. 50
12.5 Feasibility ....................................................................................................................... 50
12.5.1 Financial Feasibility ........................................................................................................................... 50
12.5.2 People and Skills ............................................................................................................................... 51
12.5.3 Integrating Resources ....................................................................................................................... 51
12.6 Evaluation Criteria: Four Qualifications ........................................................................... 51
Definitions ......................................................................................................................52
4
,Chapter 1: Introducing Strategy
1.1 What is Strategy?
Strategy is the long-term direction of an organization
1.1.1 Three-Horizons Framework
The Three Horizons Framework suggests organisations should think of themselves as comprising three types of
business activity, defined by their horizons in terms
of years
Horizon 1: extend + defend core business
Horizon 2: build emerging businesses
Horizon 3: create viable options
!! managers should avoid focusing on short-term (1)
issues of their existing activities as they have low
profit potential
Strategy = pushing out horizon 1 while simultaneously looking at horizon 2 & 3
Direction:
→ May emerge from a coherent pattern over time
→ Often set according to long-term objectives
o Maximising shareholder profits
o Profits sometimes sacrificed
Organisation:
→ Not treated as unified entities
→ Stakeholders are IMPORTANT
→ Important to consider people’s interests + views
→ Strategy must also concern external boundaries (relationship management)
1.1.2 The Purpose of Strategy
How does the organisation make a difference and for whom?
Mission Statement: aims to provide employees & stakeholders with clarity about what the organisation is
fundamentally there to do (use 5 why on core-business):
→ What business are we in?
→ What would be lost if the organisation did not exist?
→ How do we make a difference?
Vision Statement: concerned with the future the organisation seeks to create (an aspiration)
→ What do we want to achieve?
→ If we were sitting here in 20 years, what do we want to have created?
Statements of Corporate Values: communicate the underlying & enduring core principles that guide an
organisation’s strategy & define the way that the organisation should operate
→ Would these values change with circumstance? If yes, not core values
Objectives: statements of specific outcomes to be achieved
→ Targets
→ Triple bottom line
5
,1.1.3 Strategy Statements
Should have 3 main themes
1. The fundamental GOALS that the organisation seeks
2. The SCOPE or domain of organisation’s activities (customers/clients, geographical location, vertical
integration)
3. Particular ADVANTAGE it has to deliver all of these (how am I better than the competition?)
1.1.4 Levels of Strategy
Corporate level strategy is concerned with the overall scope of an organisation and how value is added to the
constituent businesses of the organisational whole
Business level strategy is about how the individual businesses should compete in their particular markets
Functional strategies are concerned with how the components of an organisation deliver effectively the
corporate and business level strategies in terms of resources, processes and people.
1.2 The Exploring Strategy Framework
The Exploring Strategy Framework includes understanding the strategic position of an organisation, assessing
strategic choices for the future and managing strategy in action.
6
, Chapter 2: Macro-Environment Analysis
Learning Outcomes
- Analyze the broad macro-environment of organisations in terms of political, economic, social, technological ecological and legal factors
(PESTEL)
- Evaluate different approaches to environmental forecasting
- Construct alternative scenarios in order to address possible environmental changes
The Macro-environment consists of broad environmental factors that impact to a greater or lesser extent
many organisations, industries and sectors.
Forecasting using 3
tools:
PESTEL analysis
- megatrends
- inflexion points
- Market
- weak signals
- Nonmarket
Scenario analysis: a technique that develops
plausible alternative views of how the
environment might develop in the future.
- avoids PREDICTIONS, focuses on learning
2.1 PESTEL Analysis
The Market Environment Political
- Suppliers, customers and competitors
Economic
- Interactions are primarily economic
- Businesses compete for resources, revenues, profits Social
- Key strategies: Pricing and Innovation Technological
Ecological
The Nonmarket Environment Legal
- Social, political, legal, ecological (can be impacted by economic)
- Businesses need to build reputation, connections, influence and legitimacy.
- Key strategies: Lobbying, public relations, networking, collaborations
Key Drivers for Change are the environmental factors likely to have a high impact on industries and sectors,
and the success or failure of strategies within them.
2.2 Forecasting
2.2.1 Forecast Approaches
Forecasting takes three fundamental approaches based on varying degrees of certainty:
Forecast Description Advantages/Disadvantages
Approach
Single- Where organizations have such confidence about the future - high certainty
Point that they will provide just one forecast number (eg. - easy to translate into budgets
Demographics) - helps motivate managers and
hold them accountable
Range Where organizations have less certainty, suggesting a range - Less certainty
of possible outcomes. One outcome most probable then a
range of more remote outcomes given decreasing degrees
of likelihood (fan charts) → used in economic forecasting
Alternative Focuses on a set of possible yet distinct futures. The least - Least certainty
Futures certain of all approaches. Predictions are discontinuous:
they happen or they don’t. (eg. Change in currency) → can
attribute probabilities to each outcome
7
Exploring Strategy Textbook
Cloé Assman
HOTELSCHOOL THE HAGUE
,1
,Table of Contents
Chapter 1: Introducing Strategy ....................................................................................... 5
1.1 What is Strategy? ............................................................................................................... 5
1.1.1 Three-Horizons Framework ...................................................................................................................5
1.1.2 The Purpose of Strategy ........................................................................................................................5
1.1.3 Strategy Statements ..............................................................................................................................6
1.1.4 Levels of Strategy...................................................................................................................................6
1.2 The Exploring Strategy Framework...................................................................................... 6
Chapter 2: Macro-Environment Analysis........................................................................... 7
2.1 PESTEL Analysis .................................................................................................................. 7
2.2 Forecasting......................................................................................................................... 7
2.2.1 Forecast Approaches .............................................................................................................................7
2.2.2 Directions of Change .............................................................................................................................8
2.3 Scenario Analysis................................................................................................................ 8
Chapter 3: Industry and Sector Analysis...........................................................................10
3.1 Introduction ..................................................................................................................... 10
3.2 The Competitive Forces .................................................................................................... 10
3.2.1 Porter’s Five Forces Framework ......................................................................................................... 10
3.2.2 Implications of the Five Forces Framework ....................................................................................... 12
3.3 Defining the industry ........................................................................................................ 12
3.3.1 Steps in an Industry Analysis (Page 75) .............................................................................................. 13
3.4 Industry Types and Dynamics ............................................................................................ 13
3.4.1 Industry Types .................................................................................................................................... 13
3.4.2 Industry Structure Dynamics .............................................................................................................. 13
3.5 Competitors and Markets ................................................................................................. 14
3.5.1 Strategic Groups ................................................................................................................................. 14
3.5.2 Market Segments ............................................................................................................................... 14
3.5.3 Critical Success Factors and ‘Blue Oceans’ ......................................................................................... 15
Chapter 4: Resources and Capabilities .............................................................................16
4.1 Introduction ..................................................................................................................... 16
4.2 Foundations of Resources and Capabilities ........................................................................ 16
4.2.1 Threshold and distinctive R&C ........................................................................................................... 16
4.3 Distinctive R&C as a Basis of Competitive Advantage (assessing R&C) ................................ 17
4.3.1 V – Value of R&C ................................................................................................................................. 17
4.4 Diagnosing R&C ................................................................................................................ 17
4.4.1 VRIO analysis ...................................................................................................................................... 17
4.4.2 The Value Chain and Value System .................................................................................................... 17
4.4.3 Activity Systems .................................................................................................................................. 18
4.4.4 Benchmarking ..................................................................................................................................... 19
4.5 Dynamic Capabilities ........................................................................................................ 19
Chapter 7: Business Strategy and Models ........................................................................20
7.1 Introduction ..................................................................................................................... 20
2
, 7.2 Generic Competitive Strategies ......................................................................................... 20
7.2.1 Cost-Leadership Strategy.................................................................................................................... 20
7.2.2 Differentiation Strategy ...................................................................................................................... 21
7.2.3 Focus Strategy .................................................................................................................................... 21
7.2.4 Hybrid Strategy ................................................................................................................................... 21
7.2.5 The Strategy Clock .............................................................................................................................. 22
7.3 Interactive Strategies........................................................................................................ 23
7.3.1 Interactive Price and Quality Strategies ............................................................................................. 23
7.3.2 Cooperative Strategy .......................................................................................................................... 23
7.3.3 Game Theory ...................................................................................................................................... 24
7.4 Business Models ............................................................................................................... 24
7.4.1 Value Creation, Configuration and Capture ....................................................................................... 24
7.4.2 Business Model Patterns .................................................................................................................... 25
Chapter 8: Corporate Strategy and Diversification ...........................................................26
8.1 Introduction ..................................................................................................................... 26
8.2 Strategy Directions ........................................................................................................... 26
8.3 Diversification Drivers ...................................................................................................... 27
8.4 Diversification and Performance ....................................................................................... 28
8.5 Vertical Integration .......................................................................................................... 28
8.5.1 Forward and Backward Integration .................................................................................................... 28
8.5.2 To Integrate or to Outsource? ............................................................................................................ 28
8.6 Value Creation and the Corporate Parent .......................................................................... 28
8.6.1 Value-adding and Value-destroying Activities of Corporate Parents................................................. 28
8.6.2 Types of Corporate Parents ................................................................................................................ 30
8.7 Portfolio Matrices ............................................................................................................ 31
8.7.1 The BCG (growth/share) Matrix ......................................................................................................... 31
8.7.2 The Directional Policy (GE-McKinsey) Matrix ..................................................................................... 31
8.7.3 The Parenting Matrix .......................................................................................................................... 32
Chapter 9: International Strategy ....................................................................................33
9.1 Introduction ..................................................................................................................... 33
9.2 Internationalisation Drivers .............................................................................................. 33
9.3 Geographic Sources of Advantage ..................................................................................... 33
9.3.1 Locational Advantage: Porter’s Diamond ................................................................33
9.3.2 The International Value System ......................................................................................................... 34
9.4 International Strategies .................................................................................................... 34
9.5 Market Selection and Entry............................................................................................... 35
9.5.1 Country and Market Characteristics................................................................................................... 35
9.5.2 Competitive Characteristic ................................................................................................................. 36
9.5.3 Entry Mode Strategies ........................................................................................................................ 36
9.6 Subsidiary Roles in an International Portfolio .................................................................... 37
9.7 Internationalism and Performance .................................................................................... 37
Chapter 11: Mergers, Acquisitions and Alliances..............................................................39
11.1 Organic Development ..................................................................................................... 39
3
, 11.2 Mergers & Acquisitions ................................................................................................... 39
11.2.1 Types of M&A ................................................................................................................................... 39
11.2.2 Timing of M&A.................................................................................................................................. 40
11.2.3 Motives for M&A .............................................................................................................................. 40
11.2.4 M&A Processes ................................................................................................................................. 41
11.2.5 M&A Strategy Over Time.................................................................................................................. 42
11.3 Strategic Alliances .......................................................................................................... 42
11.3.1 Types of Strategic Alliance................................................................................................................ 42
11.3.2 Motives for Alliances ........................................................................................................................ 43
11.3.3 Strategic Alliance Processes ............................................................................................................. 43
11.4 Comparing Acquisitions, Alliances and Organic Development .......................................... 44
Key Success Factors.........................................................................................................44
Chapter 12: Evaluating Strategies ...................................................................................45
......................................................................................................................................45
12.1 Introduction ............................................................................................................45
12.2 Organisational Performance....................................................................................45
12.2.1 Performance Measures .................................................................................................................... 45
12.2.2 Performance Comparisons ............................................................................................................... 45
12.2.3 Gap Analysis...................................................................................................................................... 46
12.2.4 Complexities of Performance Analysis ............................................................................................. 46
12.3 Suitability ....................................................................................................................... 46
12.3.1 Various ways to assess suitability ..................................................................................................... 47
12.4 Acceptability ...........................................................................................................48
12.4.1 Risk .................................................................................................................................................... 48
12.4.2 Return ............................................................................................................................................... 48
12.4.3 Reaction of Stakeholders .................................................................................................................. 50
12.5 Feasibility ....................................................................................................................... 50
12.5.1 Financial Feasibility ........................................................................................................................... 50
12.5.2 People and Skills ............................................................................................................................... 51
12.5.3 Integrating Resources ....................................................................................................................... 51
12.6 Evaluation Criteria: Four Qualifications ........................................................................... 51
Definitions ......................................................................................................................52
4
,Chapter 1: Introducing Strategy
1.1 What is Strategy?
Strategy is the long-term direction of an organization
1.1.1 Three-Horizons Framework
The Three Horizons Framework suggests organisations should think of themselves as comprising three types of
business activity, defined by their horizons in terms
of years
Horizon 1: extend + defend core business
Horizon 2: build emerging businesses
Horizon 3: create viable options
!! managers should avoid focusing on short-term (1)
issues of their existing activities as they have low
profit potential
Strategy = pushing out horizon 1 while simultaneously looking at horizon 2 & 3
Direction:
→ May emerge from a coherent pattern over time
→ Often set according to long-term objectives
o Maximising shareholder profits
o Profits sometimes sacrificed
Organisation:
→ Not treated as unified entities
→ Stakeholders are IMPORTANT
→ Important to consider people’s interests + views
→ Strategy must also concern external boundaries (relationship management)
1.1.2 The Purpose of Strategy
How does the organisation make a difference and for whom?
Mission Statement: aims to provide employees & stakeholders with clarity about what the organisation is
fundamentally there to do (use 5 why on core-business):
→ What business are we in?
→ What would be lost if the organisation did not exist?
→ How do we make a difference?
Vision Statement: concerned with the future the organisation seeks to create (an aspiration)
→ What do we want to achieve?
→ If we were sitting here in 20 years, what do we want to have created?
Statements of Corporate Values: communicate the underlying & enduring core principles that guide an
organisation’s strategy & define the way that the organisation should operate
→ Would these values change with circumstance? If yes, not core values
Objectives: statements of specific outcomes to be achieved
→ Targets
→ Triple bottom line
5
,1.1.3 Strategy Statements
Should have 3 main themes
1. The fundamental GOALS that the organisation seeks
2. The SCOPE or domain of organisation’s activities (customers/clients, geographical location, vertical
integration)
3. Particular ADVANTAGE it has to deliver all of these (how am I better than the competition?)
1.1.4 Levels of Strategy
Corporate level strategy is concerned with the overall scope of an organisation and how value is added to the
constituent businesses of the organisational whole
Business level strategy is about how the individual businesses should compete in their particular markets
Functional strategies are concerned with how the components of an organisation deliver effectively the
corporate and business level strategies in terms of resources, processes and people.
1.2 The Exploring Strategy Framework
The Exploring Strategy Framework includes understanding the strategic position of an organisation, assessing
strategic choices for the future and managing strategy in action.
6
, Chapter 2: Macro-Environment Analysis
Learning Outcomes
- Analyze the broad macro-environment of organisations in terms of political, economic, social, technological ecological and legal factors
(PESTEL)
- Evaluate different approaches to environmental forecasting
- Construct alternative scenarios in order to address possible environmental changes
The Macro-environment consists of broad environmental factors that impact to a greater or lesser extent
many organisations, industries and sectors.
Forecasting using 3
tools:
PESTEL analysis
- megatrends
- inflexion points
- Market
- weak signals
- Nonmarket
Scenario analysis: a technique that develops
plausible alternative views of how the
environment might develop in the future.
- avoids PREDICTIONS, focuses on learning
2.1 PESTEL Analysis
The Market Environment Political
- Suppliers, customers and competitors
Economic
- Interactions are primarily economic
- Businesses compete for resources, revenues, profits Social
- Key strategies: Pricing and Innovation Technological
Ecological
The Nonmarket Environment Legal
- Social, political, legal, ecological (can be impacted by economic)
- Businesses need to build reputation, connections, influence and legitimacy.
- Key strategies: Lobbying, public relations, networking, collaborations
Key Drivers for Change are the environmental factors likely to have a high impact on industries and sectors,
and the success or failure of strategies within them.
2.2 Forecasting
2.2.1 Forecast Approaches
Forecasting takes three fundamental approaches based on varying degrees of certainty:
Forecast Description Advantages/Disadvantages
Approach
Single- Where organizations have such confidence about the future - high certainty
Point that they will provide just one forecast number (eg. - easy to translate into budgets
Demographics) - helps motivate managers and
hold them accountable
Range Where organizations have less certainty, suggesting a range - Less certainty
of possible outcomes. One outcome most probable then a
range of more remote outcomes given decreasing degrees
of likelihood (fan charts) → used in economic forecasting
Alternative Focuses on a set of possible yet distinct futures. The least - Least certainty
Futures certain of all approaches. Predictions are discontinuous:
they happen or they don’t. (eg. Change in currency) → can
attribute probabilities to each outcome
7
