1、REVISION LECTURE MONDAYVertical Integration Definitions Vertical Integration: refers to a firmss ownership of the vertically related activities. The greater the firms ownership extends over successive stages of the value chain for its product, the greater the degree of vertical integration. The exte

2、nt of vertical integration is indicated by the ratio of a firms value added to its sales revenue: the more a firm makes rather than buys, the greater its value added relative to its sales revenue.Vertical integration can be either backward, where the firm takes ownership and control of producing its

3、 own or other inputs, or forward, where the firm takes ownership and control of activities previously undertaken by customers.Vertical integration may be full or partial. Some Wineries are fully integrated: they produce the wine from the grapes they grow, and the sell it all through direct distribut

4、ion. Some wineries in California and France do this. Most are partially integrated: home grown grapes supplemented with purchased grapes; they sell some wine through own tasting rooms, but most through independent distributors.Strategies: DIVERSIFICATIONDiversification two broad types:Related divers

5、ification is development beyond the present product and market, but still within the broad confines of the industry. For Example Unilever is a diversified corporation, but virtually all its interests are in the consumer goods industry. (a) Backward integration refers to inputs into the current busin

6、ess further back in the value system e.g. Raw materials, machinery, labour (b) Forward integration refers to activities which are concerned with the companys outputs e.g. Transport, distribution, repairs, and servicing. These are further forward in the value system (c) Horizontal integration refers

7、to activities which are competitive with or directly complementary to a companys present activities Unrelated diversification refers to activity development beyond the present industry into products/markets, which at face value, may bear no clear relationship with present products/markets. Some Reas

8、ons for related DiversificationPossible advantagesExamples /Comments1. Control of suppliesQuantityQualityPriceTea Processors own plantations to secure continuity of Supply. Components for motor cars may need to be manufactured by the companyPrinting facility can be cheaper in -house2. Control of mar

9、ketsUK shoe manufacturers own retail outlets to gain guaranteed distribution3. Access of informationManufacturers are involved in machinery development companies to keep abreast of development4. Cost savingsFully integrated steel plants save cost on reheating and transport5.Building on: ExpertiseTec

10、hnologyAccountancy Firms moving into tax advice or corporate recovery Transfer to similar technical requirements in another field6. Spreading RiskAvoid overreliance on one product/market, but build on related experience7. Resource UtilisationUnder-utilised manufacturer acquires company with compatib

11、le products to fill capacitySome reasons for unrelated diversificationPossible AdvantagesExamples/Comments1. Need to use excess cash or safeguard profitsBuying a tax loss situation2. Personal values or objectives of powerful figuresPersonal image locally or nationally may be a strong motive3. Exploi

12、ting underutilised resourcesFarmers use fields for camp sites, festivalsCompanies hire their conferences facilities4. Escape from present businessA companys products may be in decline and unrelated diversification is the only escape5.Spreading riskSome companies believe it is good sense to have all

13、their eggs in one basket.6. Even out cyclical effects in a given sectorToy manufacturers make a subcontract for plastic mould products for industry.7. Benefits from synergistic effectsPositive cash flow from one business used to funding requirements of another5Portfolio Analysis Market Power and Mar

14、ket Share are important concepts for a strategic business unit to consider. Relative market share means the amount of market share a firm has relative to it competitors There is an established relationship between market power and performance in commercial organisations. Useful to break down market

15、share by segments and to examine market share within those segments What is important is to see which market segments are important from corporate/profit point of view. Segment may be more competitive or growing more or bigger6?Low unstable, analyse to see Whether business can be grown into a star o

16、r will it degenerate into a DOGSTARHigh, stable growingInvest for growthDOGSLow UnstableCash flow neutralOr negativeCash CowsHigh Stable High EarningsGood Cash flowANNUALRATeOFMARKETGROWTH(%)nHighLOW Low Relative Market Share High THE BCG GROWTH SHARE MATRIX A star is an SBU which has a high market

17、share in a growth market. The firm may be spending heavily to gain that share , but experience curve benefits should mean that costs are reducing over time and at faster rate than competitors The question mark is an SBU with high growth but does not have a high market share. Firm could be spending h

18、eavily but not reducing costs and not making inroads on competition The Cash Cow has a high market share in a mature market. Low growth market conditions stable,need to spend is less. High relative market share means SBU able to maintain unit cost levels below competitors. Dogs have low share in sta

19、tic or declining markets, worst of all combinations, may drain cash and use disproportionate amount of time and resources.8Growth Share Matrix for Portfolio AnalysisCollaborative arrangements are there for all to see they include: Strategic alliances; joint ventures; public private partnerships;Co-o

20、rdinated service delivery; supply chain agreements; joint marketing arrangements; research and development partnerships etc. Public and voluntary sectors have many examples as well, from joint delivery of services, co-ordinated delivery of services ; partnerships to tackle social care issues to econ

21、omic developmentRapid economic and technological changeA declining growth rate and competitive pressuresGlobal interdependenceBlurred boundaries among business, government and labourShrinking federal revenues for social programmesDissatisfaction with the judicial process for solving complex problems

22、Differing perceptions of environmental risk104/11/2022Grays Seven Factors that contribute to CollaborationLeader Behaviour Style Participative: a consultative style that involves seeking suggestions and ideas from subordinates and involving them in decisions. Directive: subordinates are told clearly

23、 what is expected of them, and given specifics about how to achieve that Supportive: falls between the two previous, and is characterised by the creation of a warm, friendly atmosphere in the group and consideration for the needs of sub-ordinates Achievement orientated: Using non directive ways to s

24、et challenging goals and seeking improved performance. Often using excellent standards as a model to be achieved and showing confidence that these can be achieved by employees.11Key point leadership occurs when one attempts to influence the behaviour of an individual or groupThree core skills involv

25、edDiagnosing cognitive skillAdapting a behavioural skillCommunicating a process skillSome Key Internal Skills of Leaders.Management of Attention : Communicate direction and objectives to othersManagement of meaning: ability to create and communicate meaning so that others understandManagement of Tru

26、st: authenticity and consistency in messagesManagement of Self: knowing oneself and to work with thatManagement of the situation and the task Broad Categories are: Set Strategic Direction, Set and Communicate the Values; Support the implementation through resource allocation and problem solving Desi

27、gn systems in support of action; review structures Focus on the manageable; Develop skills in peopleSymbolise the company to the outside world Preserve what makes the company special Set the standard for performance Motivate employees and develop new skills and competences Provide role models Make s

28、uccess attainable and human Ensure that their are resources available Lets look at some tools leaders havePlanning & Design School.The design school is based on the idea of rational planning, based on strategic analysis of the internal and external environment. The idea is that managers engage in de

29、liberate, rational analysis. The design school does allow for the idea of creativity. This is in terms of the original conception of the idea/ concept/ strategy, and how it alters overtime as the realities of the internal and external environment are considered by the strategists. A good way to thin

30、k of this is if you were designing and building a house. Concept alters as the concept and ideas become realities. Tools you use are SWOT analysis see slides Lecture 2 , and next 2 slides Key points Design schoolConsistency: the strategy must not present mutually inconsistent goals and policiesConso

31、nance: the strategy must represent an adaptive response to the external environment and to the critical changes occurring within it.Advantage: the strategy must provide for the creation/maintenance of competitive advantage in the selected area of activityFeasibility: The strategy must neither overta

32、x available resources nor create unsolvable sub problems14Entrepreneurs EmergentHere the emphasis is on the leader and on mental states such as: judgement, intuition, wisdom, experience, insight.Vision and perspective are key ideas here ( remember the working definition of creativity by Sternberg an

33、d Lubart (1991) SLIDE 12Vision serves as both an inspiration and a sense of what needs to be done a guiding idea.Entrepreneurial concept comes for economics in particular Joseph Schumpeter (1950) Schumpeter was concerned with how organisations keep surviving in changing situations.He was concerned w

34、ith how the leader created ideas, new ways of doing things: within this he introduced the notion of creative destructionSchumpeter was aware that economists like to deal with such things as money, machinery, land. He was concerned with things that are less tangible.Schumpeter held the view:That entr

35、epreneurs have not accumulated any kind of goods, nor created original means of production but have employed existing means of production differently, more appropriately, more advantageously. They have carried out new combinations. And their profit, the surplus to which no liability corresponds, is

36、an entrepreneurial profit.The key thing here is doing things in new ways and the capitalist bore the risk.Importantly Schumpeter thought that once the founder /leader ceased to innovate he/she was no longer an entrepreneur.Richard Branson is someone who fits the idea of an Entrepreneur.Key points of

37、 EntrepreneurshipsStrategy exists in the mind of the leader as perspective, this is a long term direction, a vision of the organisations future.The process of strategy formation is semiconscious at best, rooted in leaders experience and intuition, the strategy may be conceived or adopted from others

38、, but the Leader will internalise it in his or her own behaviour.The Leader promotes the vision single-mindedly, maintained close personal control of implementationThe strategic vision is thus malleable, the strategy can be deliberate and emergent, deliberate in vision and emergent is how it unfolds

39、.The organisation is equally malleable, responsive to the leaders directives, many of the procedures and power relationships are suspended to allow leader to manoeuvreEntrepreneurial strategy tends to form of a niche, one or more positions in market protected form the forces of outright competitionR

40、ichard Branson CEO Virgin Corporation classic EntrepreneurAn issue we return to Intentionality versus emergent strategiesIntentionality implies;, planning, thinking, writing things down, monitoring and reporting on plan, learning and adaptationA way of demonstrating clear doing, direction, commitmen

41、t etc. Emergence implies: a pattern of thinking and doingFlexibility, opportunism, adaptive, flexibility/ alternatives/optionsEntrepreneurshipStrategic IncrementalismNew strategies emerge over timeFlexibility, shapingGradually blend a coherent set of actions over time.Strategy Formation Key PointsSt

42、rategy formulation is primarily concerned with the how question, with process:How are strategies formed, implemented and changed?We have discussed several ways of thinking about strategies a broad perspective would suggest the process is seen variously:Rational, Intentional, Goal- directed , as well

43、 as Intuitive.What is clear is that their in not one unifying theory of how it is. Not necessarily a problemFOUR PHASES OF FORMULATIONIdentification, Mission Setting, Agenda SettingDiagnosis: External Assessment Internal AssessmentConception: Option Generation, Option selectionRealisation : Action t

44、aking, Performance control ( SEE PYRAMID DIAGRAM) Performance ManagementRoles of StrategyStrategy as a planning tool which gives direction to the organisation- a plan of what to do and aim for.Strategy as a support to decision making , strategy gives coherence to the decisions of an individual and t

45、he organisation. Bounded Rationality of our decisions. We are limited by the amount of information the human brain can handle. Strategy helps in several ways: Simplifies decision by constraining the range of decision alternativesBy acting as a heuristic rule of thumb that reduces the search for suit

46、able solutionsA strategy making process permits the knowledge of different people to be polled and integratedA strategy making process facilitates the use of analytic tools and frameworks ( SWOT, PEST)Strategy as a co-ordinating device: The greatest challenge of managing an organisation is co-ordina

47、ting the actions of different organisational members. Communicating the vision, goals, objectives and position of the company is an important role of the CEO and Top Management Team. The strategic planning process can provide a forum for this to take place. Here it is important that all groups in th

48、e organisation take part. Once this is implemented then the next phase is to ensure that all organisation members are working and moving forward in the same direction. The name for this is performance management, which is a series of goals, targets, and performance measures for individuals and group

49、s, divisions, department , throughout the organisations.PERFORMANCE MANAGEMENT FRAMEWORKSERVICE/BUSINESS PLANSDIRECTORATE PLANS & STRATEGIESCORPORATE PLANS & STRATEGIES STRATEGIC PLANORGANISATIONWIDELOCALSTRATEGICOPERATIONALCOMPETITIVE ADVANTAGEINDIVIDUAL STAFF PERFORMANCE , ACCOUNTABILITY & APPRAIS

50、ALSStrategic Change Key pointsStrategic Change is an intellectual challenge in terms of thinking through the approach to be adopted, as well as a process of assisting people to deal with change and uncertainty.In broad terms strategic change is concerned with findings ways of successfully dealing wi

51、th changes in markets, government policies, competitiveness, technologies etc.Key to change is the ability of the firm to maintain position in the market while undergoing a major change process. The challenge of dual strategies how a company manages its existing activities while also nurturing new i

52、nitiatives that will form the basis for its business in the future. Key concern can be the existing capabilities of the firm and the individual competencies of employees e.g. Management systems and employee skillsExample: British Airways and Continental failed to establish low budget airlines. Other

53、s like Google and 3M have managed dual strategies.HSBC Banking has managed the dual strategy of cost leadership and differentiation in full service banking and internet bankingA Framework for a Change architecture Clarity in governance and accountability Engagement for key stakeholders in appropriat

54、e ways Securing alignment from the majority of the key stakeholders to the change process Effective, credible, accessible and appropriately transparent performance measures to gauge progress and success A balanced set of performance measures presented on a common framework (e.g. balanced scorecard a

55、pproach) Acquiring or developing new skills and capabilities and the mobilization of commitment and resources Learning to use our current knowledge to enhance our future knowledge in a search for enhancement of our products and servicesPorters five forces of industry competitivenessSUPPLIERSINDUSTRY

56、COMPETITORSRivalry amongexisting firmsPOTENTIALENTRANTSSUBSTITUTESThreat of newEntrantsThreat of newsubstitutesBargaining power of buyersBargaining power of suppliersBuyersSUPPLIER POWERFactors determining power of suppliers relative to producers; same as those determining power of producers relativ

57、e to buyers- see Buyer Power BoxINDUSTRY RIVALRYConcentrationDiversity of competitorsProduct differentiationExcess capacity and exit barriersCost conditionsTHREAT OF SUBSTITUTESBuyer propensity to substituteRelative prices and performance of substitutesTHREAT OF ENTRYCapital RequirementsEconomies of

58、 scaleAbsolute cost advantageProduct differentiationAccess to distribution channelsGovernment and legal barriersRetaliation by established producersBUYER POWERPrice Sensitivity Bargaining PowerCost of product relative to total cost Size and concentration of buyers relative to producersProduct differ

59、entiation, competition between Buyers switching costs; Buyers InformationBuyers Buyers ability to backward integrateThe Factors that influence Porters Five Forces of CompetitionSome reasons for unrelated diversificationPossible AdvantagesExamples/Comments1. Need to use excess cash or safeguard profi

60、tsBuying a tax loss situation2. Personal values or objectives of powerful figuresPersonal image locally or nationally may be a strong motive3. Exploiting underutilised resourcesFarmers use fields for camp sites, festivalsCompanies hire their conferences facilities4. Escape from present businessA com