Business Policy and Strategy

Dr. Antonia Lampaki

[email protected]

Business Policy & Strategy | Antonia Lampaki 1

 Assessment strategy
The course will assess students’ performance using two forms of assessment. Specifically:
• Group assignment (30%)
• Each group (consisting of 3 students) will spot a company of its choice and analyze its
strategy.
• Analysis should use a range of theories and tools taught in the course.
• Each group will submit a presentation file (e.g. in PowerPoint format).
• The presentation should include the following topics:
• Description of the company
• Trends in the macro environment (PESTEL analysis)
• Analysis of the internal environment
• Mission Statement
• Analysis of Opportunities and Threats (SWOT)

Business Policy & Strategy | Antonia Lampaki 2

 Assessment strategy
• Corporate strategy
• A strategy for achieving competitive advantage.
• Suggestions for change: a) organization, b) systems, c) core competencies,
d) human resources and skills, e) management style.
• Forecasting the results of the proposed strategy.

The deadline for submitting the assignment is the 11th week of the course.
The presentations will take place during the 13th week of the course. Each
group will have 15 minutes to present and discuss in the classroom.
Written exams - (70%)
• Open book examination.

Business Policy & Strategy | Antonia Lampaki 3

What is Strategy and Managing
the Strategy Process
Dr. Antonia Lampaki
[email protected]

Business Policy & Strategy | Antonia Lampaki 4

 Nature of Strategic Management
Strategy
Strategy is a set of goal-directed actions a firm takes to gain and sustain superior
performance relative to competitors (i.e., competitive advantage)
Strategic management
Strategic management is the integrative management field that combines
analysis,
formulation, and implementation in the quest for competitive advantage.
Effective strategy
A strategy that promotes a superior alignment between the organization and its
environment and the achievement of strategic goals.

Business Policy & Strategy | Antonia Lampaki 5

 Components of Strategy
An organizational strength
Distinctive
possessed by only a small number
competence
of competing firms.

Specifies the range of markets in

Strategy Scope which an organization will
compete.

How a firm distributes its resources

Resource
across the areas in which it
deployment
competes.

Business Policy & Strategy | Antonia Lampaki 6

 Stakeholder strategy
An integrative approach to managing a diverse set of stakeholders
effectively in order to gain and sustain competitive advantage

Business Policy & Strategy | Antonia Lampaki 7

The strategic management
process

Business Policy & Strategy | Antonia Lampaki 8

 The strategic management process

Business Policy & Strategy | Antonia Lampaki 9

 Mission, vision and core values
Mission: Description of what an organization actually does
• the products and services it plans to provide, and the
markets in which it will compete
Vision: A statement about what an organization ultimately
wants to accomplish
• it captures the company’s aspiration
Core values: Statement of principles to guide an
organization as it works to achieve its vision and fulfill its
mission, for both internal conduct and external
interactions
• it often includes explicit ethical considerations

Business Policy & Strategy | Antonia Lampaki 10

 Mission - Examples
The mission of The Walt Disney Company is to be one of the world’s leading
producers and providers of entertainment and information. Using our
portfolio of brands to differentiate our content, services and consumer
products, we seek to develop the most creative, innovative and profitable
entertainment experiences and related products in the world.

Apple designs Macs, the best personal computers in the world, along with OS X,
iLife, iWork and professional software. Apple leads the digital music revolution
with its iPods and iTunes online store. Apple has reinvented the mobile phone
with its revolutionary iPhone and App store, and is defining the future of mobile
media and computing devices with iPad.

Business Policy & Strategy | Antonia Lampaki 11

 Vision - Examples

The Walt Disney Company’s corporate vision is

“to be one of the world’s leading producers and providers of
entertainment and information.”

Apple is committed to bringing the best personal computing

experience to students, educators, creative professionals and
consumers around the world through its innovative
hardware, software and Internet offerings.

Business Policy & Strategy | Antonia Lampaki 12

 Exercise
Have you formed your own personal vision? If not, try to draft one
based on the directions we discussed.

Business Policy & Strategy | Antonia Lampaki 13

 Examples of core values
• Diversity
• Respect and humility
• Teamwork
• Transparency
• Trust
• Accountability

Business Policy & Strategy | Antonia Lampaki 14

 Why mission and vision statements tend to be
useless
• State the obvious
• Are too generic and thus fail to give guidance in making decisions
• Are too fantastic or unrealistic
• Are not shared by all the employees
• Are not forward-looking

Business Policy & Strategy | Antonia Lampaki 15

 Levels of Strategy

Corporate-level strategy
Business-level strategy
The set of strategic
The set of strategic
alternatives from which an
alternatives from which an
organization chooses as it
organization chooses as it
manages its operations
conducts business in a
simultaneously across
particular industry or
several industries and
market.
several markets.

Business Policy & Strategy | Antonia Lampaki 16

 Levels of Strategy

Business Policy & Strategy | Antonia Lampaki 17

 Strategy Formulation and Implementation
• Strategy formulation
• is the set of processes involved in creating or determining the strategies of
the organization
• it focuses on the content of strategies.
• Strategy implementation
• is the methods by which strategies are executed within the organization
• it focuses on the processes which achieve strategies.

Business Policy & Strategy | Antonia Lampaki 18

Analyzing the External
Environment

Business Policy & Strategy | Antonia Lampaki 19

 External Environment
Macro – PESTEL Analysis

Business Policy & Strategy | Antonia Lampaki 20

 External Environment
Macro – PESTEL Analysis
A framework that categorizes and analyzes an important set of external
factors that might impact a firm. These factors are:
• Political
• Economic
• Sociocultural
• Technological
• Ecological
• Legal

Business Policy & Strategy | Antonia Lampaki 21

 External Environment
Micro – Five forces model

A framework that
identifies five forces
that determine the
profit potential of an
industry and shape a
firm’s competitive
strategy

Business Policy & Strategy | Antonia Lampaki 22

 External Environment
Micro – Five forces model
Threat of entry: The risk that potential competitors will enter an industry.
Power of suppliers: Pressures that industry suppliers can exert on an
industry’s profit potential.
Power of buyers: pressure an industry’s customers can put on the producer’s
margins in the industry by demanding a lower price or higher product
quality.
Threat of substitutes: products or services available from outside the given
industry will come close to meeting the needs of current customers.
Rivalry among existing competitors: intensity with which companies within
the same industry compete for market share and profitability.

Business Policy & Strategy | Antonia Lampaki 23

 Five forces model
The threat of entry is high when
• The minimum efficient scale to compete in an industry is low.
• Network effects are not present.
• Customer switching costs are low.
• Capital requirements are low.
• Incumbents do not possess
• Restrictive government regulations do not exist.
• New entrants expect that incumbents will not or cannot retaliate.

Business Policy & Strategy | Antonia Lampaki 24

 Five forces model
The power of suppliers is high when
• The suppliers’ industry is more concentrated than the industry it sells to.
• Suppliers do not depend heavily on the industry for a large portion of their
revenues.
• Incumbent firms face significant switching costs when changing suppliers.
• Suppliers offer products that are differentiated.
• There are no readily available substitutes for the products or services that
the suppliers offer.
• Suppliers can credibly threaten to forward-integrate into the industry.

Business Policy & Strategy | Antonia Lampaki 25

 Five forces model
The power of buyers is high when
• There are a few buyers and each buyer purchases large quantities
relative to the size of a single seller.
• The industry’s products are standardized or undifferentiated
commodities.
• Buyers face low or no switching costs.
• Buyers can credibly threaten to backwardly integrate into the
industry.

Business Policy & Strategy | Antonia Lampaki 26

 Five forces model
The threat of substitutes is high when
• The substitute offers an attractive price-performance trade-off.
• The buyer’s cost of switching to the substitute is low.

Business Policy & Strategy | Antonia Lampaki 27

 Five forces model
The rivalry among existing competitors is high when
• There are many competitors in the industry.
• The competitors are roughly of equal size.
• Industry growth is slow, zero, or even negative.
• Exit barriers are high.
• Incumbent firms are highly committed to the business.
• Incumbent firms cannot read or understand each other’s strategies well.
• Products and services are direct substitutes.
• Fixed costs are high and marginal costs are low.
• Excess capacity exists in the industry.
• The product or service is perishable.

Business Policy & Strategy | Antonia Lampaki 28

Analyzing the Internal
Environment

Business Policy & Strategy | Antonia Lampaki 29

 Internal Environment
Resources, Capabilities, and Core Competencies

Business Policy & Strategy | Antonia Lampaki 30

 Resources

Business Policy & Strategy | Antonia Lampaki 31

 Exercise
How does the resources - competencies framework apply to you
personally? How can these help your career decisions?

Business Policy & Strategy | Antonia Lampaki 32

 Value Chain

Business Policy & Strategy | Antonia Lampaki 33

 A Generic Value Chain: Primary and Support
Activities
Primary activities
• Supply chain management.
• Operations.
• Distribution.
• Marketing and sales.
• After-sales service.

Business Policy & Strategy | Antonia Lampaki 34

 A Generic Value Chain: Primary and Support
Activities
Support activities
• Research and development (R&D).
• Information systems.
• Human resources.
• Accounting and finance.
• Firm infrastructure including processes, policies, and procedures.

Business Policy & Strategy | Antonia Lampaki 35

 SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats

Business Policy & Strategy | Antonia Lampaki 36

 Using SWOT Analysis to Formulate Strategy
Evaluating an organization’s strengths
• Organizational strengths
• are skills or capabilities enabling an organization to conceive of and
implement its strategies.
• SWOT analysis divides strengths into common strengths and distinctive
competencies.
• A common strength is a skill or capability held by numerous competing firms.
• Competitive parity exists when large numbers of competing firms can
implement the same strategy.

Business Policy & Strategy | Antonia Lampaki 37

 Using SWOT Analysis to Formulate Strategy
Evaluating an organization’s strengths
• A distinctive competence is a strength possessed by a small number of firms.
• Organizations that exploit these competencies often obtain a competitive
advantage.
• Strategic imitation is duplicating another’s competence into a valuable strategy.
• Sustained competitive advantage exists after all attempts at strategic imitation
have ceased.

Business Policy & Strategy | Antonia Lampaki 38

 Using SWOT Analysis to Formulate Strategy
Evaluating an organization’s weaknesses
• Organizational weaknesses
• are skills and capabilities that do not enable (and may limit) an organization to
choose and implement strategies that support its mission.
• Two ways to address weaknesses
• invest to obtain strengths or modify mission.
• A competitive disadvantage exists when a firm is not implementing valuable
strategies implemented in competing firms.

Business Policy & Strategy | Antonia Lampaki 39

 Using SWOT Analysis to Formulate Strategy
Evaluating opportunities and threats requires analyzing the environment.
• Organizational opportunities
• are areas in the environment that, if exploited, may generate higher
performance.
• Organizational threats
• areas in the environment that increase the difficulty of an organization’s
achieving high performance.

Business Policy & Strategy | Antonia Lampaki 40

 Strategic group model
Map the industry competitors into strategic groups:
• Identify the most important strategic dimensions
• Example: R&D expenditures, technology, product and service offerings,
pricing, distribution channels.
• Choose two key dimensions for the horizontal and vertical axes, which expose
important differences among the competitors.
• The dimensions chosen for the axes should not be highly correlated.
• Graph the firms in the strategic group, indicating each firm’s market share by the
size of the bubble with which it is represented.

Business Policy & Strategy | Antonia Lampaki 41

 Strategic group model – Example

Business Policy & Strategy | Antonia Lampaki 42

 Strategic group model
Key takeaways:
• Competitive rivalry is strongest between firms that are within the same strategic
group.
• The external environment affects strategic groups differently.
• The five competitive forces affect strategic groups differently.
• Some strategic groups are more profitable than others.

Business Policy & Strategy | Antonia Lampaki 43

 ΙΚΕΑ
Case study

Business Policy & Strategy | Antonia Lampaki 44

 Questions
Suppose you're working for a consulting firm and you're tasked with
helping to formulate a new strategy.
• With the help of Porter’s five forces model as a key tool, analyze the
external environment.
• Conduct a SWOT analysis
• Describe the capabilities of IKEA.
• Draw 2 maps of IKEA strategic groups related to the competition
based on the information given in case study.

Business Policy & Strategy | Antonia Lampaki 45

 External Environment Analysis
Five forces model - Bargaining power of suppliers
The bargaining power of IKEA suppliers is low because:
• Their number is large, their small size and weak financial position does not allow
them enough influence.
• Can easily switch from one supplier to another; if a supplier loses business from
IKEA, it can be costly.
• It sets the rules of the game and its suppliers are required to follow.
• IKEA has launched a code of conduct for its suppliers called IWAY.
• It has formed rules related to child labor, discrimination, minimum wages and
safe working environment.
• The suppliers must comply otherwise they can be removed.

Business Policy & Strategy | Antonia Lampaki 46

 External Environment Analysis
Five forces model - Bargaining power of buyers
• High - While bargaining power of individual buyers is insignificant, as a group they
hold some significant influence
• This is why there is so much focus on attracting and retaining customers.
• IKEA focuses heavily on marketing and promotion.
• the bargaining power of the buyers can be understood as low to moderate.
• The factors that moderate bargaining power of the buyers are:
• low prices
• good quality of products
• marketing strategy

Business Policy & Strategy | Antonia Lampaki 47

 External Environment Analysis
Five forces model - Threat from substitute
products
• The threat from substitute products is low.
• IKEA has built a reliable brand image where the level of trust between the
customers and the brand is high.
• Pricing strategy and customer service also moderate the threat from substitute
products.
• The availability of the large range of products under one roof.
• Hardly one of the competitors offers such a wide range of products.

Business Policy & Strategy | Antonia Lampaki 48

 External Environment Analysis
Five forces model - Threat from New entrants
• The threat of new competitors entering the market and gaining market share is
low.
• New brands can enter on a smaller scale without having any major effect.
• Only small players in the home furnishing.
• It takes a lot of time, effort and investment to enter into the market and grow
into a large brand.
• Apart from infrastructure and human resources, innovation and strategy can
be time consuming and require major investment.
• Marketing is also a major cost apart from operations.

Business Policy & Strategy | Antonia Lampaki 49

 External Environment Analysis
Five forces model - Level of competitive rivalry
• The level of competitive rivalry in the home furnishing industry is high.
• Numerous competitors.
• Apart from the home furnishing brands that compete directly with IKEA,
the supermarkets and brand stores sell home furnishing products and pose a
competitive threat to IKEA.
• IKEA’s popular and reliable image, its marketing strategy and other factors like
affordable pricing have helped at building a large customer base.

Business Policy & Strategy | Antonia Lampaki 50

 IKEA SWOT Analysis

Business Policy & Strategy | Antonia Lampaki 51

 IKEA SWOT analysis
Strengths
• Brand Value
• Financial Strength
• Products
• Cost Consciousness
• R&D
• Marketing

Business Policy & Strategy | Antonia Lampaki 52

 IKEA SWOT analysis
Weaknesses
• Negative Image
• Control for standards
• Scaleability
• Environmental Problems
• Increasing Raw material costs

Business Policy & Strategy | Antonia Lampaki 53

 IKEA SWOT analysis
Opportunities
• Environmental Friendly
• Cost-conscious Consumers
• Developing Countries
• Saturated markets

Business Policy & Strategy | Antonia Lampaki 54

 IKEA SWOT analysis
Threats
• Counterfeit
• Changing Laws
• Internet
• Higher Income

Business Policy & Strategy | Antonia Lampaki 55

 IKEA – Internal Analysis
Strategic Capabilities of the firm
• Unique designs.
• Style at affordable prices.
• Enjoyable shopping experience.
• Strong Inventory system that reduces costs and offers timely delivery.
• Mobility of top managers to launch stores in newly explored markets
that helps them add knowledge and leadership skills.
• Unlike competitors who focus on adding more product lines, IKEA
sticks to its core concept of “affordable and varied home furnishing”.

Business Policy & Strategy | Antonia Lampaki 56

 Analysis of the external environment
IKEA’s strategic groups

Small or

Internationalization
ΙΚΕΑ
specialized
Customization

manufacturers
JYSK

ΙΚΕΑ Small or
specialized
DFS manufacturers
JYSK

Cost Cost

Business Policy & Strategy | Antonia Lampaki 57

Thank you!
Q&A

Business Policy & Strategy | Antonia Lampaki 58