ABS FINAL EXAM

LEVELS STRATEGY

Strategy is a firms theory about how to deal with competitive

advantages.

Corporate-level strategy is concerned with the overall scope of an organisation

and how value is added to the constituent business units.

Business-level strategy is concerned with the way a business seeks to compete

successfully in its particular market.

Functional strategy is concerned with how different parts of the organisation

deliver the strategy effectively in terms of managing resources, processes and
people.

Strategy is at the foundation of every decision that has to be made within an

organization. If the strategy is poorly chosen and formulated by top
management, it has a major impact on the effectiveness of employees in pretty
much every department within
the organization.
Business-level strategy

The Business-level strategy is what most people are familiar with and is about
the question “How do we compete?”, “How do we gain (a sustainable)
competitive advantage over rivals?”. In order to answer these questions it is
important to first have a good understanding of a business and its external
environment. At this level, we can use internal analysis frameworks like the
Value Chain Analysis and the VRIO Model and external analysis frameworks
like Porter’s Five Forces and PESTEL Analysis

Functional-level strategy

Functional-level strategy is concerned with the question “How do we support

the business-level strategy within functional departments, such as Marketing,
HR, Production and R&D?”. These strategies are often aimed at improving the
effectiveness of a company’s operations within departments.

Corporate-level strategy

At the corporate level strategy however, management must not only consider
how to gain a competitive advantage in each of the line of businesses the firm is
operating in, but also which businesses they should be in in the first place. It is
about selecting an optimal set of businesses and determining how they should
be integrated into a corporate whole: a portfolio.
PORTER’S FIVE FORCES

Porter’s Five Forces analysis is a framework that helps analyzing the level of

competition within a certain industry. It is especially useful when starting a new
business or when entering a new industry sector. According to this framework,
competitiveness does not only come from competitors. Rather, the state of
competition in an industry depends on five basic forces: threat of new entrants,
bargaining power of suppliers, bargaining power of buyers, threat of substitute
products or services, and existing industry rivalry. The collective strength of
these forces determines the profit potential of an industry and thus its
attractiveness.

Threat of new entrants

New entrants in an industry bring new capacity and the desire to gain market
share. The seriousness of the threat depends on the barriers to enter a certain
industry. The higher these barriers to entry, the smaller the threat for existing
players. Examples of barriers to entry are the need for economies of scale, high
customer loyalty for existing brands, large capital requirements

Example

The threat of new entrants in the airline industry can be considered as low
to medium. It takes quite some upfront investments to start an airline company
(e.g. purchasing aircrafts). Moreover, new entrants need licenses, insurances,
distribution channels and other qualifications that are not easy to obtain when
you are new to the industry (e.g. access to flight routes).
Bargaining power of suppliers

This force analyzes how much power and control a company’s supplier (also
known as the market of inputs) has over the potential to raise its prices or to
reduce the quality of purchased goods or services, which in turn would lower an
industry’s profitability potential. The concentration of suppliers and the
availability of substitute suppliers are important factors in determining supplier
power. The fewer there are, the more power they have. Businesses are in a
better position when there are a multitude of suppliers.

Example

The bargaining power of suppliers in the airline industry can be considered very
high. When looking at the major inputs that airline companies need, we see that
they are especially dependent on fuel and aircrafts. These inputs however are
very much affected by the external environment over which the airline
companies themselves have little control.

Bargaining power of buyers

The bargaining power of buyers is also described as the market of outputs. This

force analyzes to what extent the customers are able to put the company under
pressure, which also affects the customer’s sensitivity to price changes. The
customers have a lot of power when there aren’t many of them and when the
customers have many alternatives to buy from.

Example

Bargaining power of buyers in the airline industry is high. Customers are able to
check prices of different airline companies fast through the many online price
comparisons websites such as Skyscanner and Expedia. In addition, there aren’t
any switching costs involved in the process. Customers nowadays are likely to
fly with different carriers to and from their destination if that would lower the
costs. Brand loyalty therefore doesn’t seem to be that high.

Threat of substitute products

The existence of products outside of the realm of the common product

boundaries increases the propensity of customers to switch to alternatives. In
order to discover these alternatives one should look beyond similar products
that are branded differently by competitors. Instead, every product that serves a
similar need for customers should be taken into account. Energy drink like
Redbull for instance is usually not considered a competitor of coffee brands
such as Nespresso or Starbucks. However, since both coffee and energy drink
fulfill a similar need (i.e. staying awake/getting energy), customers might be
willing to switch from one to another if they feel that prices increase too much
in either coffee or energy drinks. This will ultimately affect an industry’s
profitability and should therefore also be taken into account when evaluating the
industry’s attractiveness.

Example

In terms of the airline industry, it can be said that the general need of its
customers is traveling. It may be clear that there are many alternatives for
traveling besides going by airplane. Depending on the urgency and distance,
customers could take the train or go by car.
Rivalry among existing competitors

This last force of the Porter’s Five Forces examines how intense the current
competition is in the marketplace, which is determined by the number of
existing competitors and what each competitor is capable of doing. Rivalry is
high when there are a lot of competitors that are roughly equal in size and
power, when the industry is growing slowly and when consumers can easily
switch to a competitors offering for little cost.

Example

When looking at the airline industry in the United States, we see that the
industry is extremely competitive because of a number of reasons which include
the entry of low cost carriers, the tight regulation of the industry wherein safety
become paramount leading to high fixed costs and high barriers to exit, and the
fact that the industry is very stagnant in terms of growth at the moment.
PESTEL FRAMEWORK

A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is

a framework or tool used to analyse and monitor the macro-environmental
factors that may have a profound impact on an organisation’s performance. This
tool is especially useful when starting a new business or entering a foreign
market. It is often used in collaboration with other analytical business tools such
as the SWOT analysis and Porter’s Five Forces to give a clear understanding of
a situation and related internal and external factors. PESTEL is an acronym that
stand for Political, Economic, Social, Technological, Environmental and Legal
factors.

Political Factors:

These factors are all about how and to what degree a government intervenes in
the economy or a certain industry. Basically all the influences that a government
has on your business could be classified here. This can include government
policy, political stability or instability, corruption, foreign trade policy, tax
policy, labour law, environmental law and trade restrictions

Economic Factors:

Economic factors are determinants of a certain economy’s performance. Factors

include economic growth, exchange rates, inflation rates, interest rates,
disposable income of consumers and unemployment rates. These factors may
have a direct or indirect long term impact on a company, since it affects the
purchasing power of consumers and could possibly change demand/supply
models in the economy.
Social Factors:

This dimension of the general environment represents the demographic

characteristics, norms, customs and values of the population within which the
organization operates. This inlcudes population trends such as the population
growth rate, age distribution, income distribution, career attitudes, safety
emphasis, health consciousness, lifestyle attitudes and cultural barriers. These
factors are especially important for marketers when targeting certain customers. 

Technological Factors:

These factors pertain to innovations in technology that may affect the operations
of the industry and the market favorably or unfavorably. This refers to
technology incentives, the level of innovation, automation, research and
development (R&D) activity, technological change and the amount of
technological awareness that a market possesses. These factors may influence
decisions to enter or not enter certain industries, to launch or not launch certain
products or to outsource production activities abroad. By knowing what is going
on technology-wise, you may be able to prevent your company from spending a
lot of money on developing a technology that would become obsolete very soon
due to disruptive technological changes elsewhere.

Environmental Factors:

Environmental factors have come to the forefront only relatively recently. They
have become important due to the increasing scarcity of raw materials, polution
targets and carbon footprint targets set by governments. These factors include
ecological and environmental aspects such as weather, climate, environmental
offsets and climate change which may especially affect industries such as
tourism, farming, agriculture and insurance. Furthermore, growing awareness of
the potential impacts of climate change is affecting how companies operate and
the products they offer.

Legal Factors:

Although these factors may have some overlap with the political factors, they
include more specific laws such as discrimination laws, antitrust laws,
employment laws, consumer protection laws, copyright and patent laws, and
health and safety laws. It is clear that companies need to know what is and what
is not legal in order to trade successfully and ethically. If an organisation trades
globally this becomes especially tricky since each country has its own set of
rules and regulations

TOWS MATRIX
What is a TOWS Analysis?

A TOWS analysis is very similar to SWOT, however there is a key difference

between the two, other than a reshuffling of a few letters!

While SWOT analysis, puts the emphasis on the internal environment (your

strengths and weaknesses), TOWS forces you to look at
your external environment first (your threats and opportunities).

Doing this allows you to gain better understanding of the strategic choices that
you face. (Remember that "strategy" is the art of determining how you'll "win"
in business and life.) It helps you ask, and answer, the following questions:

 How can we make the most of our strengths?

 How do we circumvent our weaknesses?

 How can we capitalize on external opportunities?

 How should we best manage threats?

Do a SWOT Analysis

Print off our free SWOT Worksheet and perform a TOWS/SWOT analysis,

recording your findings in the space provided. This will help you to understand
what your strengths and weaknesses are, as well as identifying the opportunities
and threats that you should be looking at.

Step 2: Translate Your Findings Using a TOWS Matrix

Print off our free TOWS Strategic Options Worksheet, and copy the key
conclusions from your SWOT Worksheet into the area provided (shaded in
blue).
Step 3: Link and Assess Your Strategic Options

For each combination of internal and external environmental factors, consider

how you can use them to create good strategic options:

 Strengths and Opportunities (SO) – How can you use your strengths to
take advantage of these opportunities?

 Strengths and Threats (ST) – how can you take advantage of your
strengths to avoid real and potential threats?

 Weaknesses and Opportunities (WO) – how can you use your

opportunities to overcome the weaknesses you are experiencing?

 Weaknesses and Threats (WT) – how can you minimize your

weaknesses and avoid threats?

The options you identify are your strategic alternatives, and these can be listed
in the appropriate quadrant of the TOWS worksheet.

It's a variation of SWOT analysis, but differs because SWOT focuses on

internal factors (strengths and opportunities), while TOWS focuses on external
factors (threats and opportunities). By using it, you can look intelligently at how
you can best take advantage of the opportunities open to you, and minimize any
weaknesses that might result in threats. It can also help you to consider how to
use the external environment to your strategic advantage and identify some of
the strategic options available to you.
Organisational subcultures

There are often subcultures in organisations:

 Differences between geographical divisions in a multinational company.

 Differences between functional groups such as finance, marketing and
operations.
 Different nature of work in different functions –e.g. in an oil company
differences between those functions engaged in ‘upstream’ exploration
and those concerned with ‘downstream’ retailing.

A strong organizational culture is the driving force behind motivating

employees to look forward to going to work and consistently giving their all. It
has the potential to improve performance, productivity, and profits. It also
assists employees in deciding how they will respond to situations when their
superiors are not present, acting as a guide for discretionary behaviour. As a
result, companies with a strong organizational culture can place greater trust in
their employees and allow them to operate autonomously, encouraging
employees to develop innovative ways to improve their organization. The
shared values, attitudes, and practices that characterize an organization are
organizational culture, also known as company culture. A strong organizational
personality will attract and retain the right candidates for jobs.
ORGANAZATIONAL IDENTITY

Organisational identity refers to what members believe and understand about

who they specifically are as an organisation. Managers and entrepreneurs often
try to manipulate organisational identity because it is important for recruiting
and guiding employees, interacting with customers and dealing with regulators.

Organisational identity is defined as a set of statements that organisation

members perceive to be central, distinctive and enduring on their [Link]
is influential to behaviour of leaders and members in many aspects within the
organisation. Top leaders establish the core values and beliefs that guide and
drive the organization's behaviour, which shapes organizational identity.

The ability of an organization's top leaders to answer the question "Who are
we?" as an organization affects how they interpret issues, identify threats, craft
strategy, communicate about the organization, and resolve conflicts. Both
leaders and members of an organization are influenced by organizational
identity. Organizational identity influences organizational leaders' decision-
making activities within an organization. Mbhele Painting Solutions transforms
people's homes and offices by painting with high-quality paint and providing
excellent service.
INTERNATIONAL AND GLOBAL STRATEGY

International strategy refers to a range of options for operating outside an

organisation’s country of origin.

Global strategy involves high coordination of extensive activities dispersed

geographically in many countries around the world.

What Is a Global Strategy? (With Types and Examples)

As companies expand, many of them might consider moving into global

markets. In order to operate globally, however, a company should consider
creating a global strategy. Understanding how to create an effective global
strategy can help make a business successful across the world.

What is a global strategy?

A global strategy is a strategy that a company develops to expand into the

global market. The purpose of developing a global strategy is to increase sales
across the world. The term "global strategy" includes standardization, and
international and multinational strategies. Developing a global strategy can
benefit your company in many ways, including making sales in new markets,
increasing your global brand awareness and more.

To develop a global strategy, it's important to consider how your business's

products can perform in global markets. Global strategy creation also involves
analyzing your competitors, global customers, production sites and other
components of your business to help you ensure that your business succeeds in
the global market.
Importance of developing a global strategy

Developing a global strategy is important because it can help you ensure that
your business succeeds in multiple locations around the world. The benefits of a
global strategy can include:

Generating new sales

One key benefit of creating a global strategy is increasing sales by operating in

new markets. When you move into a global market, you can make more sales
off of the products that you already have. Creating a global strategy can also
allow you to take advantage of emerging markets, which are locations around
the world that have developing markets and increasing economic growth.
Operating in emerging markets can help your company make sales and increase
its profits.

Types of global strategies

There are three key types of global strategies:

Standardization

A standardization strategy is a strategy that a company develops to expand its

operations into the global market. In a standardization strategy, you sell the
same products in every location. A standardization strategy is characterized by
keeping control centralized rather than delegating decisions to local markets.
Some of the benefits of a standardization strategy include the ability to develop
products more quickly and easily coordinate activities across locations.

Standardization strategy example

Imagine that you want to create a standardization strategy for your luxury purse
company. In this case, you would create a strategy to sell essentially the same
purses in every location. This would allow you to keep your products consistent
across locations.
International

An international strategy involves importing and exporting products. Using an

international strategy can allow you to work with foreign suppliers and sell to
customers around the world while keeping your physical premises within your
home country. Typically, international strategies still focus mainly on the
company's home market while doing some business overseas.

International strategy example

Using the same scenario, imagine that you decided to create an international
strategy for your luxury purse company instead. Your international strategy
would still focus on your home country, but you would do some business
overseas. For example, your physical production would still occur in your home
country, but you could export some purses overseas.

Multinational

When you use a multinational strategy, you can cater your products to each
individual local market. You can also have physical business locations and staff
based in various locations. The key benefit of using a multinational strategy is
the ability to cater your business to individual locations.

Multinational strategy example

Consider that your luxury purse company wanted to create a multinational

strategy. In a multinational strategy, you could create different luxury purses for
each location that you sell in. This would allow you to cater your business to its
different markets.
TYPES OF STRATEGIC CHANGE

Strategic change is the implementation of new strategies that involve

substantive changes beyond the normal routines of the organization. Strategic
change is the movement of a company away from its present state towards some
desired future state to increase its competitive advantage. Many companies have
gone through some kind of strategic change as their managers have tried to
strengthen their existing core competences and build new ones to compete more
effectively.

Types of strategic change

Four types of strategic change:

Adaptation – can be accommodated with the existing culture and can occur
incrementally.

Reconstruction – rapid change but without fundamentally changing the culture.

A turnaround strategy is where the emphasis is on speed of change and rapid

cost reduction and/or revenue generation. Elements of turnaround strategies:

Crisis stabilisation. Management changes. Gaining stakeholder support.

Revolution – fundamental changes in both strategy and culture.

Revolutionary change differs from turnaround (or reconstruction) in two ways:

The need is not only for fast strategic change but also for deep cultural change.
The need for change is not as evident to people in the organisation or they have
reasons to deny the need for change.

Evolution – cultural change is required but this can be accomplished over time.

Evolution is change in strategy that results in transformation, but gradually.

Arguably, this is the most challenging type of strategic change since it involves
building on and exploiting existing strategic capabilities while also developing
new strategic capabilities.

KOTTERS EIGHT STEPS FOR CHANGE

Kotter’s 8 Step Change Management Model is a process designed to help

leaders successfully implement organizational change.

The Kotter 8-step model is very popular because it provides an easy-to-follow

roadmap for change managers, even if they aren’t experts in the field. Each
stage outlines precisely what needs to be done in order to keep a change project
on track. The model focuses on creating urgency in order to make a change
happen. It walks you through the process of initiating, managing, and sustaining
change, you guessed it, in eight steps.

1- Create Urgency 

The first step is to create a sense of urgency about the need for change. In
order to achieve lasting transformation, all involved should feel the sense of
urgency for change and believe that change is needed for organizational growth.

2- Put A Team Together 

This step focuses on creating a strong team with all the necessary skills,
qualifications, reputation, connections, and authority to lead change initiatives
and influence stakeholders.

3- Develop Vision and Strategies

The aim of this step is to build up a clear vision for the company’s initiative and
plan effective strategies to help the team in achieving it. It encourages team
members in their efforts by presenting an achievable picture of what success
will look like in the end.

4- Communicate the Change Vision

The goal of this step is to communicate the vision and strategy in a way that
encourages the rest of the company to accept and support the change initiative.
The objective is to win the hearts and minds of your employees, to encourage
them to make sacrifices in order to support the change, and persuade them that
the change is achievable and that the rewards are beneficial to both the business
and themselves.

5- Remove Obstacles

When implementing organizational-wide change, obstacles will come up

often. Inadequate processes, employee resistance to change, disempowering
management, organizational rules and structure, and so on, are just some of the
examples that can pose a serious obstacle. At this stage, the guiding coalition
and senior management should concentrate on removing any obstacles that are
slowing down the organization’s progress toward its change goal.

6- Set Short-Term Goals

Beware: It may take some time to achieve actual change. Employees may
become discouraged after working for long without having a sense of
accomplishment with the tasks. That’s why it is critical to set short-term goals
to achieve and celebrate early in the change process in order to maintain
momentum and inspire employees to continue supporting the effort.

7- Keep the Momentum

This step is all about keeping the change going by ensuring that the teams are
working hard to achieve the change vision while keeping track of their progress.
It’s critical that people are advised to refrain from big victory celebrations after
just a few successfully attained goals.

8- Make The Change Stick 

The change leaders’ goal in this step is to create a new culture where change
can be sustained. This includes adjusting organizational norms and values,
procedures, reward systems, and other infrastructure components to ensure that
everything is in line with the new strategy.

OWNERSHIP MODELS

Publicly-quoted companies

Shares are sold to the general public or financial institutions. Such companies
are usually managed by professional managers. Their objective is to make a
financial return for the owners (profit focus). Unsatisfied shareholders will sell
their shares or seek to remove the managers.

State-owned enterprises

Organisations wholly or majority owned by national or regional governments.

They are especially important in developing economies.

Entrepreneurial businesses

Such businesses are substantially owned and controlled by their founders (e.g.
Arcelor Mittal, Facebook and the Virgin Group). With growth, more
professional managers and external investors are required. They typically focus
on profit to survive and grow but may also have personal missions favoured by
the founder(s).

Family businesses - Ownership has been passed on from the founding

entrepreneur to descendants. Typically small to medium-sized enterprises
(SMEs) but may be large (e.g. Ford, Walmart). The family may retain the
majority of shares while floating some shares on the stock market.
There are other types of organisation: Not-for-profit organisations (e.g.
Mozilla). Frequently charitable foundations that exist to pursue a social mission.