Module 1: the origins of strategy.
What is strategy and why is it
important?
BCG matrix = Boston Consulting Group = Growth share
matrix
Also known as strategy boutique
Applied quantitative research methods to business strategy
Products are based on
- The relative market share of a certain product in comparison to the largest player in the
market
- The potential growth of the market for the product
Strategy recommendations:
Maintain a balance between a star and a cash cow
Allocate resources to question marks
Sell off dogs
Explanation:
Cash Cow = a high market share in a stable market. the cashflow which they generate can be
used to invest in question marks
Star = a high market share in a growth market. With investments, they can keep up being the
leader and become a cash cow
Question mark = a small market share in a growth market. it is uncertain if it will become a
star of a dog
Dog = a small market share in an adult market. it is better to sell off this product
Example: Coca Cola within fast food businesses. They need this dog to guarantee the sell of their cash
cow
,Experience/learning curve
For each doubling of cumulated output
Total cost would decline roughly 20% due to
o Economies of scale
o Organizational learning
o Technological innovation
The production of any good or service shows the experience curve effect. Each time cumulative
volume/output doubles, value added costs would fall by about 20%. The experience curve effects
depend on the industry, and is ranged from 10-25%
The more experience a firm has in producing a particular product, the lower the costs are. Increased
activity leads to increased learning, which leads to lower costs, and can lead to lower prices, which
can lead to increased market share and increased profitability and market dominance
The experience curve effect can come to an abrupt stop. This is because existing processes are older
and the firm must upgrade to stay competitive. The upgrade means that the old experience curve
must be replaced by a new one. This occurs when:
- Competitors introduce new products or processes
- Key suppliers have bigger customers
- Technological change
The experience curve strategy can lead to price wars
Criticism:
Some authors claim that in most organizations it is impossible to quantify the effects because
experience effects are closely with economies of scale, and it is impossible to separate the
two
o economies of scale are the reason why experience effect exist
o experience effect are the reason why economies of scale exist
Fred Gluck’s Four phases strategy
1. financial planning: meet annual budget
2. forecast-based planning: predict the future
3. externally oriented planning: think strategically
4. strategic management: create the future
Two determinants of profitability
competitive position
industry attractiveness
, strategy is all about:
- how to outcompete rivals
- how to respond to economic and market conditions and growth opportunities
- how to manage functional pieces of the business
- how to improve the firm’s financial and market performance
why does a firm do strategy?
- To improve its financial performance
- To strengthen its competitive position
- To gain a sustainable competitive advantage over its market rivals
Strategy is about competing differently from rivals:
- Doing what they don’t do or doing it better
- Doing what they can’t do
- Doing that which sets the firm apart and attract customers
- Decide what we should or should not do to produce competitive edge
Competitive advantage
Meeting customer needs more effectively, with product or services that customers value more, at
lower cost
Sustainable competitive advantage
Giving buyers lasting reasons to prefer a firm’s product or services over those of its competitors
A strategy evolves over time because:
- Changing market conditions
- Advancing technology
- Fresh moves of competitors
- Shifting buyers needs
- Emerging market opportunities
- New ideas for improving the strategy
The realized strategy comes from:
- Proactive strategy elements that include continued and new initiatives
- Reactive strategy elements that are required due to unanticipated competitive
developments and fresh market conditions
The business model
How will a business make money?
- By providing customer with value (customer value proposition)
- By generating revenues sufficient to cover costs and produce attractive profits (profit formula)
The customer value proposition
- Satisfying buyers wants and needs at a price customers will consider a good value
- The greater the value provided and the lower the price, the more attractive the value
proposition is to customers
What is strategy and why is it
important?
BCG matrix = Boston Consulting Group = Growth share
matrix
Also known as strategy boutique
Applied quantitative research methods to business strategy
Products are based on
- The relative market share of a certain product in comparison to the largest player in the
market
- The potential growth of the market for the product
Strategy recommendations:
Maintain a balance between a star and a cash cow
Allocate resources to question marks
Sell off dogs
Explanation:
Cash Cow = a high market share in a stable market. the cashflow which they generate can be
used to invest in question marks
Star = a high market share in a growth market. With investments, they can keep up being the
leader and become a cash cow
Question mark = a small market share in a growth market. it is uncertain if it will become a
star of a dog
Dog = a small market share in an adult market. it is better to sell off this product
Example: Coca Cola within fast food businesses. They need this dog to guarantee the sell of their cash
cow
,Experience/learning curve
For each doubling of cumulated output
Total cost would decline roughly 20% due to
o Economies of scale
o Organizational learning
o Technological innovation
The production of any good or service shows the experience curve effect. Each time cumulative
volume/output doubles, value added costs would fall by about 20%. The experience curve effects
depend on the industry, and is ranged from 10-25%
The more experience a firm has in producing a particular product, the lower the costs are. Increased
activity leads to increased learning, which leads to lower costs, and can lead to lower prices, which
can lead to increased market share and increased profitability and market dominance
The experience curve effect can come to an abrupt stop. This is because existing processes are older
and the firm must upgrade to stay competitive. The upgrade means that the old experience curve
must be replaced by a new one. This occurs when:
- Competitors introduce new products or processes
- Key suppliers have bigger customers
- Technological change
The experience curve strategy can lead to price wars
Criticism:
Some authors claim that in most organizations it is impossible to quantify the effects because
experience effects are closely with economies of scale, and it is impossible to separate the
two
o economies of scale are the reason why experience effect exist
o experience effect are the reason why economies of scale exist
Fred Gluck’s Four phases strategy
1. financial planning: meet annual budget
2. forecast-based planning: predict the future
3. externally oriented planning: think strategically
4. strategic management: create the future
Two determinants of profitability
competitive position
industry attractiveness
, strategy is all about:
- how to outcompete rivals
- how to respond to economic and market conditions and growth opportunities
- how to manage functional pieces of the business
- how to improve the firm’s financial and market performance
why does a firm do strategy?
- To improve its financial performance
- To strengthen its competitive position
- To gain a sustainable competitive advantage over its market rivals
Strategy is about competing differently from rivals:
- Doing what they don’t do or doing it better
- Doing what they can’t do
- Doing that which sets the firm apart and attract customers
- Decide what we should or should not do to produce competitive edge
Competitive advantage
Meeting customer needs more effectively, with product or services that customers value more, at
lower cost
Sustainable competitive advantage
Giving buyers lasting reasons to prefer a firm’s product or services over those of its competitors
A strategy evolves over time because:
- Changing market conditions
- Advancing technology
- Fresh moves of competitors
- Shifting buyers needs
- Emerging market opportunities
- New ideas for improving the strategy
The realized strategy comes from:
- Proactive strategy elements that include continued and new initiatives
- Reactive strategy elements that are required due to unanticipated competitive
developments and fresh market conditions
The business model
How will a business make money?
- By providing customer with value (customer value proposition)
- By generating revenues sufficient to cover costs and produce attractive profits (profit formula)
The customer value proposition
- Satisfying buyers wants and needs at a price customers will consider a good value
- The greater the value provided and the lower the price, the more attractive the value
proposition is to customers
