Core Competencies

Here's a summary of CK Prahalad and Gary Hammel's concept of core competencies and its implications for corporate management:

Core Competencies

Competitive Advantage

A video on sustainable competitive advantage and its factors:

Foreign Market Entry

There are four possible mechanisms to enter a foreign market:

• Exporting
• Licensing
• Joint Venture
• Direct Investment

Exporting

Exporting refers to the direct selling of domestically-produced goods in a foreign country. It is a traditional method of reaching foreign markets, and a well-established one. Exporting does not need the goods to be produced in the target country and hence no investment in production facilities is required there. Most of the costs associated are due to marketing expenses.

Exporting requires coordination among five players:

•   Exporter
•   Importer
•  Transport provider
•  Government of domestic country
•   Government of target country

Licensing

Licensing permits a company in the target country to use the property of the licensor by payment of a fee. Such property is mostly intangible, like trademarks, patents, and production techniques. Licensing has the potential to provide a very large ROI because there is little investment required on the part of licensor. However potential returns from manufacturing and marketing activities may be lost to the licensee.

Joint Ventures

There are five common objectives of a joint venture: market entry, reward/risk sharing, sharing of technology and product development, and managing government regulations. Political connections and distribution channel are other potential banefits.

JVs work best when:

•   the partners' strategic goals converge and competitive goals diverge;
•   none of the partners are comparable to industry leaders; and
•   there exist learning opportunities despite limited access to each other’s proprietary skills.

The key issues are ownership, control, agreement length, pricing, technology, capabilities and resources sharing and government intentions.

Foreign Direct Investment

Foreign direct investment refers to direct ownership of facilities in the target country. It involves the transfer of capital, technology, and personnel to the target country. FDI may be done through acquisition or through establishment of a new enterprise and provides a high degree of control in operations and better opportunity to understand the consumers and competition.

Blue Ocean vs Red Ocean Strategy

Oceans and Business Strategy? Can they be related? Oh yes, they can! If you can relate blue to newness and red to the current, then they definitely can!! Here, I will compare the Red Ocean and Blue Ocean Strategies as applied to business.

Red Ocean Strategy: 
The Red Ocean Strategy is applied to the existing marketplace and deals with increasing the market share of an existing business. It focuses on increasing the customer base by tapping the existing demand in the market. According to this strategy, either differentiation or low cost should be used and not both. Market segmentation should be done by focusing on special needs of customers. Finally, according to Red Ocean Strategy, implementation follows a well documented strategy formulation.

Blue Ocean Strategy:
The Blue Ocean Strategy is applied to creation of a new market and deals with increasing the scope of a business. It looks to capturing current non-customers and potential future customers by the creation of new demands in the market. Unlike the Red ocean Strategy, the Blue Ocean Strategy focuses on value innovation by simultaneous use of both differentiation and low cost. It looks at varied customer needs and thus desegments the market instead of segmentation. Blue Ocean Strategy focuses on the improvement of three pillars of value, profit and people.



The above comparison was done by Senior Global Blue Ocean Strategy Network Member Dr. Zunaira Munir         

Reinventing your business model

My understanding of the article by Johnson, Christensen and Kagermann:

To determine whether a company needs to reinvent its business model, following steps need to be undertaken:

•        Find what makes the existing model successful or unsuccessful.
•        Find out signals that suggest that the model needs change
•        Decide if changing the model is worth the effort

Understanding the current model

A successful model has three components:

Customer Value Proposition: providing customers a unique offering that competitors cannot provide

Profit Formula: the model generates revenue for the company through multiple factors like revenue model and inventory turnover

Key resources and processes: the company has in place the required resources and processes to deliver value to the customers

Identifying the need for new model

An opportunity: when large consumer segments find existing solutions too expensive or complicated, a new technology opening up new avenues etc

A need: response to shift in competition or overcoming the challenge of new or evolving competitors

Strategic Management

Strategic management is about taking "strategic decisions" of an organization, those that define the way an organization functions. In practice, strategic management has three main components:

1.    Strategic Analysis

2.    Strategic Choice

3.    Strategy Implementation

Strategic Analysis

It is about analyzing the strengths of a business and understanding the external factors that influence it. The process of Strategic Analysis can be assisted by a number of tools, including:

PEST Analysis - a technique where the political, economic, social and technological analysis of a business’s environment is done

Scenario Planning - a technique which builds various possible views of the future of a business

Five Forces Analysis - a technique which analyses the five forces pertaining to a business, its market and its competition

Market Segmentation - a technique which identifies similarities and differences between groups of customers

Directional Policy Matrix - a technique which summarizes the competitive strength of a business’s operations in specific markets

Critical Success Factor Analysis - a technique which identifies areas in which a business must outperform the competition for achieving success

SWOT Analysis - a technique which summarizes the strengths, weaknesses, opportunities and threats to a business.

Strategic Choice

This process involves the understanding of stakeholder expectations, identifying strategic options, and evaluating and selecting the right strategic option.

Strategy Implementation

Quite often the hardest part, after all possible strategies has been analyzed and the right one selected, the task is then to implement it into organizational action.

Strategy in Business

Business strategy determines the success of an organization. It defines the way an organization intends to tackle competition. A business strategy intends to define the following:

Ø  Scope of business

Ø  Current and future needs of customers

Ø  Capabilities of the organization/key differentiating factor for competitive advantage

Ø  Ways to leverage the key differentiating factor  

A business strategy being of “strategic” importance, it is necessary for a strategy to meet the following quality tests:

§  The scope of the strategy should be correctly defined

§  The strategy should be well documented

§  It should address the real needs of the customers

§  It should be in line with the core competencies of the organization

§  It should define the competitive advantage of the organization

§  It should lay the groundwork for implementation

Thus the intent of business strategy is to leverage the unique capabilities of an organization to gain as well as sustain competitive advantage in catering to the needs of customers in the market. 

Strategy at Different Levels of a Business

There are different strategies at different levels in an organization - ranging from the overall business strategy to strategy at individual level.

Corporate Strategy – It is concerned with the overall purpose of the business and ability of the organization to meet customer demands. It is heavily influenced by investors and acts as a guide for decision-making throughout the business. Corporate strategy is often stated in the vision and mission statements.

Business Unit Strategy – It is concerned more with how an organization would compete successfully in the marketplace. It affects decisions regarding choice of products, meeting needs of customers, competitive advantage, creating new opportunities etc.

Operational Strategy – It is concerned with the execution of corporate and business-unit level strategic directions. It focuses on issues of resources, processes, people etc.