temas selectos avanzados

8/13/2019 Temas selectos avanzados

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Temas selectosavanzados


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Objectives

Identify the objectives of the course, its operationand assessment modes

identify the distinction between corporate strategyand business strategy

identify structural characteristics that influence therate of profit of the sector

Define the concept and components of businessmodels and strategic advantage

identify the interest and limits of SWOT analysis


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Types of strategic decisions

Concerns the long term orientation of the company

Response to evolutions of the environment

Scope of activities of the company

Sustaining sources of competitive advantage

Exploitation and development of the resourcesand competencies of the company

Looking at expectations of shareholders andstakeholders

Beyond cost control, the creation and maintenance ofa valuable business model hard to imitate


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Developing the company's strategy,

is to choose the areas of activity inwhich the company intends to bepresent and allocate resources in a

way that it is maintained anddeveloped.

Strategic Analysis


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Business Strategy and CorporateStrategy

"Corporate Strategy" consists inmanaging the portfolio of business

activities through choices of resourceallocation between different businesses

"Business Strategy"consists in creating

and cultivating a sustainablecompetitive advantage in a particularfield of activity of the company


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Corporate Strategy

Business Strategy and CorporateStrategy

Resource allocation

Business Strategy Competitive advantage


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Strategy analysis toolbox


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Strategy: basic questions

What is the structure of the sector ofactivity?

What are the key factors of success in theindustry?

What is necessary to do to obtain and maintain a rate ofprofit superior to the average of the companies of thesame sector of actitivity?

What are the sources of sustainable competitiveadvantage?

Do I have the resources and capabilitiesto have a fit with the KFS of the sector of

activity?


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Industry Profitability (USA, 1975-95)

Drugs 21.4 11.8Printing and publishing 15.5 7.1Food 15.2 6.6Chemicals 15.1 7.5Petroleum and coal products 13.1 6.5Industrial chemicals and synthetics 12.9 6.2

Paper 12.5 6.0Aircraft, guided missiles, and parts 12.4 4.1Fabricated metal products 12.3 5.7Motor vehicles 11.6 5.6Rubber and plastic products 11.6 5.1Electric and electronic equipment 11.5 5.4

Machinery 11.1 5.8Stone, clay, and glass products 10.4 4.8Textile mill products 9.3 4.3

Nonferrous metals 8.3 3.9Iron and steel 3.9 1.5

ROE % ROA %


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2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certainproduct or service or otherwise on a password-protected website for classroom use. 1-11

ROI in Selected Industries(20042008)

Figure 1.3


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Firm Profitability (USA, 1975-95)

American Home Products 19Merck 16Bristol Myers Squibb 14Eli Lilly 14Schering Plough 13Upjohn 10Pfizer 9

American Cyanamid 7

Oregon Steel Mills 12

Worthington 10Nucor 9USX-US Steel 3Inland Steel 2

ARMCO -1Bethlehem -2

LTV -3

ROA %


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Choice of a segment

1) Demand substitutionExample: Jaguar and other cars

2) Synergies in production factors Example:Banks and insurance companies, cars and trucks

However: The extension of a sector is a question ofinterpretation


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Choice of a relevant segment

Cola

drinks

Tap water

Beer

wine

SpiritsMineral

water

Powder

Carbonated

drinks

Rehydrating

beverages

TeaCoffee

Milk

Juice


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What makes a sector attractive?

The level of attractiveness of a sector is measured

according to three criteria:* static: the size of the market (value of the

product or service to the consumer), the rate ofprofit (structure) and the duration of potential

value streams* Dynamics: the rate of maturity of the marketand the prospects for growth of the market (lifecycle)

Analysis of the industry


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according to three criteria:* static: the size of the market (value of theproduct or service to the consumer), the rate ofprofit (structure) and the duration of potential

value streams.* Dynamics: the rate of maturity of the marketand the prospects for growth of the market (lifecycle)



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5 force framework

1. Identify new entrants, substitutes,clients, suppliers and competitors in agiven sector of activity

2. Evaluating:

Threats of new entrants and substitutes

The bargaining power of clients and suppliers

Intensity of competition


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Suppliers

PotentialEntrants

Competitors Buyers

Substitutes

Portersfive forces


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New entry into an industry expands supply. This in turndepresses prices and profits. Thus a high risk of new entry

constitutes a strategic threat that decreases the profitrate of an industry.

A low risk of new entry allows established companies toraise their prices, therefore it constitutes an opportunity.The risk of entry by potential competitors is a function ofthe height of barriers to entry.

Potential entrants try to detect sectors where barriers arelow to enter profitably, while incumbents try to buildbarriers to entry to protect their profit margins

Threat of Entry Internalrivalry

Potential

entrants

Suppliers Buyers

Substitutes

Potential


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The height of barriers are determined by severalfactors:

1. Importance of capital requirementsIf capital requirements are high, it will be more difficult toenter, and the rate of profit in the sector of activity mayincrease (all other things being equal).

Those investments can be physical assets (ex:shipbuidling,steel, car and aircraft manufacturing) or marketinginvestments (ex: toothpaste, cigarettes, yoghurts) orinventories(ex: retail distribution).

Threat of EntryInternal

rivalry

Potential

entrants

Suppliers Buyers

Substitutes

Potential


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The height of barriers are determined by several factors:

2. Scale economiesThe more the volume (cumulated production) the less the unit costs.

These economies arise when firms that produce at larger volumesenjoy lower costs per unit because they can spread fixed costs overmore units, employ more efficient technology, or command better termsfrom suppliers.The more the economies of scale, the more difficult it will be to enter,

the rate of profit of the sector of activity may increase (all other thingsbeing equal).Ex: shipbuidling, car and aircraft manufacturing, microelectronics: Inmicroprocessors: scale economies in research, chip fabrication, andconsumer marketing. In small-package delivery, economies of scalearise in national logistical systems and information technology.


rivalry

Potential

entrants

Suppliers Buyers

Substitutes

Potential


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The height of barriers are determined by several factors:

3. Network effects

Industries where a buyerswillingness to pay for a companysproduct

increases with the number of other buyers who also patronize thecompany. Buyers may also value being in a network Ex: onlineauctions Demandside benefits of scale discourage entry by limiting thewillingness of customers to buy from a newcomer and by reducing theprice the newcomer can command until it builds up a large base ofcustomers and complementary products

4. Entrenched consumer loyalty. Ex: luxury products, beverages

5. Existence of switching costs Ex: air travel


rivalry

Potential

entrants

Suppliers Buyers

Substitutes


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6. First mover advantage: Possession of patents and proprietarytechnological know-how, favorable locations

7. Cost advantage not related to scale: access to the best and

cheapest raw materials, lower borrowing costs.

8. Access to distribution networksThe more that existing competitors have tied them up, the tougherentry into an industry will be. Ex: upstart low-cost airlines

9. Government politics Ex: banks, airlines, transportation companies

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Threat of Entry


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The lower the price of substitutes and the higher the qualityand performance of substitutes, the more intense are thecompetitive pressures posed by substitute products, and

hence the lower the potential rate of profit in the industry.Ex:video rental outlets with cable and satellite video-on-demand services,online video rental servicesThe higher the potential rate of profit in the industry when it

isdifficult or costly for customers to switch to substitutes.Switching costs include:the cost of purchasing additional equipment,employees retraining costs,the time and costs to test the quality for technical help needed

to make the changeover.

Threat of substitutes

Potential


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Relative concentration ex: retail distribution, Microsoftsnear monopoly in operating systems, coupled with thefragmentation of PC manufacturers

Sensitivity to price: impact on supplier and clientvolume and value

Existence of substitutes

Switching costs linked withstandardization/differentation

Impact on buyer quality, ex: micro processors

Threat of forward / backward integration

Internal

rivalry

Potential

entrants

Suppliers Buyers

Substitutes

Power of buyers/ suppliers

Potential


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Determinants of Internal Rivalry

Every thing that makes a sector

different from PURE AND PERFECTCOMPETITION is good for profitability

If: great nb of atomistic players

perfect mobility: no barriers to entry, exit no scale effect

perfectly substitutable products = nodifferentiation

=> profit = zero !

Internal

rivalry

Potential

entrants

Suppliers Buyers

Substitutes

Internal rivalry

Potential


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Determinants of Internal Rivalry

Industry growth

Distribution of market shares

Possibilities of differentiation

Importance of fixed costs -> strong rilvary

Barriers to exit

Internal

rivalry

Potential

entrants

Suppliers Buyers

Substitutes

Internal rivalry


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Distribution of Market Sharesand Internal Rivalry

Business A

A1 = 10%

A2 = 10% A3 = 10%

A4 = 10%

A5 = 10%

A6 = 10%

A7 = 10%

A8 = 10%

A9 = 10%

A10 = 10%

Business B

B1 = 60%

B2 = 30% B3 = 10%

Situacion B mejor

opcion por losmrgenes


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Sector structure

Perfectcompetition

Oligopoly Duopoly Monopoly

Concentration Manycompanies

Some Two firms One

Barriers No Significative Significative High

Differentiation Homogeneous Potential of

differentiation

Potential of

differentiation

Potential of

differentiation

Information Perfect Imperfect Imperfect Imperfect


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according to three criteria:* static: the size of the market (value of the

product or service to the consumer), the rate ofprofit (structure) and the duration of potential

value streams* Dynamics: the rate of maturity of the marketand the prospects for growth of the market (lifecycle)



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Life cycle of the sector

Steps

Indicators

User attitude

Growth potential

Nb of competitorsType of compeitition

Technology

Rights of entry

Key factors of

success

Emergence

Pioneers

Important

StrongSpread out

In its infancy

Weak,

technological

Innovation

Start

Extension

Very strong

GrowingNew entrants

Evolutive

Average,

marketing as a key

Development

Growth

Selective

Still good

Diiminishing

Concentration

Cristallization

Strong and

diverse

Distribution,

brand, capacityof production

Maturity

Saturation / Replacement

Null

WeakMarket share, efficiency

Fixed

Very strong and complex

Quality

Effiiciency

Decline

Abandon, substitute

Negative

WeakExit

Fixed

Non relevant

Rationalization

What is it? Which oneto buy?

Where canI buy it?

How much?


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Driving forces of change

The structure of an industry evolves over time under theinfluence of driving forces of change

Economic and societal changes Globalization / Government policy changes / Societal

changes Technological changes

Internet-related technology applications / Technologicalinnovations in industry / Technological diffusion andconvergence

Changes in the industry structure

LT industry growth rate and industry life cycle / Reduceduncertainty over time / Entry or exit of major firms /Changes in production costs

Changes in customer behavior Product innovation / Changes in customer base /

standardization


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Key factors of success (KFS)

The factors necessary to enter thecompetitive game in a sector ofactivity

they can be related to technology,production, distribution,marketing, access to capital

they are deducted from the sectoranalysis


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Key factors of success

Who are the customers? What do

they want?

What is necessary to survive in this

sector to face and fightcompetition?


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The key factors of success

What do

consumers want

How to survive in

front ofcompetition?

Key factors ofsuccess

Steel

clients sensitive to prices, to

technology and reliability

Fashion:

very segmented demand,exclusive products

Distribution

Low prices, location,selection, service

Competition on priceTechnological improvements

Low entry andexit barriers

Competition on price;bargaining power withsuppliers, scale in operations,A&P

Factories with efficient scale

Adjusting capacity to demand

Technical differentiation

Differentiation

Rapidity of response

Modifications of style

Volume

Location

Selection


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The "Resource-Based View"

Rare or unique

Exploitable

Difficult to imitate Non substituable

Competitive advantage lies in theexploitation of key resources, with thefollowing characteristics:

The "Resource-Based View"


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Rareness

Relevance

Durability

Mobility

Replicability

Property rights

Power of negotiation

Embededness

Size andscope of theadvantage

Durability

Appropriability

Strategicpotential ofthe resource

The Resource-Based View


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Key resources and strategyformulation

For a given strategy

What are thenecessary resources

to implement thechosen strategy?

For a given setof resources

What strategy canmake the best use ofavailable resources?

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