Professional Documents
Culture Documents
IEA
If the success is attributable to industry alone, why is it that they are a number of IT start-up companies which fail?
Why, even a bellwether company like Infy is facing rough wind?
Research by Richard Rumelt & Associates, industry structure explains only 10% of variance in profit across companies (page 63 of text) This means, individual company difference explains much of the success
BPSM: Module 5 Internal Analysis 3
Great companies
Only economic prosperity can produce progress. Prosperity arises out of innovation and enterprise, from the technological ingenuity and the skills that are housed in the great companies Indra Nooyi, Pepsico Chairman and CEO
(As quoted on page 46 in Strategic Management by Govinda Bhat and Govinda Sharma) BPSM: Module 5 Internal Analysis 4
Value Chain
Business is all about creating and capturing value Utility (to the consumer) is different from price (See pages 77-81 of text) Value = Utility (U) Cost (C)
The part of the value so created is captured by the firm in the form of profit
Profit = Price (P) Cost (C)
The utility can be increased by advertisement Equating the pleasure of drinking Pepsi to Nirvana!
Analysis_of_Midterm_2012 7
Analysis_of_Midterm_2012
Value chain
Value gets added at
Design R&D Material procurement Production Distribution After sales
10
Margin
Primary Activities
11
Margin
Concept of margin
At each stage of value chain, a margin is created Margin is the difference between the total value and collective cost for performing an activity
12
Value Chain
The purpose of value chain analysis is to examine each activity and find out whether it is adding value or just cost
Do wholesalers add value or just a cost? Is it possible to dispense with wholesalers and distributors without affecting the value delivered?
13
Dell Computers
Business model of Dell is based on the premise that computers can built to order and delivered directly to the customers The cost saved by cutting out wholesalers & dealers gave Dell savings in cost This gave Dell pricing options
Either he could have retained the savings with himself or Passed on the savings to customers
BPSM: Module 5 Internal Analysis 14
Dells strategy
He chose to pass on the savings to customers and grew business
This was his strategy
Growth Strategy
Socio-cultural factors
Dispensing wholesalers and retailers was made possible by use of internet for directly selling
This type of direct selling was not possible in China and India where customers want to touch and feel before purchase So, the strategy depends on the socio-cultural environment prevailing in the market
16
17
Outsourcing
Nike will perform many activities as part of business
Design the footwear Manufacture the footwear Market the footwear
18
Outsourcing
Therefore, it chooses to outsource manufacturing to China and develops designing and marketing as its core competence Manufacturers in China can manufacture footwear better and cheaper than Nike In doing that Nike has to protect its intellectual property (design) through IPR (So, legal and political systems play an important role)
BPSM: Module 5 Internal Analysis 19
Capabilities
20
Superior Innovation
BPSM: Module 5 Internal Analysis
21
ROIC Walmart: 14:1% Target: 10.6% Capital Turnover Walmart: 3.82 Target: 2.08
It is a ratio & not %
Durability of CA
Given time and skill, no competitive advantage is eternal
The essence of strategy lies in creating tomorrows competitive advantages faster than competitors mimic the ones you possess today Gary Hamel and C K Prahlad,
as quoted in Crafting and Executing Strategy by Thompson, Strickland, Gamble and Jain
Barriers to imitation
Barriers depend on whether the competitor is trying to imitate
Resource or Capability
24
27