CHAPTER 8 : CORPORATE STRATEGY: DIVERSIFICATION AND THE MULTIBUSINESS COMPANY.

What is Diversification?

A collection of businesses under one corporate umbrella.A company is diversified when it is in two or more lines of business.Strategy-making in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business :

-A diversified company needs a multi-industry, multi-business strategy

-A strategic action plan must be developed for several different businesses competing in diverse industry environments.

In addition to a business strategy which identifies and maintains a sustainable competitive advantage in each of the business units, a coherent corporate strategy is needed which creates value and is internally consistent

Five Components of Corporate Strategy

Vision- For the corporation as a whole

Goals and Objectives

Structure, systems and procedures

     #Deploy corporate resources into the businesses

     #Establish the context for decentralized decision making

     #Routine public company functions

    #Contain multiple elements e.g. structure, budgeting,strategic planning, management style etc.

Five Components of Corporate Strategy-Resources

      1)Set of tangible and intangible assets, established over time, which can’t be readily imitated, acquired or duplicated.

      2)Make the corporation unique

      3)When they are competitively superior and they contribute to sustainable competitive advantage in the SBU’s, they become a corporate advantage.

      4)Resources, effectively used, create value

       -One time=restructuring

       -Ongoing=use of corporate brand

       5)Industries in which the corporation chooses to compete

       6)Competitive strategies adopted by the business units in those industries.

       -How the units are related to each other.

WEEK 7 : STRATEGIES FOR COMPETING IN INTERNATIONAL MARKETS

“You have no choice but to operate in a world shaped by globalization and the information revolution.  There are two options:  Adapt or die.” 

Andrew S. Grove- Co-founder and Senior Advisor, Intel Corporation.

The Four Big Strategic Issues in Competing Internationally :

-Whether to customize a company’s offerings in each different country market to match      preferences of local buyers or offer a mostly standardized product worldwide

-Whether to employ essentially the same basic competitive strategy in all countries

 or modify the strategy country by country

-Where to locate a company’s production facilities, distribution centers, and customer service

 operations to realize the greatest location advantages

-How to efficiently transfer a company’s resource strengths and capabilities from one country to

  another to secure competitive advantage

Strategic  Options:  How  to  Compete in  Emerging Country Markets 

-Prepare to compete on the basis of low price
-Be prepared to modify aspects of the company’s business model to
  accommodate local circumstances
-Try to change the local market to better match the way the company does business elsewhere
-Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s      business model to accommodate local circumstances

OSHIMA JAPANESE RESTAURANT

Today we have no lecture like usual because it has been replaced by the sharing session with the founder of Oshima Japanese Restaurant, Madam Asnidar Hanim Yusuf. She was very humble and very nice person. Her qualification is not in business but has a great passion on business. Oshima Japanese Restaurant is the one place that offers authentic Japanese food and fusion food. She told us that what is the thing that make her restaurant was totally different with others Japanese food is her restaurant is more concern about halal.

Actually, she has to face many challenges before she can be a successful entrepreneurs in the industry. Some of the challenges are to get certificate from JAKIM, also to get suppliers for the food because this restaurants served Japanese food and dish and also problem from the aspect of capital. However, she has been able to manage  to overcome this obstacles through the concept of " we trust to Allah ".Before ending the talk, she says " DO NOT ASK FOR MONEY. IKHLAS FOR ALLAH AND MONEY WILL COME ".

WEEK 6 : STRENGTHENING A COMPANY’S COMPETITIVE POSITION: STRATEGIC MOVES, TIMING, AND SCOPE OF OPERATIONS.


For this week lecture we learnt about maximizing the power of a strategy which means making choices that complement a competitive approach and maximize the power of strategy into three criteria : 1) Offensive and Defensive Competitive Actions 2) Competitive Dynamics and the Timing of Strategic Moves and 3) Scope of Operations along the Industry’s Value Chain.
For the Strategic Offensive Principles:
-Relentlessly build competitive advantage and then convert it into sustainable advantage.
-Create and deploy resources in ways that cause rivals to struggle to defend themselves.
-Employ the element of surprise as opposed to doing what rivals expect and are prepared for.
-Display a strong bias for swift, decisive, and overwhelming actions to overpower rivals.

For the DEFENSIVE STRATEGIES is to protecting market position and competitive advantages. There are also purpose for this strategy which are lower the firm’s risk of being attacked, weaken the impact of an attack that does occur and influence challengers to aim their efforts at other rivals.Timing’s importance because of knowing when to make a strategic move is as crucial as knowing what move to make.Moreover, moving first is no guarantee of success or competitive advantage.The risks of moving first to stake out a monopoly position must be carefully weighted.

HORIZONTAL MERGER AND ACQUISITION STRATEGIES.

Merges is the combining of two or more firms into a single corporate entity that often takes on a new name.Meanwhile acquisition is a combination in which one firm, the acquirer, purchases and absorbs the operations of another firm, the acquired.Vertically Integrated Firm is one that participates in multiple segments or stages of an industry’s overall value chain.Vertical Integration Strategy can expand the firm’s range of activities backward into its sources of supply and/or forward toward end users of its products.There are three types of vertical integration choices which are;
# Full integration
# Partial integration
# Tapered integration

STRATEGIC ALLIANCES AND PARTNERSHIPS

Strategic Alliance is a formal agreement between two or more separate firms in which they agree to work cooperatively toward common objectives.Joint Venture is a type of strategic alliance in which the partners set up an independent corporate entity that they own and control jointly, sharing in its revenues and expenses.

The Drawbacks of Strategic Alliances and Partnerships

• Culture clash and integration problems due to different management styles and business practices.
• Anticipated gains do not materialize due to an overly optimistic view of the synergies or a poor fit of partners’ resources and capabilities.
• Risk of becoming dependent on partner firms for essential expertise and capabilities.
• Protection of proprietary technologies, knowledge bases, or trade secrets from partners who are rivals.

Principle Advantages of Strategic Alliances

      ♦They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing.

     ♦They are more flexible organizational forms and allow for a more adaptive response to changing conditions.

     ♦They are more rapidly deployed—a critical factor when speed is of the essence.

Generic Strategy

The Broad Cost Leadership Strategy

Porter's generic strategies are ways of gaining competitive advantage – in other words, developing the "edge" that gets you the sale and takes it away from your competitors. There are two main ways of achieving this within a Cost Leadership strategy:

-Increasing profits by reducing costs, while charging industry-average prices.

-Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.

Remember that Cost Leadership is about minimizing the cost to the organization of delivering products and services. The cost or price paid by the customer is a separate issue!The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low cost producers who may undercut your prices and therefore block your attempts to increase market share.

You therefore need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have:

• Access to the capital needed to invest in technology that will bring costs down.
• Very efficient logistics.
• A low cost base (labor, materials, facilities), and a way of sustainability cutting costs below those of other competitors.

The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. This is why it's important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen philosophy of "continuous improvement".

Thus, a firm following a cost leadership strategy offers products or services with acceptable quality and features to a broad set of customers at a low price.

-Air Asia

-Tesco

-Mydin

-Giant

-McDonald

-Google

-Coca Cola

-Proton

Common features in these product :

*Many kinds of products and/or services

*Focus on Market Share, Profits, and Stock Price

*More likely to re-position products than introduce new ones to the market

*Offering the lowest price to compete with rivals

*Attract a broad spectrum of buyers

Focused cost-leadership and Focus differentiation

Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low cost or well-specified products for the market. Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.

As with broad market strategies, it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach: Focus is not normally enough on its own.

But whether you use Cost Focus or Differentiation Focus, the key to making a success of a generic Focus strategy is to ensure that you are adding something extra as a result of serving only that market niche. It's simply not enough to focus on only one market segment because your organization is too small to serve a broader market (if you do, you risk competing against better-resourced broad market companies' offerings.)

The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs).

Generic strategies apply to not-for-profit organizations too. A not-for-profit can use a Cost Leadership strategy to minimize the cost of getting donations and achieving more for their income, while one with pursing a Differentiation strategy will be committed to the very best outcomes, even if the volume of work they do as a result is lower. Local charities are great examples of organizations using Focus strategies to get donations and contribute to their communities. For focused cost leadership, instead, it charges low prices relative to other firms that compete within the target market.
-Perodua
-Digi
-Kamdar
-KFC
-Subway

Common features in these product :
#Focusing on their own product or service.
#Multiple product lines in the low-tech segments (Low End & Traditional)
#Invests heavily in automation
#Spends moderately on advertising to cost sensitive customers (sales people have more than one product to pitch to prospects)
#Investments financed with debt and/or stock issues
#Focus on ROS, ROE, and Profits
#Available to a specific group of people

For focus differentiation, thus the unique features provided by firms following a focused differentiation strategy are often specialized.
>Bonia
>JW Marriot
>Louis Vuitton
>Porsche

Common features in these product :
-Luxury product offer
-Focusing on a narrow target market
-Exclusiveness styles
-High price

Broad Differentiation

Differentiation involves making your products or services different from and more attractive those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support and also brand image that your customers value.

To make a success of a Differentiation strategy, organizations need:
-Good research, development and innovation.
-The ability to deliver high-quality products or services.
-Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.

Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments.

The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product and desirable features.

• Malaysia Airlines;
• Honda
• IKEA
• Kia Motor
• Avon
• Old-Town Kopitiam
• Toyota
• Rolls Royce
• Al-Ikhsan

Common features in these product :
^Many kind of products
^High R&D spending to keep products fresh
^Maintains a presence in all market segments
^Spends heavily on advertising and sales to create maximum awareness and accessibility
^Prices tend to be higher
^Focus on Market Share, Profits, and Stock Price
^Different types of products and services.
^Targeting a broad market target.

Week 5 : Strategic Management

For this week lecture,we have been learnt to understand what distinguishes each of the five generic strategies and why some of these strategies work better in certain kinds of industry and competitive conditions than in others.Competitive strategy relates to all the different strategies a company may do to which are gain a competitive advantage, retain existing market  share, capture new market share, identify and access new market opportunities, satisfy wants and needs, provide superior value in a product or service, position and differentiate the product, optimize manipulation of the marketing mix and also achieve its goals in the competitive market place.Broad factors that distinguish one competitive strategy from another by two factors which are whether a company’s target market is broad or narrow, and also whether the company is pursuing a competitive advantage linked to low costs of product differentiation.

The five generic competitive strategies are low-cost provider, broad differentiation, focused low-cost, focused differentiation, and best-cost provider. As we know, a cost driver driver is a factor that has a strong influence on a firm’s costs including input cost, economies of scales, bargaining power, capacity utilization and many more. First and foremost, low-cost provider strategy targeting such as price sensitive market price...conscious buyers, segments with limited incomes, price sensitive customers in greater numbers thereby increasing profits (although thin profit margins) , extreme price competitive markets, products are essentially the same besides where brand differences are inconsequential to the consumer and when substitutes are readily available,lastly good strategy for new entrants. Example for the company are Wal-Mart, Family Dollar and Mydin.

Secondly, broad differentiation strategy are targeting diverse needs and preferences among target markets, a broad range of buyers, value conscious consumers, products and services stand apart in consumers’ minds, customers looking for a unique value proposition, premium price products and buyers loyal to the brand (value the unique differentiation). Rolex, Microsoft, Gucci are company that use this strategy.

Next is market focused strategy… which include cost and niche*. For the strategy this market are targeting price conscious customers (similar to low cost provider strategy),  well defined segments, appealing to cultures and geographical preferences, brand loyal customers, appeal to broad market segments (low cost), wants and needs of narrow and unique market segment (niche). For the niche, it must have two criteria :
*Good way to discourage entry of industry leaders
*Another differentiation and positioning strategy

Example company use this strategy are Community Coffee (niche) ,Grand Ole Opry (niche) and Krispy Kreme Doughnuts (niche, cost – now broad).

Last but not least, best cost provider strategy…* are focused and targeting low cost, differentiation markets (a hybrid), broad markets and market niches (middle ground), value conscious buyers, those who shy away from cheap, low-end products and expensive high-end products, willing to pay a fair price for functionality and performance and lastly more for the money.
*Balances low-cost against emphasis on differentiation and positioning.

Example of company are Lexus (by Toyota) and Goodyear.

For conclusion, the differences between the classic five generic competitive strategies is somewhat subtle to the untrained eye. Admittedly, there is some degree of overlap. However, they are significant in strategic planning as they relate to the ability of the organization to gain a competitive advantage. They offer product and brand distinction in terms of price, value, quality, and performance, which not only positions the product uniquely, but the brand, itself. Thus, the competitive strategy may indeed set the tone for the mission of the organization, because the entire organization must function jointly to provide the level of quality and performance in the market place, that is consistent with the organization’s overall business level strategy.

FOURTH WEEK : STRATEGIC MANAGEMENT

For this week lecture, we learn about evaluating a company's resources, capabilities and competitiveness. i like to start the discussion with the quotes from James Brian Quinn that said “If a company is not ‘best in world’ at a critical activity, it is sacrificing competitive advantage by performing that activity with its existing technique.”

For the objective of this chapter we will discuss how a company use resources and capabilities to attain the company's strategy approach for giving a company competitive advantage edge over rivals. Beside that we will also analyze a company value chain towards it's consumers and as well as how company making critical decisions about their next strategic moves.Best indicators of a well-conceived, well-executed strategy is the firm is achieving its stated financial and strategic objectives and also the firm is an above-average industry performer.Moreover, the company also need to identifying the components of a single-business company’s strategy. 

There also some key indicators of how well the strategy is working. These include growth in firm’s sales and market share,acquisition and retention of customers,strengthening image and reputation with customers,increasing profit margins, net profits and ROI,growing financial strength and credit rating,leadership in factors relevant to market\industry success,continuing improvement in key measures of operating performance.A company competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity. A core competence is a well-performed internal activity that is central (not peripheral or incidental) to a company’s competitiveness and profitability. A distinctive competence is a competitively valuable activity that a company performs better than its rivals. A company consists of all the activities and functions it performs in trying to deliver value to its customers. A company’s value chain shows the linked set of activities, functions, and business processes that it performs in the course of designing, producing,  marketing, delivering, and supporting its product or service and thereby creating value for its customers. A company’s value chain consists of two types of activities which are primary activities (where most of the value for customers is created) and second support activities that are undertaken to aid the individuals and groups engaged in doing the primary activities.