Deze samenvatting is gebaseerd op het studiejaar 2013-2014.

Chapter A

There is no sound definition of the word business or business strategy. The definitions are to complex to have one straight forward answer.

Business

A business is an organization unit which has a clear business strategy and as goal creating sales and profit. The business can be divided in subdivisions/ business units which can be linked horizontally and vertically. This all is managed by managers.

Each division, for instance in a certain region, can have its own strategy. This might have benefits because the strategy matches the customer better in that particular area. A negative effect is that economies of scale, which can be the strength of a large firm, are less created. This leads to inefficiencies within the company. To create economies of scale business units can share certain processes like R&D or a promotion team.

Business strategy

The business strategy is defined according to 4 dimensions.

• The product-market investment strategy
• The customer value proposition
• Assets and competencies
• Functional strategies and programs

1. The product–Market Investment Strategy, Allocation decision

This dimension is about which market to serve or not to serve, which products to offer or not to offer and to compete with which competitors and what competitors to avoid by vertical integration.

Which business segments to avoid is an important decision, some segments need to be avoided because you can’t invest in them all because the business won’t be liquid enough.
More important are the dynamics of the business scope. What will be the most profitable product market to invest or disinvest in, in the coming years? Which resources; financial, non financial, people, will be necessary to develop in this product market?

Four main choices of what kind of investment can be made are:

• Invest to grow in a market or enter a market
• Invest to just maintain a current position in a market
• Milk the business by minimizing investments
• Liquidate or divest as many assets as possible to recover the assets

2. The Customer Value Proposition, which benefit to offer the customer

This dimension is about what perceived benefit the product brings to the customer. A product can for instance offer a functional, emotional social or self expressive benefit.

This elements are involved in the customer value proposition:

• Good value (low prices, a relative good quality product)
• Innovative offerings
• Global prestige (Chanel)

3. Assets and Competencies

This dimension is about the sustainable competitive advantage (SCA). A company can have superior resources (assets such as: brand name, machinery, customer base) or competencies (usually based on  knowledge or a good business process such as organizational qualities) compared to other companies. This causes a sustainable comparative advantage. When defining a companies strategy, the company can chose which SCA to develop or to create.

In economies of scale a comparative advantage can arise because of synergy. This occurs for instance when two departments work together so that they can share R&D and average research cost go down.

4. Functional Strategies and Programs

This dimension is about what functional strategies and program can accompany the previous set value proposition and assets and competencies. A question that can be asked is what functional strategy is necessary in order to deliver a certain benefit like global prestige?

This are some functional strategies and programs that could drive the business strategy:

• Distribution strategy
• Brand building strategy
• Information technology strategy
• Global strategy
• Customer relationship program
• Quality program

After setting the functional strategies and programs they can be implemented with some short term tactics.

Strategic options

A strategic option is a combination of the previous mentioned dimensions at a ,b ,c &d. Because of the number of dimensions many combinations can be made and lots of strategic options can be found. The final business strategy will usually be based on one or a few strategic options.

Strategic market management

Strategic decisions shouldn't be made from an internal perspective but from an external customer orientated view. The demands of the customer can change rapid, therefore demand shouldn't be looked at in a static view but looked at using continuous, real-time information.

The way to success is to be a leader not a follower. It's more important to come up with new strategies and to be innovative than to become more efficient and improve the process.

These trends and characteristics are essential in strategic market management:

• A proactive strategy is essential to be a leader. With being proactive you can adjust quick  to, and even change the future environment.
• Good information systems can help analyzing changes in the environment and developing a matching strategy.
• Knowledge management is important to share all the information that is generated within the company.
• Online analysis help to make more continuous decisions for instance about inventory. But in order to do this the system needs to be structured.
• Entrepreneurial Thrust
• Implementation of the strategy is essential. Sometimes the strategy needs to be adapted to the firm or the firm to the strategy in order for the two to match.
• A longer time horizon is important to invest in assets and competences and to returns in the long run.

Strategic market management is important because:

• it helps to focus on the long run
• helps to make decisions about allocation of resources and competencies
• easier to communicate problems within the company
• it helps a business cope with change

Strategic marketing management focuses on the change of the external environment and helps to give a framework to overlook changes and problems. It is important to be pro-active.

Chapter B

Strategic market management helps management make strategic decisions and create strategic visions. Strategic decisions concern the creation, the change or the conservation of a strategy. A strategic decision is a long run strategy which can take years before it's truly implemented.

Strategic visions guide making interim decisions by giving it a goal and direction. Interim decisions can be necessary when the new strategy not yet matches the environment because the company hasn't yet adapted to the new circumstances or the environment hasn't yet changed.

External Analysis

In the external analysis relevant elements external to an organization are being studied. Opportunities, threats, trends, strategic uncertainties and strategic choices are the most important elements that should be identified. When these elements are changing for instance, a trend is changing negatively and there is no strategic change then sales will go down.

The external analysis is divided in four parts;

Customer analysis covered in chapter C

Competitor analysis covered in chapter D

Market/sub market analysis covered in chapter E

Environmental analysis covered in chapter F

Internal Analysis

The internal analysis starts in chapter G and discusses the relevant elements internal to an organization which should be studied. The main elements in the internal analysis are the performance analysis and the key determinants of strategy: strengths, weaknesses and strategic problems.

Creating a vision for the business

A vision can guide a strategy, helps examining the core of the business and is an inspiration to come up with a better purpose for the business than just creating high returns. James Collins and Jerry Porras argue that a business vision should exist of three components: Core Values, Core Purpose and BHAGs.

A company can have a number of core values, they show what the business is today instead of what it likes to be.

The core purpose is the reason of existence of the business beyond current products ands services. The core purpose should be able to last a decades.

The BHAGs provide a challenge to the organization. This can be a certain sales goal, competing with a company in the same market, transform internally or follow a role model.

Strategy identification and selection

The external and the internal analysis provide strategic alternatives and criteria to chose between the alternatives.

The first step is to indicate a product market and how much to invest in each market. The second is to determine the customer value proposition. The next step is to determine the resources and competencies which will provide the sustainable comparative advantage. The last step is to develop the functional strategies.

Product-market investment strategies

Product-market investment strategies consist of the product definition, market definition, vertical integration, investment strategies and growth directions.

Growth directions is a crucial strategy. The book shows five growth strategies in a product-market matrix. These are:

• market penetration, with the existing product in existing markets (take customers from current competitors)
• product expansion, new products at current markets
• market expansion, apply the same products but then in new markets
• diversify, new products in new markets
• vertical integration, operate in a larger part of the production process (take over suppliers or create your own input)

Strategic options

After the product-market investment plan is made, strategic choices still need to be made in the business strategy. Because the company can't excel in or focus on everything.

The strategic options will detail the following:

• value proposition, which benefit will offer the product to the buyer
• assets and competencies, the basis of the sustainable competitive advantage
• functional strategies and programs, to support the value proposition and assets and assets and competencies

Selecting Among Strategic Alternatives

From strategic alternatives the best one should be chosen. The criteria useful for selecting alternatives can be grouped in 6 areas.

• evaluate strategic options in the context of different possible environmental scenarios
• generate an attractive ROI
• pursue a sustainable competitive advantage, advantages should be exploited and disadvantages neutralized
• consistent with the organizational vision and objectives
• be feasible, it should be able to accomplish
• related to the other firm strategies to stimulate flexibility, better use of resources and exploit synergy

After the strategic alternatives have been chosen they are implemented into the business plan. Strategic market management is concluded with an evaluation; the strategic review.

Chapter C

To come up with a good strategy an external analysis needs to be done. The analysis will influence the investment decision where and how compete. It is important that the external analysis clear well structured and purposeful. It shouldn't become too descriptive.

An additional external analysis can be done to analyze trends and future events, threats and opportunities to help creating the optimal strategy.

The future is full uncertainties but there are good ways to handle these uncertainties

• Just take the decision because to wait for an investigation is to costly
• Reduce the uncertainty by gathering information and analyze future possibilities
• Model the uncertainty by a scenario analysis

The external analyses is divided into different part or view points to look at the situation in different ways and to be sure no options will be missed

The analysis starts with defining the market. To define the market the scope of the business needs to be specified. You can analyze the scope through the customers the competitors and the future product market. You can specify in a market or you can diversify each has it's own advantages.

The external analysis shouldn't just be done once a year but should be less static and be conducted throughout the year. The analysis should start with the customer and competitor analysis because they help to define the market.

Customer analysis

The customer analysis can be divided in three parts: Segmentation, Customer motivations and unmet needs.

Segmentation

Segmentation is grouping customers that react the same way at competitive offerings.

A segmentation strategy should be valued at 3 dimensions

• Will the offering be favorable to the target segmentation
• Is the offer sustainable over time even though competitors will be active on the market
• Is the market segment profitable enough to overcome investments

To form a clear segment clear variables for the segment should be chosen. The variables can be:

• Customer characteristics; geographic, age, occupation lifestyle
• Product-related approaches; user type, usage, benefits sought, price sensitivity, competitor, application, brand loyalty

There are two segments strategies. A single segment strategy, then the company specializes in one segment or a multiple segment strategy where more segment or the whole market can be targeted.

This is increasingly done because of high competition.

After the market has been segmented, the motivations of the customers in the specific segments need to be identified. The motivations help with identifying the best strategy.

To obtain these motivations group interviews or individual interviews can be held. After obtaining their motivations, the motivations should be divided in groups and subgroups. Motivations should be ranked according to importance. Finally motivations which are important when creating a strategy or influencing should be selected.

As a variation the customer can also be asked to select from each group the most important motivation. This way you rank the importance according to the idea of the segment.

Qualitative research such as focus group sessions, in dept interviews and observations of the customer are useful tools to identify the motivations that really matter.

Customer participation in the development of the products is a trend. The ideas/ development created by the customer matches the demand of the customer and it saves the company lots of time analyzing the customers needs.

Unmet needs are opportunities because for that specific product is a need but not yet a competitor. So when developing strategy an unmet need is an interesting segment to look at. To detect an unmet need a structured approach called: problem research develops a list of potential problems with the product.

The problem should be:

• important
• occur frequently
• solvable

Chapter D

The second part of the external analysis is the competitor analysis. The goal is again to let the information gained influence the strategy that being made. The analysis should focus on the identification of threats, opportunities, or strategic uncertainties.

First the current competitor needs to be identified. This can be done from the perspective of the customer. Between which competitor products the customer chooses, which are the substitutes of the product? Or the product use association, then there is asked for what will the customer use the product, which other competitors offer a product which can be utilized for the same “ use” .

An other way to identify the competitor is by creating strategic groups.

The competitor can be placed in strategic groups by:

• similar competitive strategies
• similar characteristics; size
• similar assets and competencies; R&D, brand associations, logistics capability

When a company is in one group switching to an other is hard because of mobility barriers. These barriers can be both entry as exit barriers. The barriers can be overcome by investing in assets or competencies but this is difficult and costly because their links with existing channels.

Strategic groups save time and makes the information more manageable. Potential future profitability can be evaluated for each strategic group and so the attractiveness can be determined.

Competition can come from:

Product expansion, market expansion, backward integration (buy the manufacturer), forward integration (become also the retailer), export assets or competencies (when a small company is bought by an other and the weaknesses are reduced), or the last retaliatory or defensive strategies.

Understanding competitors

If you know the strengths and weaknesses of the competitor you can think of opportunities and threats which result from that. When selecting alternatives, it's possible to predict the reaction of key competitors when knowing their strategy.

Overall competitors actions are influenced by 8 elements:

1. Objectives and commitment
2. Current and past strategies
3. Organization and culture
4. Cost structure and exit barriers
5. Strengths and weaknesses
6. Size, growth and profitability
7. Image and positioning

When you know the competitor strengths and weakness, you can find a way to neutralize this strength and exploit its weakness.

To analyze the strengths and weaknesses it is necessary to identify the assets and competencies that are relevant.

This can be done by asking four questions

1. Which companies have been successful over time, which assets and competencies have stimulated their success?
2. What are the key  motivations for the customer to buy the production?
3. What are the value-added parts of the product/ service? What are large costs components?
4. Which of the components from the value chain can deliver a  competitive advantage?

 Areas in which a firm can have strength or weaknesses are:

• R&D
• Manufacturing
• Finance
• Management
• Marketing
• Customer base

To generate even more information about competitors professional journals, suppliers, share holders and market research can be possible options.

Chapter E

The market analysis builds on customer and competitor analyses again with the goal to create the optimal strategy.

The market attractiveness for future participants depends on the profits and the resulting long term return on investment.

A second reason for market analysis is to understand the dynamics of the market. Identifying emerging sub markets, key success factors, trends, threats, opportunities, and strategic uncertainties help to form the strategy.

Market size

The analysis starts with the amount of total sales in the market and sub market. Then potential markets can be analyzed and measured. Some market have ghost potential, these markets never mature or materialized because of lack of buying power in the market.

Small markets shouldn't be forgotten. Profits can be made and small markets can grow into large market and the companies who were present from the start have the first mover advantage.

Market growth

Strategies should fit with the market. When a market is growing there are opportunities because of the increase in demand sales can grow fast. Usually investments are made exploit these opportunities. It doesn't mean that when markets are declining investments should stop. It can be an opportunity too because competitors leave the market.

Sales are a good indicator of growth. The number of sales usually develops the same way in a diagram over time. First sales increase up to maturity and in the end sales will decline. Determining these turning points can be very useful to predict market growth.

Other indicators in market growth can be:

• Demographic data: birth rates (indicator for demand for education, health, retirement)
• Sales of related equipment (the number of sales in printers can forecast the demand for refills for the same printer)

When the market matures and sales become zero and decline the key success factors change.

Indicators to see this turning point are:

Price pressure caused by overcapacity, buyer sophistication and knowledge, substitute products, Saturation, less first-time buyers, no growth sources, customer disinterest.

Market and sub market profitability analysis

Five factors influence profitability:

1. substitute products that customers will buy if the current chosen product prices get to high.
2. the intensity of competition
3. possible entrants in the market when profits are high
4. the bargaining power of customers
5. the bargaining power of suppliers

Cost structure

Understanding the cost structure on the market can give insights in popularity and future popularity of your business by the customer. The customer wants to keep for instance transportation costs low, you can attain the advantage of moving close to your customer to deliver with low transportation costs.

Distribution

To analyze distribution systems and its changes helps to understand the market and its key success factors. Three questions can be asked:

1. What are alternative distribution channels?
2. What are the developments in the distribution systems?
3. Who has the power in the channel and how will the power shift?

Trends

Trends are about what customers drive to by the product and ask for differentiated strategies to drive growth. A trend lasts on average 10 years. Fads are just temporarily, people talk more than they buy and it's more about the product it self. It's also hard to recover investments.

To detect a real trend ask:

• What is driving it? When demographic forces drive it it's a trend when it's fashion it's a fad.
• How accessible is the main stream? Is their need for major change in habits?
• Is it broadly based? Does it find expressions in the industry?

Key success factors

Key success factors (KSFs) are the assets and competences which make competing successfully possible. To come up with a strategy future KSFs play an important role.

There are two types.

• Strategic necessities, which don't directly provide an advantage over competitors but are necessary to operate in the market
• Strategic advantages, the firm excels in them and this provides an advantage over other firms

High growth markets

High growth markets can be risky.

Technology changes fast, KSFs need to be adjusted, competition can introduce better or lower priced products and price instability.

Furthermore there is a risk of over commitment  because everyone wants to be present in  the growth market. This is even more likely when the growth doesn't measure up against the expectations of the growth.

Some conditions that a market becomes over crowded are:

• the high growth rate is very visible
• high expectations of growth in early market stages
• no attention for threats in the market and for the high grow
• few entry barriers
• competition isn't visible

 So sometimes it's better to wait and see how the market develops and which technology will be dominant.

All the topics discussed provide information for the market analysis. This can be used to come up with the best strategy: which market to enter and how to enter.

Chapter F

The last part of the external analysis is the environmental analysis. Environmental changes can influence strategies direct or indirect. The analysis should investigate the trend and what the influence will be on the strategy.

The output of the external analysis; strategic uncertainties, should then be used to formulate a strategy.

To formulate strategy two tools/ steps are in place:

• The impact analysis: the assessment of the importance of the strategic uncertainties.
• The scenario analysis: how to create and use future scenarios to create and evaluate future strategy.

The environmental analysis can be divided into the following dimensions:

• Technology
• Economics
• Government
• Demographics
• Environment
• Culture
• General external analysis questions
• Scenarios

Technology

All technological developments which happen outside the product market should be evaluated in the environmental analysis under technology. The developments might create threats or opportunities and have implications on the strategy.

There is a difference between sustaining technologies and disruptive innovations.

Sustainable innovations cause that companies sell better products for more money to their best customers. The companies with the biggest market share (incumbents) are not always the first companies who introduce sustainable innovations but they usually win because of their resources (brand name) and motivations.

Disruptive innovations (it's a kind of product or service) are attractive to customers who are unattractive to incumbents  because they are not a high profit margin or high volume customer segment.

The disruptive innovations can follow two routes:

1. focus on customers who are currently not buying the product because it's too expensive and complex.
2. focus on customers who are currently not buying because they are over served. They don't want all the extra capabilities for a higher price/

Disruptive innovations are basis for an attractive growth. The large incumbent firms usually don't participate so not intensive competition.

New technologies also won't disappear when there is a new invention which can do the same task.

Usually the old technology will coexist beside the new invention or disappear slowly. Furthermore, it's never sure if new technologies are usually expensive at first, it's not sure if they stay for good in the market. With new technologies it's sometimes wise to first enter a sub-market.

Economics

Inflation and general economic health measured by inflation and economic growth have big influences on companies and thus influences strategy a lot.

When the economy is booming investment should already have been made to keep up with the demand. It's also interesting to not only look at the general economy but beyond that to a particular industry.

Currency fluctuations should be taken into account for company who trade with countries with a different currency. 

Governmental

Addition or the removal of rules and regulations can pose major strategic threats and opportunities. The changes are also difficult to forecast. A wise strategy is one that is diversified and flexible so that a political decision will not ruin the entire company.

Demographics

Demographics can have important influences on the market and they can be predicted.

Influential demographic variables are age, income, education and location.

Because of the aging population a large group of consumers with much resources and time to use them emerges. This can create profitable markets.

Ethnic populations are rising rapid in Europe too. This is not only an interesting consumer group but also a interesting work force.

Environment

Organizations are increasingly including the environment into the formation of  a strategy. The environment influences the company in three ways:

1. Customers are less willing to buy a brand that is harmful to the environment
2. The rising costs of energy increases costs of energy-intensive companies
3. In future carbon emissions might be taxed

Culture

Cultural trend can also present threat and opportunities.

Some trends that will probably emerge in the future are:

• Cocooning, consumers shield themselves from the scary outside world (online shopping, home security systems
• Fantasy adventure, consumers crave low-risk, excitement and an escape from stress ( adventures travels, theme restaurants)
• Pleasure revenge, consumers are rebelling (consume alcohol, smoke cigarettes)
• Small indulgences, stressed people rewarding themselves with affordable luxuries (I-phone, designer shoes)
• Down-aging, consumers have a youth ideal and are trying to counterbalance their adult life (outdoor adventures, anti-aging cream)
• Being alive, consumers value the quality of life and wellness (a wellness centrum, fruit juice)
• 99 lives, consumers have busy lives  (faster prepared food, dog walker, e-commerce)

Strategic uncertainty

During the external analysis lots of strategic uncertainties become clear. These uncertainties should be grouped. By using the impact analysis the importance of each group can be evaluated and priorities can be given.

Impact analysis

The impact analysis makes sure the strategic uncertainties are reduced and the most important uncertainties will be analyzed.

• The impact of a strategic uncertainty is related to
  • the number of businesses involved
  • the importance of the businesses involved
  • to which extent it involves trends or events that impact existing or emerging businesses
• The immediacy of a strategic uncertainty is related to:
  • The time frame of the trends or events
  • The chance that the events or trends will occur
  • The reaction time that is expected to be available, compared with the time to come up with and implement a new strategy

The effect of strategic uncertainties can be examined by looking at the companies sales, profits, or costs. However for some growth businesses the number of sales or profits doesn't yet represent the firm.

When there is low probability of occurrence of the uncertainty or the uncertainty is far a way no asset demanding analysis needs to be started (yet).

When the time is insufficient to analyze the emerging trend it is better to anticipate immediately so that future strategies can start sooner.

Scenario analysis

Scenario is an alternative for investing in information to reduce uncertainty, which is expensive. A scenario analysis creates a number of scenarios resembling the market place or market context and assesses their likelihood and impact. The analysis is useful to deal with complex situations.

There are two types of scenario analysis. The first type is the strategy-developing scenario. The goal is to get an insight in the future competitive context and to use this information to evaluate existing strategies and come up with new ones.

The second type of scenario is the decision driven scenario. A strategy is proposed and tested in the different contexts of the scenarios. The scenario analysis is divided into three parts. First the creation of the scenarios (around 3). Then relate the created scenarios to the current strategies and future strategies. Finally, estimate the probability of the scenarios.

Chapter G

Strategy development isn't only based on external analysis but also on the objectives, strengths, weaknesses and capabilities of the firm. Therefore the internal analysis. The Goal of the internal analysis is to understand the business in depth. It is similar to the competitor analysis but the internal analysis focuses more on performance and goes much deeper. It can do this better because internally much more information is available. After the internal analysis an responsive strategy can be developed.

Financial performance

The internal analysis starts with the financial performance. An advantage of financial performance is that it's objective and can easily be measured. Therefore it's a good indicator of success or no success of past strategies, due to whatever circumstances.

Sales and market share

A good measure of the opinion of a customer about the product is the number of sales and the market share. When customers are happy about the product and whole value proposition then sales will go up.

It can be a slightly delayed view because a customer first has to find out that he doesn't like the product before he decides not to purchase it. Sometimes sales can also give a temporary view after a short term promotion or a temporary decline in price. Not only by the selling company but also by competitors.

Profitability

Measures of profitability can help identify which strategy works best. There are different measures and ratios of profitability such as margins, profits and costs. Return on assets (ROA) can be used to

ROA= profits/sales *sales/ assets

the first part is the profit margin which can be influenced by costs and sales prices. The second part is the asset turnover which can be influenced by the quantity of inventory and assets.

Shareholder value analysis

To value the performance the shareholder value analysis can be used too. It is only interesting for in an investor to invest when the return meets or gives higher than the cost of capital. If not it would have been more profitable for the investor to invest somewhere else. The shareholder value can increase by:

• decreasing costs and therefore increasing profit
• invest in high profit products (that's what strategy is about)
• reduce cost of capital (when interests payed is high issue more shares, when dividends are high issue more debt)
• use less capital by decreasing assets employed or inventory

The risk of the shareholder value analysis is that the focus will be to much on short term return because shareholders signal this as more positive future returns. But for companies it's often even more important to be long term profitable.

Shareholder value concepts that are successful are:

• give priority to shareholder value instead of other aspirations such as growth
• train the whole organization in how to achieve shareholders value
• reduce overhead by strategic planning and a current accounting system
• identify drivers behind shareholders value

1. Value creating divestments
2. decision making was decentralized to business units
3. the investment period became longer
4. the cost of capital became more clear this lead to better strategic decisions

Performance beyond profitability

There is lots of temptation the invest in short term project than in the development of new products. It is important to find performance measures that reflect long-term capabilities to work successfully to evaluate investments and choose between long run and short run.

Customer satisfaction/ brand loyalty

Sales and market share are indicators but could portray a wrong or delayed image because of market fluctuations and actions of competitors.

A good way to measure customer satisfaction is

• to first identify why customers are leaving; do exit interviews with customers who leave the brand
• to investigate the number of customers that truly likes the brand because there is a big difference between liking and not yet leaving a company
• to measure the change in customer satisfaction relative to the customer satisfaction of competitors over time. Over time is important to measure changes and analyze strategies used.

Quality

The quality of a product or service with its components should be compared with the competitors product and with customer expectations. There can be looked at performance, reliability, waiting time or originality. 

Firm/Brand association

The quality perceived by the customer doesn't always real quality. But it's important to know. Analyzing the differences over time is a good measure of performance over the last period.

Relative Cost

Relative cost can be essential when deciding to use a more expensive but higher quality component or not. When the additional costs of the component are relatively lower than the extra value created than the higher costs for the component can be justified. If the extra value created is lower than the premium paid for the component then it can't be justified.

New product activity

Performance in introducing products and R&D can be measured in the number of new product concepts, patents awarded or products introduced in the market.

Human resource performance

Most strategies are long term. Therefore it's important to have people working for a longer period of time for the company.

So an organization should not only be evaluated by how well it attracts people to the company but also how well they can keep the employees.

Strategic options

Another part of the internal analysis are Strategic options. This is done by choosing determinants which are likely to bring success.
Strategies from the past enable firms to make new strategies. Some strategies work out in a different way (it can still be successful). It is important to evaluate past strategies and learn from them for the future.

Strategic problems requires firms to make strategic moves to rectify a problem. A strategic problem is not the same as a weakness or liability. Then it is the absence of an asset and the business copes over time by adjusting strategies. With a strategic problem (a car that roles over quick) some extra equipment can be added to the car.

The internal organization influences strengths and weaknesses. This has an effect on the feasibility of some strategies. Some strategies don't fit the organization, so it can be hard or costly to implement.

In the end strategies to invest depend on the financial capacity of the firm. A financial analysis to determine probable, actual and potential sources give us an image of the ability to invest.

A cash analysis calculates the cash return available from all operations. When there isn't enough money to start a new operation new shares can be issued or bonds sold.

To analyze strategic options there has to be a clear view of all financial possibilities.

From analysis to strategy

When knowing the strengths and weaknesses they should be related to the strengths and weaknesses of competitors to come up with the best strategy.

The types of assessment should be done when making strategic decisions:

1. Analyze organizational strengths and weaknesses
2. Evaluate competitors strengths and weaknesses
3. Analyze the competitive context, market, customer needs and environment.

The final strategy exploits the strengths of the business, the weaknesses of the competitor and neutralizes the weaknesses of the company and the strengths of the competitor.

Business portfolio analysis

This analysis gives a structured way to evaluate business units in two dimensions. The first dimension looks at the attractiveness of the market involved, the second dimension looks at the position of the firm in the targeted market.

After the analysis the resource allocation question can be answered to invest in the most attractive revenue creating areas.

The market attraction-business position matrix is also part of the portfolio analysis. The horizontal axis represents the market attractiveness which can be examined through using Porters 5 forces. Growth, size, customer satisfaction, competition, price levels, profitability, technology, governmental regulations, sensitivity to economic trends are 9 factor that influence market attractiveness.

The vertical axis portrays the business position and its ability to compete. Which is based on the internal analysis and the relative advantages in resources and competencies. Organization growth, share by segment, customer loyalty, margins, distribution, technology skills, patents, marketing, flexibility are11 factors that influence the business position.

When both the market is highly attractive and there is ability to compete then investments should be made. When this is lower investments should be held constant or even divest when the ability to compete is low.

Four types of alternative investment strategies are named:

• Invest to hold, just invest to maintain current operations
• Invest to penetrate. Try to gain market share by investment
• Invest to rebuild. Try to regain a previously hold position in the market
• Selective investment. Select some segments in which market share will be gained and let in other markets your position for what it is.
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Chapter H

The previous chapters focused on the analysis now the focus is on the development of the actual business strategy. One goal is to provide a wide scope of available strategic alternatives in order to increase chance that the best choices will be considered. A poor decision among superior alternatives is preferable to a good decision among inferior alternatives.

The key in successful strategies is the creation of a sustainable competitive advantage (SCA). Creating and levering synergy is one of the options for creating a SCA.

Two routes can be taken for developing the best strategy: strategic vision and strategic opportunism.

The sustainable competitive advantages

A sustainable competitive advantage gives an advantage over existing and future competitors such as low cost, market power and logistical efficiencies. A SCA has to be meaningful and sustainable. SCAs are usually based on the functional strategies and programs; how to compete. Furthermore SCAs will involve other aspects of the business strategy; the value proposition, selection of the market and assets and competencies.

The basis of the strategy are the assets and competencies because they are difficult to copy. An effective SCA has to be visible for the customer and should improve the value proposition. Promotion is important to make the SCA know by the consumer. The choice of the target market and the key motivations of the target market should match the assets and competencies. The competitors ands strategic group should be evaluated. The goal is to come up with a strategy that will match with the competitors weak points in relevant areas.

SCAs and key success factors are both assets and competencies. But they differ in the sense that a SCA is necessary for a continuing advantage. A key success factor is  just necessary to compete.

A strategy is based on more SCAs to achieve more benefits. So it's important to have more assets and competencies which stand out.

A strategic option is a value proposition for a specific market with supporting assets and competencies and functional area strategies. A strategic options are the fundamentals of a business strategy. A business strategy can be viewed as a set of integrated strategic options. Examples of strategic options are:

Quality, product attribute, product design, product line breadth, corporate social responsibility, brand familiarity, customer intimacy, value, focus, innovation, being global.

Synergy

Synergy between business units can provide competitive advantages which are sustainable and are based on the firm unique characteristics. Synergy means that the whole is more than the sum of the business units.

As a result of synergy firms have:

• reduced investment
• deliver higher customer value so increased sales
• lower operating costs

Synergy is usually caused by a similarity between two businesses

• customers or customer applications
• distribution channels and sales force
• brand name or image
• facilities used for manufacturing
• R&D
• staff and operating systems
• marketing and marketing R&D

Capabilities based competition

Capabilities based competition suggest that to outperform competition it's not always about products and markets but investments in building a process that is better than the process of the competition. A good process that can be applied across businesses can lead to a sustainable advantage.

Therefore, the most important processes within the organization should be identified and specified how they should be measured. Performance should be targeted and then be evaluated on how to achieve superior customer value and a competitive advantage. Finally cross functional teams should be assigned to implement the formed strategies.

Strategic visions or strategic options

A strategic vision is long term based vision which is expected to be successful over a long time period. Strategic opportunism makes sense today, could be implemented tomorrow and are short term. The best strategy depends on the people, culture and organization.

Strategic vision

Some characteristics of a firm which can manage a strategic vision successfully are:

• A clear future strategy
• Buy-in throughout the organization, the whole organization should belief in the correctness of the strategy
• firms should have assets, competencies and resources to implement the strategy in place
• patience, willingness to stick to a strategy

A strategic vision provides the purpose for the organization. Investments need to be determined today while returns can be years away. To manage the strategic vision a management style with a focus on future and with a long run view is necessary. 

A scenario analysis and technological trends and predictions should be part of the development phase of the strategic vision.

It is most efficient for the organization to have a centralized top down structure. A charismatic leader is helpful to convince the whole company that the vision is the best possible.

The risk of following a strategic vision might be that the vision is wrong and that it will not be fully implemented because of stubbornness.

Three risks stand out:

1. the firm isn't able to implement the strategies, this can happen because of implementation barriers
2. because of faulty assumptions about the future, the vision can be wrong
3. a paradigm shift can happen because of development in technology and new operating models

Stubbornness most often present by successful companies causes three things:

1. They reinforce the old vision instead of creating a new-paradigm business. They reduce costs and improve service but they don't come up with something new. Therefore, they don't see the fundamental changes in the market.
2. The new paradigm requires a different organization, structure or culture. Because of the strong company culture the company is not able to change.
3. The success of a new-paradigm can cause that the old vision will be forgotten. Even though there is the chance that the new-paradigm won't be accepted in the market.

Strategic opportunism

Strategic opportunism focuses on today because the future is too dynamic and uncertain that it's not possible to focus on the future.

Strategic opportunism has some advantages:

1. the risk of missing opportunities is reduced
2. the vitality of the business is stimulated. Business units like marketing and R&D will often be more decentralized which can increase a flow of new products
3. economies of scale, more product lines with the same assets and competencies

Strategic drift

With strategic opportunism strategic drift can happen. This because investments decisions are made indirect to react on opportunities in the market instead of them being made because of the vision of the company.

The company can get off track and realize late that it doesn't have the right asset and competencies anymore to have synergy.

Three examples to end up in a strategic drift are:

• when a short term change in the market is interpreted as a long term change. Strategies will be changed but when the short term trend goes away an unfit strategy is left behind
• chances for direct profit can be viewed as strategic but they don't necessarily need to be
• expected synergy doesn't occur because of implementation problems such as cultural changes

Strategic drift does not only causes assets and competencies to mismatch the company but does not support structured business with a clear vision.

Many companies want a strategic vision but in the mean time they use strategic opportunism from the core business and manage their way up to a strategic vision. The combination of both can work but it brings some risks.

A strategic vision needs consistency to make investments and it's sensitive to the temptation of direct profit which is usually an issue for strategic opportunism. With combining the two some organizational problems arise too. Usually only on of the two fits the system, culture, people or structure.  

A dynamic vision

An attractive strategy is to have a dynamic vision that can change in anticipation of emerging paradigm shifts. It's difficult to achieve this goal but if it's achieved it can have large advantages.

To change a vision to different routes can be taken: Strategic intent or strategic flexibility:

• Strategic intent
  • Companies have a constant drive to win, this in every unit of the business
  • Constant effort to identify and develop new SCAs or to improve those that exist.
  • It requires real innovation and willingness to do things differently

• Strategic flexibility
  • The business should be ready when the change and the accompanying opportunities arise
  • Participation in multiple product-markets or technologies means that the organization is ready to participate in different areas
  • Investing in underused assets provides strategic flexibility
  • An organizational culture that supports change will create strategic flexibility

Chapter I

Business strategies are made according to strategic options. This chapter will focus on strategic options, especially the value proposition for the product market supported by the assets and competencies and functional strategies and programs.

Common strategic options include quality, brand equity, focus, value, innovation, customer relationships, or being global. Each option should be adjusted to the environment and should offer a clear value proposition to customers and be supported by assets and competencies and functional strategies and programs.

Business strategy challenges

The options that will form the strategy should challenged with respect to whether the option contains a real and perceived value proposition and whether it is relevant, sustainable and feasible. Not only the potential impact should be evaluated but also its limitations and feasibility.

• Value proposition

A successful business strategy should add value for the customer. Value is measured better if it's determined from the perspective of the customer instead from the perspective of the producer.

• Perceived value proposition

The value proposition should be recognized and perceived as worthwhile by the customers. The perceived value problem is particularly present if the customer is not capable of judging the added value easily.

• Relevant strategy

The product or service which a company offers should be considered relevant to the markets in which the company wants to compete. Even if the value proposition is good, when the product is not relevant there is no need for it in the market

• Sustainable strategy

It's hard to stay in a market (to be sustainable) because most points of differentiation are easily copied. Three ways to be sustainable are:

• to own an important product dimension in a market
• continuous investments and constant product improvement
• over investment in a value-added activity can pay of in the long run by discouraging competitors

• Feasible strategy

The strategy should be possible to execute effectively. The strategy may require assets and capabilities that are currently inadequate or do not exist. Programmes to develop or upgrade them may turn out to be unrealistic.

Strategic options

There are an infinite number of business strategies. In the book seven will be explained:

Quality, brand equity, value, focus, innovation, customer relationships and being global. Developing a good strategy is only possible when good options are considered.

Product attribute

A product or service attribute / feature is central to the purchase and use an offering. One strategic option is to dominate or even own that attribute. The attribute needs to be protected against competitors. A patent is a good way to do that.

An other way to owning an attribute over time is to brand it and then actively manage that brand and its promise.

Product design

An offering can appeal to a persons taste and provide self-expressive and functional benefits. It can be a strategy to offer the expression of personal taste and style.

Pursuing a design option requires the firm to really have a passion for design and to have a creative team. If not an alliance with a design firm can be made. If the firm manages the alliance correctly and establishes exclusive ownership of the output outsourcing can succeed.

Product breath

A attractive value proposition can be based on product-line breadth. A wide range of products can be offered under one roof which can create good value for the customer.

In business to business market, many firms are trying to move from supplying just components to being system solution players. This because a system solution player is more likely to develop a customer relationship. An other need is to capture greater margins. Simply bundling products is not enough to add customer value and increase the profit margin.

Corporate social responsibility (CSR)

Supporting world causes will according to some research increase customer value, sales and can even increase share value and higher stock return. A good corporate social responsibility should be focused, meaningful, consistent over time and hopefully branded. But there are challenges pursuing a CSR strategy. Unreasonable expectations shouldn't be created and because of the difficulty of the issues supported a firm can even though they try to improve situations and still be criticized.

Quality

A quality strategy means that a brand will be perceived as superior to other brands in its reference set. The company does not only need to be superior in the product itself can also be superior in the services of the product attributes it delivers. This superiority usually goes hand in hand with a premium price.

An indicator of quality is that it matters to the customers and that it drives other more specific dimensions of performance.

Negative experiences stand out more than positive experiences so avoiding  negative experiences is almost more important than creating positive ones.

Perceptions of quality are also driven by these three factors:

• the experience shouldn't be frustrating
• the performance of customer support center is crucial (this will also create a customer relationship)
• a continuous stream of novel features and upgrades

A trend is to focus more on the customers process it experiences and less on the output of the experience. Understanding what quality exactly is in a given segment is critical in creating a quality program and monitoring its effectiveness. But then the risk occurs of focusing at one thing and then forgetting all the other aspects of customer satisfaction.

The financial side of the story tells that higher perceived quality has a positive influence on ROI (return on investment). This was directly influenced by the reduced costs of maintaining customers. Indirectly influenced by the fact that the customer base was larger and a higher price could be charged.

The impact on stock return was almost the same as on ROI. The stock return increased after increased perceived quality.

Quality management

To pursue a quality strategic options the business must distinguish itself with respect to delivering quality to the customers. A quality focused management system which is comprehensive, integrative and supported within the system is necessary. It should include the following tools:

• commitment of the management to quality
• cross-functional teams should initiate and implement improvements project
• An orientation of quality improvement on an ongoing basis
• a set of systems; suggestions systems, measurement systems, and recognition systems
• a focus on the cause of customer complaints and areas of dissatisfaction

Signals to customers of quality

It is hard for customers to make judgments about the quality of a product. The fit and finish dimension argues that when a product does not have a good finish it will lack in other important attributes too.

For services it can be even harder to judge the quality. Customers then look at waiting time or personnel appearance.

The brand equity option

Brand equity depends on the set of brand assets and liabilities linked to a brand, its name and symbol that added to or subtracted from the value provided by a product or service to the customers.

brand awareness

The strength of a brands presence in the memory of the brands customer defines brand awareness. Brand awareness creates a reason for the customer to buy the brand as well as that it gives a basis for a good customer relationship.

Marketers usually consider two main measures of awareness:

• prompted awareness, refers to consumers' ability to recognize the name of a brand from a list of brand names
• unprompted, refers to the customers ability to recall the brand name when asked to identify a brand  in a category

Brands with high awareness tend to be liked and so purchased more often. It is hard as a competitor to influence that good brand awareness.

New promotional tools are popular to create brand awareness such as: promotions, publicity, sampling, etc (buzz marketing). Sponsorship is also an important tool in awareness building.

Perceived quality

Quality perceptions affect customer behavior. It provides for many people a strong reason the buy a product. Quality doesn't always mean it's the absolute best but the best, it can also be the best in it's category.

Around quality a whole community of customer can be formed. They can be given the opportunities to review product and discuss trends.

Quality is a basis for many companies to differentiate or position in the market. For a brand which has high quality perceptions it's more easy to diversify and release new products. The product will sooner have a customer base.

Brand associations

Brand associations are simply the associations the customer makes with the brand. Functional attributes can be related to a brand such as: safety, design, brand symbols, brand terms and usage situations.

Functional benefits such as: emotional. youthfulness, tribalism and self-expressive benefits.

Brand loyalty

Brand loyalty is a measure of the commitment a consumer has to reburying the brand in the future. Important is brand loyalty in promotion. Loyal customer are a good source of free promotion by word-of-mouth communication.

Brand loyalty is also important to gain support from retailers. When you have a loyal customer base it gives assurance of turnover. This drives the willingness to put the product on the shelves.

Financial brand equity benefits

Brands contribute to the value of the firm in four ways:

• Accelerating cash flows, new product are accepted quicker in the market

• Increasing cash flow, higher prices can be asked
• Adding to the long term value of the businesses, strong brands have a longer life expectancy
• Lowering the costs of capital, the business is safer to invest in so lower risk premium

Maintaining the brand

Kevin Keller developed techniques how to maintain the brand equity once it is created.

• The brand should deliver benefits the customer truly desires
• The brand stays relevant
• The pricing strategy is based on customers perceptions of value
• The brand is properly positioned
• The brand is consistent
• The brand is active in building equity
• Managers understand what the brand means to customers
• The brand is given proper financial support and is sustained over the long run

Chapter J

This chapter provides details on widely used successful strategic options, such as the value, focus , innovation, and customer relationship options. For each factor, though positioning is important, the strategy needs more: commitment, ongoing investment, and programmatic management over time. The strategy needs to be supported by the culture and values of the firm.

The value option

Almost every market is in some way motivated by price. Even in a high end market there can be extreme price differences between brands. The price segment will usually be a significant one, irrespective of the market share it comprises. Since even healthy markets can evolve into situations where price grows in importance, ignoring the value segment can be risky. Therefore, participating may be necessary in order to achieve and maintain scale economies.

To compete successfully from the value perspective it is necessary to:

• Have a cost benefit
• Restrain the quality perception from eroding to the point that the offering is considered to be unacceptable
• Compose a cost culture within the organization

Creating a cost benefit

Creating cost advantages or at least avoiding any cost disadvantages can be established in several ways. Combining multiple approaches has proved to be a successful strategy, containing no-frills products/services, operational efficiency, scale economies, and the experience curve.

No-frills products/services

Deleting any supplements from your product or service is one of the easiest and fastest methods to reduce costs. In such cases, the largest threats come from competitors who might take over your share of the market by offering just the opposite of you no-frills products or services.

Operational efficiency

Operational efficiency can be found in government subsidies, process innovation, distribution efficiency, access to target markets, outsourcing competencies, and the management of overheads.  The most effective way of eliminating high operational costs is by discharging channel members.

A possibility for creating a continuing competitive advantage might be through everyday improvement  in efficiency. This might, however, not be very straightforward since incorporating changes can be difficult because of organizational inertia.

Economies of scale

The scale effect increases efficiencies associated with size. Fixed costs such as advertising, sales force overheads, R&D and staff work can be spread over more units.

Moreover, a larger operation can support specialized assets and activities dedicated to a firm needs (market research). When a business is too small to support needed assets or operations it competitive advantage will be effected very  negatively.

The experience curve

The experience cure states that when a firm gains experience in building a product the costs in real terms will decline at a predictable rate.

Several things complicate the curve. Multiple products with overlapping experience curves can complicate the situation. A late entry can often gain the same advantage by copying the most recent design. Furthermore, price can drop significantly so smaller profit margins.

A key to strategy development is recognizing when the experience curve model will apply. When an industry is mature, the experience curve becomes flat and doubling the firms cumulative experience makes the experience curve less useful.

Perceived value

The core is creating a perceived price point that will deliver value. In this context he way that customers process price information is important. Managing prices is tricky, a low price is for some an indicator of low quality.

An other way is setting the price not according to the perceived value but according to the product category and the price of competitors. 

Low-cost culture

A successful low cost strategy is usually multifaceted and supported by a cost-oriented culture. Cost reduction must be stressed over all fronts such as: performance measurement, rewards, systems and culture. There are many examples of companies that went in to a low cost strategy but failed because the culture did not the low-cost strategy.

Focus strategy

Concentrating resources and energy

A focus strategy prevents distraction or dilution so it is more likely that a sustainable advantage will be achieved. Such as: the best assets, competencies and functional strategies that match the market needs. It also helps the product to be technical superior.

When the products focus on a clear customer group the product tends to be more exciting, innovative and high quality.

But the creation of a sustainable competitive advantage by using focus strategy must be balanced with the limits of the intentional business (for instance not a to narrow segment).

Competing with limited resources

When there are limited resources available a focus strategy can help create impact needed to still be able to compete effectively. The focus on a niche might be less profitable but the competition might also be less intense.

Supporting a strategic position

A focus strategy will usually result in a narrow product line, segment or geographic area. This is a good positioning tool and will provide a clear identity.

This specific identity and positioning can result in a value proposition for customers that supports the strategic positioning. A focused brand usually is more credible and the customers are more loyal.

Innovation and value proposition

Innovation offers value to customers along several dimensions. It does not only provide an improved product, feature or attribute but also increases confidence in purchasing the product and satisfaction in using it.

Being an innovator also creates the first mover advantage. Competitors do not only need to catch up. Some times products need long term commitment or inconvenience of change give the first mover the advantage. Only a significant better product can then dislocate the first mover.

Customer relationship option

Management of customer relationships is becoming more influenced by technological development and the ambition to threat customers as individuals.

The main point of customer relationship management (CRM) is that higher profits can be earned when between firms and customers lasting and mutually beneficial relationships can be created.

Five steps can be identified in the CRM process:

1. Identify customers and create a database. Create an effective database that integrates and maintains information of actual and potential customers into a single system.
2. Segment customers. Create in the database segments based on profitability, and other bases appropriate to their business.
3. Interact and build relations with customers. Build relationships with the customers that will be targeted. With the goal of creating the benefits of reduced defection and improved customer profitability or extending the life of customer relationships. There are a number of ways to do this:
   • customer service
   • customization
   • community creation, deepening the relationship between the brand and the customer can decrease defection to competitors.
   • loyalty programs, customers are rewarded for repurchase.
4. Establish metrics. By calculating the lifetime customer value (LTCV) and the customer share, activities and achievements can be put in to perspective.
5. Privacy concerns, bad privacy policies can reduce the confidence that customers have in the company or brand.

Four things not to do when CRM are:

1. Implementing CRM before creating a customer strategy. CRM is just a tool that supports a strategy by creating communication with customers.
2. Installing CRM technology before creating a customer-focused organization. CRM needs a good organizational and cultural support.
3. Assuming more CRM technology is better.
4. Stalking customers

Chapter K

Many firms develop global strategies to compete internationally. A global strategy represents a worldwide perspective in which is focused on the worldwide interrelationships between country markets to create synergies, economies of scale, strategic flexibility and opportunities to leverage insights, programs and production economies.

Even though a global strategy might not be chosen making a external analysis is useful. Knowledge about how competitors do things, markets and trends from other countries helps to identify important opportunities, threats and strategic opportunities.

A global strategy requires to address the following issues:

• What countries should be entered and in what sequence?
• Should the firm become global by entering new countries?
• How should the brand be globally managed
• To what extent should the product be standardized across countries?
• To what extent should the marketing (brand position, advertising and pricing) be standardized across countries?
• To what extent should strategic alliances be used to enter new countries?

Motivations for a global strategy

Motivations for a global strategy are:

• Obtaining scale economies, this can occur from product standardization, standardization of marketing, operations, manufacturing programs and when the average costs of R&D go down because the costs can be divided over over countries. 
• Create global brand associations, a global presence automatically symbolizes strength, staying power and the ability to generate competitive products.
• Access to low-cost labor or materials, a cost reduction that results from access to the cheaper resources in many countries.
• Cross-subsidization, the utilization of resources earned in one part of the world to fight competition in another. This might harm the position in the home market even though the firm has a large domestic market share.
• Access to national investment incentives, access to a cost advantage might occur because of national investment incentives that countries use to develop industry or depressed areas.
• dodge trade barriers, assembly plants can be strategically located to overcome entry barriers. To host the final-assembly plants in the host country one example.
• access to strategically important markets, it can be useful to be present in a large market or trend setting market even though being in that market is not profitable.

Therefore indicators that strategies should be global are:

• product standardization provides opportunities for economies of scale
• costs can be reduced by locating value added activities in different countries
• there is the possibility that profit from one country can be used to increase market share in an other
• trade barriers inhibit access to worthwhile markets
•  a global name can be an advantage
• a brand position will work across countries
• local markets have no need for product for which a local operation would be necessary

What country to enter

Going abroad is risky. Home markets might be harmed. Therefore going abroad needs to be successful. Market selection is therefore important and that starts with analyzing these dimensions:

• Is the market attractive in terms of size, trends and growth?
• How intense in the competition?
• Can the firm add value to the market, a differentiated product or a relevant customer benefit
• can a firm implement its business model in the country or do operational or cultural barriers exist
• Can a large group of customers be reached. The because to large geographic, administrative distance or cultural distance.

To enter a specific region can be best done in sequences. It reduces commitment, increases the possibility to learn from past experiences and less demand for resources at the same time.

Standardization or customization

A standardized brand can achieve significant economies of scale and is easier to manage. But the key is to find a position that will work in all markets.

A standardization can come from a centralized team to create a global product. But an other strategy is to identify the leading country. To tailor the product to that country and then export it to other markets.

Global leadership not standardized brands

A global brand is not always most effective. This for the following reasons:

• different market share positions, a product can be in one market a market leader in the other market not, this demands a different strategy.
• different brand images
• different brand positions
• different customer motivations
• names or symbols might not be available in or appropriate everywhere

Global brand management

A global brand management system should address four challenges:

• Developing a communication system to facilitate the sharing of insights and experiences
  • Create systems where involved managers can exchange experiences
• Creating a global brand planning system
  • when developing strategies managers all through the company should use the same planning template and vocabulary
• Form an organizational structure that will resist the 'I am different' syndrome
  • Global synergy is usually prohibited by local differences supported by a decentralized structure and culture. A global brand manager or team should be in charge. The brand manager should have in-depth knowledge of the local markets, understand the product or service and third the manager should have real authority and resources. He should also have the ability to participate in the development of country-specific business strategies.

An extreme is to use the central command-and-control model. External analysis an strategy are centralized and the country managers should only implement. This is an extreme model.

The other extreme is the anarchy model, the uniformed dictator model, brand bureaucracy model and the all hat, no cattle model.

In between the two extremes are the: service provider model, consultative model and the facilitator model.

• Superior brand strategy implementation

Implementation brilliance is necessary to get through all the media clutter and reach the consumer.  Some guidelines are:

• Different brand building paths should be considered (advertising or sponsorship)
• Motivated people
• Develop several options
• Measure the results

Strategic alliances

Motivations for strategic alliances are:

• Generate scale economies
• Gain excess to strategic markets
• Overcome trade barriers

Strategic alliances may be needed to compensate for the absence or weakness in a needed asset or competency. Then strategic alliances can:

• fill out a product line or serve market niches
• gain excess to needed technology
• use excess capacity
• gain access to low-cost manufacturing capabilities
• access a name or customer relationship
• reduce the investment required

A problem with strategic alliances is that the contribution of the partners becomes unbalanced over time. Even if the alliance looked perfect from the beginning problems can arise. With a strategic alliance two sets of people, cultures, business systems and structures need to be reconciled. Furthermore the interests of both partners might not fit in the same time frame.

Partners should make sure they have real assets and competencies that combine in order to create a strategic advantage. These assets and competencies should continue to be relevant to the venture and to be maintained by partners over time

Chapter L

The strategic position defines how a business wants to be perceived relative to it's competitors and market. Strategic choices and communication programs are driven by strategic position and it is a guidance for organizational culture and values.

A good strategic position should be:

• Strategic, it should reflect a long-term effort to gain advantage in the market over competitors and it should not change unless strategy changes.
• The face of the business strategy. It should reflect the strategy
• Defined relative to competitors and to the market
• Logical and emotional connected with customers and relevant to the market.

This will lead to:

• Drive and guide strategic initiatives throughout the organization.
• A strategic position that truly differentiates the product and resonates with customers. This will not only provide effective and external communication but also consistency over time.
• Support the expression of organizational values and culture

Strategic position options

There are many strategic ways of positioning.  Good positioning can be based on the competitive strategy options. Such as:

• The quality player with a defined product space. To be successful with this strategic position the firm must keep the promise of being the best and manage the perceived set of competitors.
• The value option. This generally requires a cost advantage and to manage the perceived competitive set carefully.
• The innovator. Being an innovator is most easy when it's based on product or service innovations. Process development is innovative as well but will not immediately increase perceived innovation.
• A narrow product focus. It provides credibility that they know their product well. The challenge is to have discipline to not expand the product scope.
• A target segment focus. Positioning with respect to a target segment helps keeping the product experience responsive and relevant to that segment.
• Being global. Being global has the advantage of being able to bring products to the market anywhere. It also brings prestige and assurance of knowing that the firm has the business capabilities to compete successfully in other countries.

There are a host of additional dimensions, most of them interrelated, on which to base strategic position. The following help to create success:

• Product category

The choice of product category can have enormous strategic and tactical implications. When a category is chosen relevance needs to be maintained. This is hard because trends change.

Producers can be come a trend driver: forecast future trends correctly and respond to that. A trend follower: recognize trends, evaluate them and implement a response. Or a trend neglecter and become irrelevant.

• Product attributes and functional benefits.

Companies which have a strong, sustainable product attribute or functional benefit that is valued by the market, should use that element as a prominent part of the strategic position. The product at tribute is powerful because it often provides a reason to buy a product. It is important to find an attribute to a major segment that is not already occupied by a competitor. This is often a challenge.

• Breath of product line

Customers interpret it as substance, acceptance, leadership and the convenience of one-stop shopping. Furthermore, product expansion supports assets such as brand equity and distribution, creates synergies for the customer and the firm and can develop associations of acceptance and leadership.

• Organizational intangibles

A position based upon  some attribute is vulnerable.

• New innovations make current attributes less valued
• Loss of credibility when over stating being better all the time
• The decision is not always based upon a particular specification
• Adding new features not always result in being more successful due to increased complexity of the product

Therefore in contrast to attribute positioning intangible factors can differentiate a business more effectively and over a longer period of time. Intangible factors were being global, concerned about the environment or innovative.

• Emotional self-expressive benefits

Emotional benefits are about the ability of the product to make the customer feel something during the purchase or while using the product.

The self-expressive benefits is about whether or not the purchase helps to express the customer in some kind of way.

• Experience

A company which has a lot of experience doesn't only benefit from emotional or self-expressive benefits but has also more experience in the market by which it can make the offer more attractive.

• Being contemporary

Most established businesses face the problem of remaining or becoming contemporary. When being contemporary the image shouldn't becoming old fashioned and remaining vital and relevant in the today's marketplace can be a challenge.

• Brand personality

Businesses with a personality are liked and remembered better. It can be more memorable than a sum of attributes. Brands can have a variety of personalities such as: upscale, sophisticated, active and macho.

• Competitor position

Letting the position depend on the competitor's position can be effective, especially when the competitor has already an established position.

Multiple strategic positions can be chosen too. This to adept to different (world wide) contexts. As long as the strategic position captures the core of the business, stimulate the employees, correspond with the customers and differentiate the company form its competitors.

Thus the strategic position should appeal to customers, differentiate the firm from its competitors and reflect and be supported by the whole business strategy. The company's own strengths and weaknesses need to be taken into account too.

A business needs to deliver what it promises to deliver. The difference between what is delivered and what it promised to deliver lead to strategic imperatives. These strategic imperatives state what investments or program is necessary to deliver what is promised.
 

Chapter M

The last trend was increasing productivity usually by downsizing. But now there is a renewed focus on growth because its more fun and stimulating to create growth. Both strategies are however important.

Good fundamentals for strategic growth are:

• Excel at the core businesses
• Invest resources in the most profitable areas with highest growth
• Develop skills in strategic analysis
• Develop options for future products or services
• Develop and leverage core assets and competencies

Growth can occur from different strategies. The first type of growth strategies are existing product markets. The second type of growth strategies are product development and market development. A third dimension can be added by implementing vertical integration. Finally there is diversification involving new products and new markets.

Growth in existing product markets

Growth in existing product markets is attractive because the company has a base, experience, resources and knowledge already in place on which it can build further.

Increasing market share

The most logic way to grow is to increase the market share. This can be done by intensive promotion. However, this is expensive. Therefore it's better to focus on customer loyalty and creating good value. Good assets and competencies are necessary to do this.

Increasing product usage

Increasing usage is less threatening to competitors. Increasing usage can be done by increasing the frequency or the quantity used. To increase usage a useful question is: what are the barriers to increased usage?

Heavy users are more often the most fruitful target. Therefore they often receive special treatment. But light users should not be forgotten since they have potential to be turned into heavy users.

Increasing usage can be done by

• provide reminder communications
• position for regular or frequent use, provide a reason for more frequent use
• make use easier
• provide incentives such as promotions
• reduce undesirable consequences
• revitalize the brand, stay updated “cool”  
• find new applications, detect and exploit new functional use

Product development for the existing market

Product development can take place in different ways.

• Line extensions

New features can improve the competitive position a lot, represent large growth opportunities and are accomplished relatively easy. But they still absorb the firms resources, so there should be looked critically to the expected ROI.

• Developing new-generation products

New entrants have nothing to loose by introducing new products but can disrupt the market place a lot by successful inventions. By developing new-generation products the company can stay ahead of the competition and create profitable growth opportunities.

• Expand the product scope

Existing customers might be served further by broadening the context in which the products offered can be used.

• New products for existing markets

By adding comparable products marketing and distribution strengths can by exploited. Economies of scale can be created by common distribution marketing and brand-name recognition.

Sometimes the gained efficiency is simply an illusion because the benefits do not weight up against the cost and problems associated with the new area.

Before conducting product-line expansion the following questions can be asked

• Will customers benefit from a broad product line?
• Do expected efficiencies such as marketing and distribution occur from an expansion in the product line?
• Can the current assets and competencies be applied in the product-line expansion?
• Does the firm have the needed competencies and assets to increase the product-line successfully?

Market development using existing products

Developing new markets enables businesses to duplicate the business operation with perhaps minor adaptive changes. Thus there is potential for synergy.

Expanding geographically

Geographic expansion might involve changing from a regional operation to a national operation. The best way to do this is by cooperating (merger, alliance) with a partner that already has the capability to market more broadly.

Expanding into new market segments

A firm can also grow by expanding into different segments. Ways to define and evaluate segments are:

• Usage, the not yet user can be a profitable target
• Distribution channel, a firm can expand into different segments by opening up new distribution channels
• Age, different segments in terms of age can targeted
• Attribute preference, more precise equipment to serve a specific segment can be included
• Application defined market, a new application of the product or service can be introduced. An airline company that not only flies people but also delivers packages as in being a courier.

Evaluating market expansion alternatives

Synergy can be attractive to conduct market expansion but a few things should be considered:

• Is the market attractive?
• Are there resources and the commitment which are necessary in the face of uncertainty?
• Can the business be adapted to the new market?
• Can the assets and competencies which are the core of the business success be transferred into the new business environment?

Vertical integration strategies

Vertical integration is another growth potential. Forward integration is when a company moves downstream such as a manufacturer buying a retail chain. Backward integration is moving upstream such as when a manufacturer invests in a raw material source.

Vertical integration provides:

• Access to supply or demand control of the quality of the product or service
• Control over the quality of the product or service
• Entry in a potential profitable business area

But the negative side is:

• There is a risk in managing a very different businesses
• A reduction in flexibility to change strategy

Considering the negative effects of vertical integration certain alternatives need to be taken into consideration. Strategic alliances, asset ownership, technology licenses and fixed prices over a longer time period can be reasonable alternatives.

Revolutionary ideas

For significant growth revolutionary ideas are necessary. By just improving the same strategies as competitors, substantial growth is not very likely.

Some guidelines for coming up with revolutionary ideas are:

• consider different ways to offer the functional benefits to the customer
• investigate how assets and competencies could be exploited in different ways and settings
• look at discontinuities within the industry and let them bring unconventional strategy options
• push the boundaries of the product
• add excitement or fun to the product
• increase product usage
• consider offering different versions like scaled-down or an expanded version such as global
•  

Chapter N

Diversification is a strategy of entering product markets different from those in which a firm is currently engaged. Diversification can involve new products and new markets. Furthermore, after diversification the product can have meaningful commonalities with the core business to generate economies of scale and synergies. So the area of commonality will affect the ROI. An unrelated diversification can still be justifiable when the ROI is positive. Acquisitions or mergers can be made to implement diversification strategies.

Meaningful commonalities to create economies of scale and synergies are:

• customer base
• a sales force of channel distribution
• a brand name and its image
• facilities used for manufacturing
• R&D
• Staff and operation systems
• marketing

Related diversification

Product expansion growth and market expansion growth are examples of related diversification. Vertical integration is not.

The goal with diversification by internal expansion is to exploit assets or competencies. When acquisitions or mergers take place the goal is to have the assets or competencies complement each other with each party contributing what the other lacks.

The first step in diversification is to evaluate assets and competencies to identify strengths that are exportable to another business area.

The second step is to find a business area where current assets and competencies can be applied and generate an advantage.

Finally, potential problems need to be addressed. Implementation might need adaptation of assets and competencies.

Brand name

A strong, established brand name is a good exportable resource. The visibility, associations, perceived quality and customer loyalty of a brand can be exported to an other product market. This can be a challenge.

The brand extension decision can be based on three questions:

• Does the brand fit the new product-market?
• Does the brand add value to the new product in the new product class?
• Will the extension support the brand name and image?

A product extension can also damage the brand. Therefore sub-brands and endorsed brands can be used. A sub-brand offers separation from the main brand but still resources can be shared. Endorsed brands offer even grater separation from the main brand.

When diversifying the core product, a company usually takes a skill it excels in and tries to exploit that skill in a new product market. Marketing skills, capacity in sales or distribution, manufacturing and research and development skills can be the basis for entry into a new business area. With R&D it can be a challenge because often the focus is to much on evolving the existing business and not on development toward new business areas.

When certain assets or competencies are not present, firms could work together and the combination of the two firms may be able to operate at an efficient level and still create economies of scale.

The illusion of synergy

Synergy is often assumed when creating a strategy but it often does not occur because of:

• implementation problems, there can be barriers which make it unattainable of difficult
• potential synergy does not exist
• potential synergy is overvalued

Unrelated diversification

Unrelated diversification lacks commonality in brands, marketing, distribution, channels, manufacturing therefore synergy can't be created. But there still can be motivations for unrelated diversification:

• Managing and allocating cash flows, balance the cash flows of business units
• Entering business areas with high ROI prospects
• Obtaining a bargain price for a business
• The potential to refocus a firm. Diversification provides the chance to refocus the acquired firm, the acquiring firm or both. Furthermore, core businesses of the acquired firm might be worth more than the complete acquired firm including successful diversifications, unsuccessful diversifications and non operating investments.
• Reducing risk by operating in multiple product markets. Reliance on a single product line or entry of competitors brings risk. This risk can be reduced by operating in multiple markets. This protects the firms employees and customers but the share holders have no advantage because they diversify by a portfolio of stocks.
• Tax benefits
• Obtain liquid assets, it can be attractive to buy a firm with substantial liquid assets which can be readily employed.
• Vertical integration
• Defend against takeover. Buying other firms can be obstacles to be taken over by an other firm
• Provide executive interest. Executive interest is the prestige of a large organization, being global or having different product markets.

Risk of unrelated diversification

There is no possibility of synergy that reduces cost advantages. Peter Ducker stated that successful diversification requires a common core or unity represented by common markets technology or production processes.

Risk of unrelated diversifications are:

• attention may be diverted from the core business
• managing the new business is difficult
• the new business may be overvalued

When it goes wrong the original core business can get damaged and resources and attention will be drawn from it.

Entry strategies

The book explains eight different strategies to enter a new product market with their advantages and disadvantages:

• Internal development
  • advantages: uses existing resources, avoids acquisition costs
  • disadvantages: long term, uncertain prospects

• Internal venture
  • advantages: uses existing resources, opportunity to keep talented entrepreneurs
  • disadvantages: mixed success record, creates internal stresses
• Acquisition
  • advantages: short term, overcomes entry barriers
  • disadvantages: costly, hard to integrate two organizations
• Joint venture or alliance
  • advantages: synergies may be created, shared risk
  • disadvantages: potential conflict of the two participating firms, value of one firm may be reduced over time
• Licensing from others
  • advantages: rapid access to technology, reduced financial risk
  • disadvantages: dependence on licensor, no proprietary technology
• Educational acquisitions
  • advantages: provides window and initial staff
  • disadvantages: entrepreneurs might part the company
• Venture capital and nurturing
  • advantages: provides window on new technology or market
  • disadvantages: it will on it self not be a stimulus of growth
• Licensing to others
  • advantages: rapid market access, low risk, low costs
  • disadvantages: lack of knowledge and control of the market, dependence on the licensee

The selection of the best entry strategy depends on knowledge of the current market and knowledge of technologies or services embodied in the product.

Three levels of product knowledge at one axis and three levels of market knowledge at the other axis create a matrix with nine optimal strategies.

After identifying the current knowledge, the optimal depreciation strategy can be chosen.

Chapter O

After finding the best strategy possible the strategy needs to be implemented. Strategy implementation is essential for success. It should include a careful analysis of  organizational risk and judgment about the changes that should be made to incorporate the new strategy and the costs of these changes.

A conceptual framework

The conceptual framework is used to identify and position organizational components and its interactions. In the center of the frame work is a set of four key constructs: structure, systems, people and culture. The key constructs should interact with the strategy and the outcome of the key constructs is the performance.

Structure

The organizational structure divides the power to make decisions in a company. It defines the way of communication and specifies the mechanism by which organizational tasks and programs are accomplished.

Decentralization versus centralization

Organizations pride themselves with being decentralized. It has advantages such as being close to the market and thus understanding the customer needs. Managers are furthermore intimate with the product technology and there is no delay in decision making.

But there are negative side effects. There is a loss in business creating cross-business synergy. Because departments are working independent of each other. Also, what is best for the department might not be best for the firm as a whole.

A centralized manager can influence decentralized business units even without controlling them to much by utilizing the approaches described earlier such as playing the role of a consultant or facilitator.

But whatever management style used, it needs to match the organizational heritage and culture.

Matrix organization

A matrix organization allows a person to have two or more reporting links. A person attached to a task force. Instead of just reporting to the task force manager he would then also report to the his business unit. The matrix organization (dual reporting) asks for communication and coordination, this can be hard to implement.

Alliance Networks

Markets and competitors can change suddenly and significantly. It can be important to react quick. When there is no need to develop competencies and assets a strategic alliance can be made. Then the firm can focus on what it does best and still be reedy to combat competition.

Systems

Systems are strategically important. There are a whole range of systems such as: budgeting/accounting, information, measurement and reward and planning systems.

Accounting/ budgeting

The accounting system is a key element in any management system. It is important that the system can be adapted to the need of a new strategy. A risk is that the accounting system influences the investment decision when the new strategy proposed does not fit the old familiar patter. 

Information system

Understanding the current capability and future direction of an organization is essential in the forming of a strategy. Information systems such as: technology, databases, models and expert systems are useful tools to use.

Measurement and reward system

Measurement can drive behavior and thus directly influence strategy implementation. The optimal balance should be found between rewarding and performance. Rewards that are to much based on performance can work against this motivational goal.

Planning system

An annual strategic planning process is almost always useful because it forces managers to take time out to consider strategic uncertainties.

People

A strategy is generally based on an organizational competency that in turn is based on people. So strategies need certain types of people.

Usually strategy requires capabilities not already available in the business, it will be necessary to employ them. There are three approaches for that:

• make approach, developing a broad employee base by hiring talented workers that fit the organization. This can take years
• convert approach, converting the existing workforce to the new strategy, takes less time
• buy approach, bringing in experienced people from outside, this is an immediate solution

Motivation

In addition to the quality of the people, the motivation level ca affect strategy implementation. The fear of losing the job, financial incentives, self-fulfillment goals and development goals for the organization are all ways to motivate employees.

Culture

Organizational culture involves three elements:

• A set of shared values or dominant beliefs that define the organization’s priorities
• A set of norms of behavior
• Symbols and symbolic activities

Shared values

Shared values are dominant believes that specify culture. Shared values can have a variety of focus points such as: a key asset or competency, an operational focus, focus of organizational output or management style.

Norms

A culture can develop norms. This are informal rules that influence decisions and actions throughout an organization by defining what is appropriate and what not. Norm encourage behavior consistent with shared values. With good norms, sloppy work could be corrected by informal policy rather than with relying on a formal system.

Symbols and symbolic action

Corporate cultures are largely developed and maintained by the use of consistent visible symbols and symbolic action. Four of them are:

• The founder and original mission

The personal style of its founder and the unique roots can provide extremely potent symbols.

• Modern role models

Modern heroes and role models help to communicate, personalize and legitimize values and norms. It expands the limit of ambition.

• Activities

For instance managers who spend days on the work floor to get more in touch with the business.

• Question asked

Asking questions can influence the shared values of an organization.

• Rituals

Rituals of work life such as: eating lunch together to retirement dinners can help defining a culture.

Obtaining strategic congruence

A strategy must match the structure, systems, people and culture of the organization. In addition each organizational department needs to fit the others. If it doesn't fit strategy will be affected.

The concept of congruence suggests that interactions between organizational departments should be considered as:

• Do the systems fit the structure?
• Do the people fit the structure?
• Does the structure fit the culture?

Because organizational culture is a powerful force for providing focus, motivation and norms it's a key to strategy implementation. If the systems are not congruent strategy implementation could be harmed.

The hit-industry topology

The need for congruence between strategy and organizational components can be illustrated by this model.

The goal is to obtain, produce and exploit a product that will have a relatively short life cycle. The short lifecycle of the product developed makes the model interesting because problems are more intense and graphic. Within the model there are three organization types: the drillers, the pumpers and the distributors (as in the oil industry). The model describes how the lack of fit between organizational components can develop.

Organizing for innovation

Achieving high congruence among organization’s components leads to organizational effectiveness in the short term. But it can inhibit desirable and necessary change and innovation.

The following approaches can promote change and stimulate innovation:

• decentralization, when departments have more freedom innovations are more likely to occur. So a decentralization with keeping the business units small results in a vital, innovative organization relatively unencumbered by a central bureaucracy.
• task forces, sometimes a firm must make substantial change in operations because of a significant challenge (deterioration in competitive position). This results in extreme pressure to work hard, perform and find creative new approaches.
• skunk works, major new business ventures may require separate entrepreneurial units because the slow decision-making process.
• kaizen, continuous improvement throughout the organization from top management on down. This is a Japanese method that has been the basis of productivity increases.

Reengineering

It is the opposite of kaizen. It is the research for an implementation of radical change in business operations to achieve breakthrough results. It is both risky and expensive and most necessary when there is a strong threat form a changing environment or competitor and marginal improvements in the old organization will not be enough to combat the changes in the environment.

Innovation

To stimulate innovation:

• make breakthrough innovations a strategic and culture priority
• hire more creative and innovative people
• create systems where the best ideas receive funding (in a competition kind of way)
• use acquisitions, joint ventures and alliances to bring in innovation
• participate in corporate venture-capital fund or internal corporate venturing. New business are managed apart form the existing business.
• Become an ambidextrous organization, innovations should be able to commercialize in the conventional organization.

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