strategic management homework

most of answers are provided. all u need to do is to answer the discussion questions in the powerpoint file.

Class Plan 3 “The early bird may get the worm, but the second mouse gets the cheese” Anonymous
Questions for the next case
Brief discussion of the Apollo case
Review of 5-forces, including exercise Move on to Chapter 3 on Internal Analysis + extra information on VRIO approach
Exercises & video on Internal Analysis

Questions for the Nokia case
Have Nokia’s mission and vision (or their implementation) been partially responsible for their faltering performance?
Using the 5-forces model, what industry threats should Nokia have identified in their strategic pursuits?
What can Nokia do to continue to compete globally and domestically?

Porter’s Five Forces Model (Fig 2.2 p45 adapted)
Rivalry among established firms
Risk of entry by potential competitors
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute products

Special role of complements

Product Lifecycle

Time
Demand
Embryonic
Growth
Shakeout
Mature
Declining

Macro-environmental Forces [Environmental Scanning]
Macroeconomics: growth rate of the economy, interest rates, currency exchange rates, inflation rates
Technological: “creative destruction”, shifting barriers to entry
Social: lifestyles, trends and attitudes
Demographics: composition of the population, factors such as income distribution, education, labour mobility, gender
Political & Legal : deregulation and free trade
Global: falling barriers to trade, new economic development

More on 5-forces model
Strategic Groups Def.: subsections of industry with the same basic strategy in-group
Implications:
closest competitors are in the same group
groups, to some extent, face different 5+-forces
exit & entry barriers exist between groups

Limitations of 5+-Forces & Strategic Groups models
Static picture with limited attention to innovation. Industries evolve “unfrozen and reshaped” by technology : punctuated equilibrium hyper-competitive industries with no equilibrium
downplays individual company differences
studies show that industry only accounts for 10%-20% of variance in firms’ profit rates

Internal Analysis
The purpose of internal analysis is to pinpoint the strengths and weaknesses of the organization.
Strengths lead to superior performance. Weaknesses lead to inferior performance.

Internal Analysis includes an assessment of:
Quantity and quality of a company’s resources and capabilities
Ways of building unique skills and company-specific or distinctive competencies

The Theory Behind Internal Analysis
The Resource-Based View
• developed to answer the question: Why do some
firms achieve better economic performance
than others?
• assumes that a firm’s resources and capabilities
are the primary drivers of competitive advantage
and economic performance
• used to help firms achieve competitive advantage
and superior economic performance

The Resource-Based View
Resources and Capabilities
Resources:
• tangible and intangible assets of a firm
» tangible: factories, products intangible: reputation
• used to conceive of and implement strategies
Capabilities:
• a subset of resources that enable a firm to
take full advantage of other resources
» marketing skill, cooperative relationships

The VRIO Approach
Value: Do a firm’s resources & capabilities in each section of the Value Chain enable the firm to respond to environmental threats or opportunities?

Rarity: Is a resource currently controlled by only a small number of firms?
(In)Imitability: Do firms without a resource face cost disadvantages in obtaining or developing it?

Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable rare and costly to imitate resources?

The VRIO Framework
• a resource or bundle of resources is subjected to
each question to determine the competitive
implication of the resource
Applying the Tool
• each question is considered in a comparative
sense (competitive environment)
For further application information, see
Conner, Tom (2002) “The resource-based view of strategy
and its value to practising managers” ,
Strategic Change 11, 307-316)

Applying the VRIO Framework
The Question of Value
• in theory: Does the resource enable the firm
to exploit an external opportunity or neutralize
an external threat?
• the practical: Does the resource result in an
increase in revenues, a decrease in costs, or
some combination of the two? (Levi’s reputation
allows it to charge a premium for its Docker’s pants)

Applying the VRIO Framework
The Question of Rarity
• a resource must be rare enough that perfect
competition has not set in
• if a resource is not rare, then perfect competition
dynamics are likely to be observed (i.e., no
competitive advantage, no above normal profits)
• thus, there may be other firms that possess the
resource, but still few enough that there is scarcity
(several pharmaceuticals sell cholesterol-lowering
drugs, but the drugs are still scarce—look at prices)

Applying the VRIO Framework
Valuable and Rare
If a firm’s resources are:
The firm can expect:
Not Valuable
Competitive Disadvantage
Valuable, but Not Rare
Competitive Parity
Valuable and Rare
Competitive Advantage
(at least temporarily)

Applying the VRIO Framework
The Question of Inimitability
• the temporary competitive advantage of valuable
and rare resources can be sustained only if
competitors face a cost disadvantage in imitating
the resource
» intangible resources are usually more
costly to imitate than tangible resources
(Harley-Davidson’s styles may be easily
imitated, but its reputation cannot)

Applying the VRIO Framework
The Question of Inimitability
• if there are high costs of imitation, then the firm
may enjoy a period of sustained competitive
advantage
» a sustained competitive advantage will last
only until a duplicate or substitute emerges
if a firm has a competitive advantage, others
will attempt to imitate it (Razor scooters
were a big hit and others quickly imitated them)

Applying the VRIO Framework
Value, Rarity, & Inimitability
If a firm’s resources are:
The firm can expect:
Valuable, Rare, but
not Costly to Imitate
Temporary
Competitive Advantage
Valuable, Rare, and
Costly to Imitate
Sustained
Competitive Advantage
(if Organized appropriately)

Applying the VRIO Framework
The Question of Organization
• a firm’s structure and control mechanisms
must be aligned so as to give people ability
and incentive to exploit the firm’s resources
• examples: formal and informal reporting structures,
management controls, compensation policies,
relationships, etc.
• these structure and control mechanisms complement
other firm resources—taken together, they can help a
firm achieve sustained competitive advantage

The VRIO Framework
Valuable?
Rare?
Costly to
Imitate?
Organization?
Competitive
Implications
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
Disadvantage
Parity
Temporary
Advantage
Sustained
Advantage
Economic
Implications
Below
Normal
Normal
Above
Normal
Above
Normal

Generic Value Chain

A Typical Value Chain (Oil-based refined products)
Exploring for crude oil
Drilling for crude oil
Pumping crude oil
Shipping crude oil
Buying crude oil
Refining crude oil
Sending refined products to distributors
Shipping refined products
Selling refined products to final customers

Value Chain Approach
Analyze each of the functions that lead to production of the final product or service

How well do they each perform?
– quantitative & qualitative tools needed here
How effectively do the different functions interact?

Are the supporting functions adequate?

The Building Blocks Approach
(Figure 3.6, p 95)
Efficiency: What is the usual measure of efficiency?

Quality: Excellence and reliability
Innovation: Importance of both process and product innovation, role of innovation in becoming unique

Customer responsiveness: Includes response time, customization, and after sales service and support

Applying the Building Blocks Approach
Itemize instance of significant operational and managerial achievements and/or deficiencies under each of the categories.
Use these noted observations to guide your recommendations.

Why companies fail
Inertia
Companies find it difficult to change their strategies and structures

Prior Strategic Commitments
Limit a company’s ability to imitate and cause competitive disadvantage

The Icarus Paradox
A company can become so specialized and inner directed based on past success that it loses sight of market realities
Categories of rising and falling companies:
• Craftsmen • Builders • Pioneers • Salespeople

Avoiding Failure
Focus on the Building Blocks of Competitive Advantage
Develop distinctive competencies and superior performance in:
Efficiency  Quality
Innovation  Responsiveness to Customers
Institute Continuous Improvement and Learning
Recognize the importance of continuous learning within the organization
Track Best Practices and Use Benchmarking
Measure against the products and practices of the most efficient global competitors
Overcome Inertia
Overcome the internal forces that are barriers to change

Questions for Starbucks’ Video
1) List Starbucks’ major capabilities
and discuss the strategic implications of these capabilities.
2) How is Starbucks’ utilizing their resources and capabilities to develop their brand overseas?
3) Describe Starbucks’ people-to-people business philosophy. How has this resource/capability contributed to Starbucks’ strategic success?

Questions
1) What is the role of luck in gaining possession of a particular resource or capability? Can a firm manage luck? Give 3 examples of resources or capabilities that specific organizations gained through luck.
2) Some firms’ products are so well known that the entire category of products offered in the industry (including rivals’ products) is often referred to by the leading firm’s brand name (which is called an eponym). Identify three such products, and for each case discuss whether their brand recognition gives the leading firm a competitive advantage. Why or why not?

Nokia is a Finland based company having a global presence. In 2010, it was operating successfully in 160 countries. Till the first quarter of 2010, it was the World’s largest mobile phone maker with a market share of 35%. The company started losing its market share in the high –end mobile phone market. The Alarm bells rang not in 2010 but much before that but the company officials had a short sight and they could not see the signals. The CEO, Stephen Elop who is the first CEO is not having Finland background. He has the task of stabilizing the market position of Nokia and provide a leadership to the Nokia Team in a period of change. He has the task of creating an environment so as to capture the opportunity available in the market.

Nokia has three business segments

1) Devices & services

2) NAVTEQ – digital mapping and navigation service

3) Nokia Siemens Network

Before 2000, Nokia had achieved a growth in the market as it catered to the increasing demand of China, India and Brazil for its low end models. The Company overlooked the smart phone segment. It did develop expensive high end handsets based on 3G technology but it is could not compete with the android and now Google based phones. The major sale was of the lower end models in the China and India. It failed to catch the fantasy of youngsters. The youth was attracted to the trendier models launched by Motorola, Samsung and Sony Ericson. The company was not guided by visionary and they felt the customers will be happy with their low cost models. The company has to see the changes in the customer demand. Consumers are willing to pay higher price for the smart phones due tom the convenience attached to them.

Nokia did make an attempt towards product development branding by launching N series and E series range. These multimedia phone and business oriented phones did attract some market but Apple, Google and RIM took the company’s share in the smart phone segment. Nokia had to postpone the launch of its touch screen model as the operating system they were to use did not work successfully.

At present, the USA market is the largest consumer of the mobile market and the emphasis on the high end smart phones. Nokia has a limited presence and minimum brand recognition in the American market. The major reason is that it failed to build long-term partnerships with any of the major wireless carriers in US. In US market the mobile company and service provider enter into agreement and provide a combo to the customer. As a result of this, Nokia mobiles were a lot costlier in comparison to others that were available at subsidy.

Nokia diverted its focus from manufacturing mobile devices to building phones and mobile applications but the services failed to pick up. The Major issues that Nokia has to face

1) Decrease in Brand Value

2) Increased competition in Smart Phone segment

3) Profit margin of Nokia has decreased whereas the competitor’s margin has increased

Nokia should actively adopt measures for building brand awareness in the US and also the Global mobile market. It should use the internet as a medium to advertise. As most Americans are accessible on the net, it used this medium for creating awareness about its products, their features and other services. These days’ social media is big market for advertisers. Nokia should also exploit this media. It can go in for sponsorship of major sports events in America. The Company should use sport persons who are favorite for the season for brand endorsements.

For meeting the increased competition, the company should increase its R & D activities so that it should come with a higher version of the smart phones. It has lost the previous battle but now it should prepare well. The initial phase did not see Nokia has a competitor in the smart phone segment. They should now target the high end customers and know their future needs. They should conduct a satisfaction survey among the users and find the faults in the existing phones and come with a better product.

If the company wants to capture American market it should develop partnership with a leading service provider and work as the market functions.

When the products become acceptable, they should target higher margins. The company is having negative operating margin in NAVTEQ & Nokia Siemens Networks. It should focus on the segment that is having profit and should shut down the segments that are into heavy losses.

Nokia could not capture the smart phone market in America but still the other countries like India that are behind America in the launch and success of the smart phone models can be targeted. It takes a long approval process in getting a new product to the market and there is lack of leadership in the Company.

Elop who has these challenges along with the biggest drawback that he is not Finnish. He should identify the managers who have good leadership skills and develop cross functional teams who can guide the various segments of the company. Elop is well aware with the American market and can use his knowledge of the market to develop long term growth strategies.