Managing a Business Strategically
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Managing a Business Strategically - Marcador
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| How can we identify the hypothesis assumptions? 3 ways | Use a framework Look at analogical cases (benchmarks) Ask stakeholders/experts |
| Four interrelated domains in a business model | - Value creation - Value capturing - Key resources - Key processes |
| 3 fundamental questions to value creation (identify a clear customer value proposition) | - Who is your potential customer? - What does your customer value? (unfulfilled needs) - What product would fulfil the customer's needs? |
| 3 fundamental questions to value capturing | - What is the potential market size? - What are the costs associated with delivering the value proposition to the customers and their allocation? - How much profit per transaction to meet the firm's objectives? |
| Key resources | People, technology, supplies, equipment, marketing, distribution channels |
| What is the difference between a business model and a strategy? | - A business model reflects the firm’s realized strategy --> The business model captures the economic logic of strategy that is how firms create and capture value - Strategy is more granular that e.g. also includes ways to figure out ways to prevent the business strategy from being undermined through imitation by competitors. |
| What are the five elements of a strategy? | - Arena - Vehicles - Differentiators - Staging - Economic logic (the heart of a business strategy) |
| 4 sources of value creation | CELN - Complementarities (bundle of goods together provides more value than having each of the goods seperately e.g. ad-blocker only useful when ads are present) - Efficiency (lower costs per transaction) - Lock-in (brand loyalty) - Novelty |
| A good business model is (3) | - Alligned with company goals - Self-reinforcing - Robust |
| 5 important elements to resources | 1. Inimitability 2: Durability 3: Appropriability 4: Substitutability 5: Competitive superiority |
| Firm resources | Include all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness |
| RBV: tries to explain why some firms perform better than others in the same industry. Name the two conditions for a sustained competitive advantage: | 1. Resource heterogeneity (firms may possess unique strategic resources) 2. Resource mobility (mobility barriers) |
| A firm-specific strategic resource must have four attributes to become the source of a sustained competitive advantage | 1. Valuable resources 2. Rare resources 3. Imperfect imitable resources 4. (Non)-substitutability |
| Dynamic capabilites are | The firm's ability to integrate, build, and reconfigure internal and external resources/competences to address and shape rapidly changing business environments OR Specific organizational processes (routines) by which managers alter their firms' resource base generate value-creating strategies |
| What are commonalities and equifinality? | Commonalities: The state of sharing features or attributes; specific dynamic capabilites also exhibit common features that are associated with effective processes across firms Equifinality: The principle that in open systems a given end state can be reached by many potential means; describes the idea that there are multiple paths to the same dynamic capabilites |
| Types of dynamic capabilities | 1. Integrating resources: Combining varied skills of managers 2. Reconfiguration of resources within firms (changing them around) Transfer processes, resource allocation routines, patching 3. Gain and release of resources (buying and selling) Knowledge creation routines, alliance and acquisition, exit routines |
| A capability is | An organizationally embedded, not transferable, firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm (employees who know how to handle machines) |
| A resource is valuable to a firm only if | - It enables the firm to conceive or implement strategies more efficiently of effectively - It helps exploit opportunities and/or neutralizes threats in a firm's environment |
| Main problems of RBV in dynamic industries (3) | 1. Does not explain the duration of current competitive advantage 2. Does not explain the sources of future competitive advantage 3. Tightly bundled resources are problematic because of regular resource addition, release or recombination |
| Three drivers of competitive behavior (AMC) | Awareness of interfirm relationships and action implications Motivation to act Capability of taking actions |
| What is market commonality? | The degree of presence that a competitor manifests in the market it overlaps with the focal firm OR the number of markets with which competitors are jointly involved and their importance to each. This is conditioned by both the strategic importance to the focal firm |
| What is resource similarity? | The extent to which a given competitor possesses strategic endowments comparable, in terms of both type and amount, to those of the focal firm. |
| Will market commonality & resource similarity affect the motivation to attack or respond or the capability? | Market commonality affects the MOTIVATION Resource similarity affects the CAPABILITY |
| Which six main blind spots are there within competitive analysis? | FOMOPP 1. Faulty assumptions about the competition 2. Overemphasis on competitors' visible competence 3. Misjudging industry boundaries 4. Overempasis on where, not how rivals will compete 5. Poor identification of the competition 6. Paralysis by analysis |
| How can firms/executives safeguard against these blind spots? | 1. Pay attention to the staffing, organization and mission of the competitive analysis unit 2. Use your own invisible functions in conducting competitive analysis 3. Study competitors' response patterns 4. Study rivals' blind spots 5. Change your views of the competition |
| Which dimension do we consider for creating strategic groups | 1. Specialization 2. Brand identification 3. Product quality 4. Technological leadership 5. Cost position 6. Vertical integration 7. Service |
| What do we consider a competitive attack? | BAMP 1. Backwards/forwards integration 2. Advertising campaigns 3. Market entry (product diversification, geographic diversification) 4. Price cuts |
| Two factors affect strength of competitive pressures | 1. Importance of market (% of the targeted firm's total revenue represented by this market) 2. Size of the incursion (market share achieved by invading firm) Pressure = market importance X incursion size |
| How can industry leaders stabilize favorable pressure systems? | 1. Checks and balances: Simultaneously use competitive pressure to hold ambitious competitors in check 2. Tit for tat: Individual leaders can attack smaller rivals threating the existing pressure system 3. Sharing power: Leaders achieve a consensus that no major competitor will attempt to disrupt the pressure system; each is free to pursue growth in new areas and to poach on nondominant players that are not cooperating with the coalition 4. Polarized blocs: When there are two or more leaders in an industry, they can enter into shared power arrangements in separate blocs of opposing alliances 5. Collective security arrangements: Relationships among industry leaders and among lesser firms give all players an incentive for peaceful coexistence (e.g. Bluetooth) |
| How should the disadvantaged players respond to the pressure system? | DABA 1. Dividing and conquering industry leaders. By separating central players from their mutual forbearance or alliance relationships, you can induce each member of the coalition to reassess its position. 2. Alliance formation can signal dissatisfaction with the position or moves of a rival, be used to entice, pin down or distract a competitor in certain markets, and mold the market selection strategy of a rival. 3. Balance your support to industry leaders by throwing your weight back and forth between rivals, enabling you to influence the rivals’ positioning and movement. 4. Assimilate alliance partners of your rivals |
| Disruptive innovation.. | Transforms a product that was historically very expensive to produce into a product that is relatively affordable (entrants almost always win) |
| Disruptive innovation characteristics | - Lower gross margins - Smaller target market - Simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics |
| Assessment of whether competition is disruptive (5) | 1. Does the product either target overserved customers (by offering lower performance at lower price) or create a new market (by targeting customers who couldn’t use or afford the existing product? 2. Does it create “asymmetric motivation”? (asymmetry of motivation happens when one company is motivated to do something that another company specifically does not want to do or when the strength of one company is another company's weakness) 3. Can it improve performance fast enough to keep pace with customers’ expectations while retaining its low-cost structure? 4. Does it create new value networks? 5. Does it disrupt all incumbents, or can an existing player exploit the opportunity? |
| Responses to disruptive innovation (3) | 1. Firms may not see the innovation as a “threat” focus on their traditional business model (while ignoring the disruption) 2. Firms can attack the innovator along different dimensions such as improving their own products etc. 3. Matching competitors moves |
| Reasons for failure | 1. Deviance 2. Inattention 3. Lack of ability 4. Process inadequacy 5. Task challenge 6. Process complexity 7. Uncertainty 8. Hypothesis testing 9. Exploratory testing |
| What are the limits of strategic management? | - Bounded reality (incomplete info, info processing costs, limited cognitive competence, unstable & inconsistent preferences) - Complex task interdependence and conflict (goal-oriented behavior and satisficing, sequential decision making, (local) search for solutions to reach the goal) - Environmental uncertainty |
| Organizational-level thinking is an institutionalized system of? (3) These are the three types of organizational thinking | - Knowledge creation - Knowledge retention - Knowledge transfer |
| Two types of knowledge | Procedural knowledge is knowing how to do something Declarative knowledge is knowing that something is the case |
| Principles of Lean start-ups | VEEBI - Validated learning - Entrepreneurs are everywhere - Entrepreneurship is management (in extreme uncertainty) - Build-measure-learn - Innovation accounting |
| Four steps for principle 4 (build-measure-learn) Goal: progress through loop asap | 1. Start with your most critical hypothesis 2. Build your Minimal-Viable-Product (MVP) to test hypothesis 3. Run experiment: expose your customers to the MVP and measure the outcomes 4. Analyze the data, learn from it, and decide whether to change (parts) of strategy |
| MVP | Minimum: the most rudimentary, bare foundation of the solution possible Viable: Sufficient enough for early adopters Product: something tangible customers can touch and feel |
| What is innovation accounting? | A way of evaluating progress when all metrics typically used in an established company (revenue, customers, ROI) are effectively zero |
| Good measurement metrics should contain the 3 A's | Actionable, Accessible, Auditable (people can look at the data and reach same conclusion) |
| What is a pivot? | A change in strategy without a change in vision |
| When do we pivot? | When metrics aren't good enough and experiments aren't moving the needle Examples: netflix from DVD rental platform to streaming |
| What are the three core proceesses underlying digital transformation? | - Representation - Connectivity - Aggregation |
| What does representation mean? | The digital representation of information that enables analysis and algorithm manipulation. The explosion in the quantity of data available has been accompanied by the qualitative revolution in the representation of these data that underlie digital transformation. It is now possible to represent large volumes of data and the actionable insights they contain in the form of algorithms. |
| What does connectivity mean? | Digitilization creates new connections and enhances existing connections among objects, individuals and organizations example: e-commerce platforms, messagin |
| What does aggregation mean? | Qualitatitve shift from the ability to combine previous disjoint data to answer questions that were formerly impossible to address example: combining HR data with traditional supply chain data |
| What are interactions and what are examples? | Each of the previous three are significant, but real changes become visible when they interact and reinforce each other • Connectivity + aggregation: new business models (Yelp, Tripadvisor, Itunes) • Connecitivity + representation: intelligent social media platforms (Facebook, LinkedIn) • Representation + aggregation: backbone of dramatic increase in consumer analytics • All three combined: self-driving cars, IoT, Spotify |
| What is an industry model? | The collective recognition on the part of producers about what fundamental attributes should be used to categorize competitors and which firms belong in which categories |
| Industry evolution follows a pattern of process, falling in 3 stages | 1. Era of ferment 2. Convergence on a dominant design 3. Era of incremental change |
| What is industry convergence? | When a new technology facilitates the blurring boundaries between previously distinct industries, related to market convergence (Technological change is increasingly resulting in the competitive convergence of firms from previously distinct industries) |
| What different digital strategies can firms adapt? | 1. Consumer engagement strategy: A customer engagement strategy targets superior, personalized experiences that give rise to customer loyalty. There is focus on fast response, personalized relationships and deep customer insights. Identify opportunities to connect with customers: 2. Digitized solutions strategy: A digitized solutions strategy targets information enriched products and services that deliver new value for customers |
| What is needed to successfully implement such a strategy? | 1. Choose one strategy 2. Build an operational backbone: an integrated platform of distinctive capabilities that ensures efficient, reliable transactions and customer interactions (ERM and CRM systems). Main hurdles: organizational politics, culture and processes that reinforced existing business silos 3. Create a unique value proposition: difficult to replicate for competitors and startups. Should stem from a digital strategy that is focused on either a set of digitized, integrated offerings or a relationship that encourages customers in ways that others can’t match |
| What are core competencies? | The collective learning in the organizaation, especially how to coordinate diverse production skills and integrate multiple streams of technologies. |
| (firm boundaries) Due to lower transaction costs, we will | 1) See less vertical integration and more contractual relationships (market exchanges) 2) see more outsourcing to obtain quality services rather than to realize cost savings |
| (organizational structure) Due to lower transaction costs, we will | 1) see more physical dispersion (iedereen op een andere plek) to take exploit of location specific advantages (ecosystems) 2) see more decentralized decision-making due to better visibility of decisions and outcomes to evaluate |
| Digital goods are characterized by (3) | 1. Near-zero marginal costs of production 2. No value depreciation & quality consistency 3. Uniform quality delivery |
| How do we define value creation? | WTP - price |
| 3 considerations for managers (digitalization) | 1) Architect your products for context-awareness 2) Map your digital ecosystem beyond your core industry's boundaries 3) Develop capability for context-aware insights |
| Four streams on how firms within their ecosystem balance (the tension between) cooperation and competition | 1. Strategies in ecosystems, how many components to enter, firms either adopt System strategy (multiple components, minimize cooperation) or Component strategy (one/few components and cooperate for the rest) 2. Ecosystems approach: focus on cooperation and value creation 3. Competition approach: value capture and competition between firms with complementary complements 4. ALliances:Balance |
| What is a bottleneck strategy? (the third of the three ecosystem strategies) | Simultaneously compete and cooperate, for example, by improving complementors capabilities even as they impose extractive terms. Thus, this strategy exhibits a complex pattern of cooperation and competition that requires adroit management to maintain and balance |
| What is a system strategy? | Compete in most or all components. Emphasize competition: their goal is to create value by integrating components, and to capture value by minimizing dependence on partners and undercutting rival ecosystems Firms adopt a system strategy when they possess broad capabilities relevant to many components. |
| What is a component strategy? | Firm (a) enters a single or few components, (b) relies on complementors for the rest. Emphasize cooperation: their goal is to create value through mutual specialization, and to capture value by innovating and outshining within-component rivals. Firms are likely to adopt a component strategy in young ecosystems where the principal problem is innovation, rather than opportunism |
| What are bottlenecks | Components that constrain the overall growth or performance of the ecosystem due to poor quality, weak performance or scarcity |
| What do strategists do with bottleneck (un)crowdedness | Bottleneck strategists emphasize innovation and cooperation, while if uncrowded, competition by exercising market power is emphasized. Affects ability of gaining market power and capturing value |
| What is the relation between bottleneck shifts and the three different strategies? | - System strategy --> little impact because firm is already in new bottleneck - Component strategy --> impact depends on where the bottleneck will shift (whether it goes to your component or to another one) - Bottleneck strategy --> huge impact because the firm must develop new capabilities and realign complementors’ roles and relationships in order to enter the bottleneck (increased operational complexity) |
| Ecosystems are attractive partly because of: | - They create new possibilities for products and services spanning traditional boundaries - Business environments are evolving more rapidly, requiring the rapid acquisition and coordination of diverse, novel capabilities |
| Common myths of business ecosystems | 1) You always need an ecosystem 2) An ecosystem is a supply chain 3) Ecosystems are always minimally open 4) An ecosystem is a digital platform 5) An ecosystem doesn't change the inner workings of a company 6) Ecosystems are constant over time 7) Anyone can be the orchestrator 8) Ecosystems should be controlled or managed 9) You only need one ecosystem 10) If you understand ecosystem strategy, you can do it |
| What is a pipeline strategy? | The conventional strategy, create value by controlling linear series of activities ( the classic value-chain model) to form them into an output that's worth more |
| There are four types of players within platforms | - Owners of platforms: control their intellectual property and governance - Providers: platforms’ interface with users - Producers: create their offerings - Consumers: use those offerings. |
| Three shifts from pipeline to platform | 1) from resource control to resource orchestration 2) from internal optimization to external 3) from a focus on customer value to a focus on ecosystem value |
| Complementarities in consumptions | - Generic complementarities (joint consumption generates greater utility than seperate consumption, but components can be consumed jointly with others as well) - Unique complementarities (teabag is alleen nice als je water en koppie hebt) - Supermodular complementarities (increasing returns to joint consumption of complements) --> operation system met apps op je telefoon) |
| Complementarities in production | - Generic complementarities (can be produced in combination but also apart) - Unique complementarities (can only be produced together or have to cohere to a certain standard nespresso ecosystem met koffieautomaat, capsules en koppies) - Supermodular complementarities (products of more items A results in more items or better quality of items B and C Japanese automobile manufacturers conceived a production systems with manufacturing and logistics were intertwined hoe meer auto’s hoe betere logistiek) |
| Components are | The outputs of upstream suppliers serve as inputs to the focal actor. These are bundled by the focal actor into its final product |
| Complements: | The focal actor’s product serves as an input to its customer. A customer may also need to bundle other offers alongside the focal actor’s product in order to utilize it. Such offers, which are bundled downstream by the customer, are complements. |
| What does interdependence entail? | The success of the contract between A and B is dependent on the success of the contract between B and C |
| The role of ecosystem complementors | • Ecosystems are organized around a final product or value proposition that involves non-generic complementarities • A focal firm in an ecosystem cannot create value unless all necessary complements are present. • Complementors often draw on different capabilities, have distinct economics, and exhibit varying innovation rates. • Interdependence among complements can be complex. • Because of the complementarities, connecting to an ecosystem involves some investment that is not fully fungible, i.e. the investment cannot be redeployed elsewhere without cost. • Nature of complementarities in a value system explain when and why alignment takes place. |
| In the bottleneck strategy firms: | Enter bottleneck components as they emerge Innovate with them Orchestrate complementors for the remaining components |
| The role of bottlencks: | • Bottlenecks are relatively easy to identify, but hard to predict • Bottleneck location affects where innovation should be focused. Innovation upstream from a bottleneck, for example, is likely immaterial for overall performance • Occupying a bottleneck offers the opportunity to resolve the bottleneck, create value, and grow. So, it is strategically advantageous to position here when growth is important • Bottleneck crowdedness affects the ability of firms to gain market power and capture value o Occupying an uncrowded bottleneck is ideal: by exploiting an uncrowded component firms can create value and ride a growth wave while simultaneously capturing value and creating profits • Bottleneck shifts destabilize ecosystems o They can reshuffle relationships and roles, and thereby create opportunities for advantage |
| What are two-sided platforms? | - Markets in which one or several platforms enable interactions between two or multiple user groups (e.g. ads and readers) and try to get them “on board” by appropriately charging and governing users on each side of the platform - Presence of network externalities: the effect that one user of a good or service has on the value of that product to other users - Two sided markets create value by reducing search costs or by reducing other transaction costs (or both) on each side - The volume of interactions between user groups depends on the price structure of the fees charged by the platform |
| Direct (or same-side) network externalities: increasing the number of users on one side of the network makes it either more or less valuable to users on the same side | - Mostly positive for end users: compatibility, standards sharing - Mostly negative for complementors: competitive crowding |
| Indirect (or cross-side) network externalities: increasing the number of users on one side of the network makes it more or less valuable to users on the other side | - Mostly positive for complementors: potential consumer base - Positive, but can be negative for end-users: clutter, noise, devaluation |
| One user group’s price affects the other group’s willingness to pay: | - Subsidy side: prices below the level of what would have been charged in an independent, or single-sided market - Money side: prices above the level of what would have been charged in an independent, or single-sided, market |
| • To generate cross-side network externalities: | O Often one side has a higher cross-side elasticity than the other o If platforms can attract enough subsidy-side users, money-side users will pay handsomely to reach them |
| Which side to subsidize? | - Lowest likelihood of “multi-homing” (= supporting multiple platforms) - Highest price-elasticity (price-sensitivity) - Highest sensitivity to quality - Lowest marginal membership cost - Lowest negative same-side network effects (i.e. competitive crowding) |
| Markets are likely to be served by a dominant platform when | - Multi-homing costs are high for at least one side of the platform (high switching costs for customers) - Same-side externalities are positive and strong, at least for the side of the platform with high multihoming costs (more customers is goed for customers) - Low demand heterogeneity: degree to which the latent (verborgen) set of consumers has differing needs and requirements (customers happy & not looking elsewhere) |
| Chicken & eggs solution | - Heavily subsidize platform users early in the platform lifecycle - Waive membership fees and/or discount usage fees - Subsidize complementors’ production fees - Engage in platform-complement production - Envelop existing platform - Since the value of a platform is largely determined by user base, it can be a good strategy to endure losses for sustained periods of time |
| What is organizational learning? | A systematic change in beliefs or behavior based on an experience There are three dimensions: knowledge creation, retention and transfer |
| In order to have and sustain a competitive advantace we need (2) | VRIN resources and dynamic capabilites |
| What is the industry-based view? | It suggests industry rivalry is determined by number and size of rivals; and incumbent firms' ability to erect high entry barriers - assumes homogenous market competitors - not well suited to account for within-market competitive dynamics |
| What are strategic groups? | Groups of companies that use similar strategies to compete in a given industry - Illustrates that not all firms in the same industry are competitors - firms in the same strategic group have at least two (or more) competitive characteristics in common |
| Strategic impications of within-market competitive analysis --> helps you identify mobility barriers | Costs of change - little costs in competing with firms in same strategic group - costs of competing with firms in another strategic group can be low or high (costs of imitation) Assymetrical mobility barriers - mobility barriers are often asymmetric |
| What is a pressure system? | Shifting pattern of overlapping contacts among rivals that change incentives to compete, forbear or cooperate |
| 3 assumptions of Industry-based view | - Firm homogeneity - High mobility of resources - Sutained CA impossible |
| Pros of digilization | Lower Search costs (B2B and B2C marketplaces) Trust costs (ratings, communities, trust through platform such as uber) Contracting costs (platforms often have legal factors build in, access to lawyers easier) Coordination costs (improved tools for zero-cost communication, cloud services) |
| What is the consequence of the low transaction costs for digital companies | - No ownership necessary - Focused firms outcompete broad firms (specialization is key) - Gives rise and allows comanies access to high quality service businesses (IT outsourcing, Amazon) so lower barriers to entry - Digitilization transforms access to production (outsourcing now about quality) - Existing limiation: - communication is not true coordination - chicken and egg reputation for new firms open and crowdsourcing doesn't work for all firms |
| What are advantages of the system strategy? (focus on competition) | - Elimates need to track bottlenecks - Enables integration of componenents which increases value caption - Limits dependence on partners which increases value capture |
| What are disadvantages of the system strategy? | - Costly and time-consuming - Requires aggressive growth and sensitive to demand drops (more suitable in stable markets) - Slow to scale initially |