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MindMap Gallery Chapter 3 Strategic Choice
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Chapter 3 Strategic Choice
The 2021 CPA Strategy Exam Chapter 3 Framework presents the content of this chapter in the form of a framework. All the knowledge points have been sorted out for everyone, so that you can browse and check them when preparing for the exam, which will help you deepen your memory and improve your review efficiency. Sorting out the knowledge framework of each topic while reviewing is conducive to the integration of knowledge.
Edited at 2021-04-16 11:13:43
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Chapter 3 Strategic Choice
- bacteria
This is a mind map about bacteria, and its main contents include: overview, morphology, types, structure, reproduction, distribution, application, and expansion. The summary is comprehensive and meticulous, suitable as review materials.
- Plant asexual reproduction
This is a mind map about plant asexual reproduction, and its main contents include: concept, spore reproduction, vegetative reproduction, tissue culture, and buds. The summary is comprehensive and meticulous, suitable as review materials.
- Reproductive development of animals
This is a mind map about the reproductive development of animals, and its main contents include: insects, frogs, birds, sexual reproduction, and asexual reproduction. The summary is comprehensive and meticulous, suitable as review materials.
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- Outline
Strategic Choice
overall strategy
type
development strategy
integrated strategy
vertical integration
type
Forward integration (toward the market, customers)
advantage
By controlling the sales process and channels, it helps enterprises control and master the market, enhance sensitivity to changes in consumer demand, and improve the market adaptability and competitiveness of products.
Applicable conditions
The company's existing sellers have high sales costs or poor reliability and are unable to meet the company's sales needs.
The industry in which the company operates has great growth potential
The enterprise has the funds, human resources, etc. required for forward integration
The profit margin in the sales process is higher
Backward integration (toward raw materials)
advantage
It is helpful for enterprises to effectively control the cost, quality and supply reliability of key raw materials and other inputs, and ensure the steady progress of enterprise production and operation activities.
Applicable conditions
The company's existing supply costs are high or the reliability is poor, making it difficult to meet the company's demand for raw materials, parts, etc.
Few suppliers and many demand-side competitors
The industry in which the company operates has great growth potential
The enterprise has the funds, human resources, etc. required for backward integration
Profit margins in the supply chain are higher
The stability of enterprise product prices is very critical to enterprises. Backward integration is conducive to controlling raw material costs, thereby ensuring the stability of product prices.
advantage
Enterprises adopting a vertical integration strategy can help save transaction costs in buying or selling with upstream and downstream enterprises in the market, control scarce resources, ensure the quality of key inputs, or obtain new customers.
shortcoming
Will increase the company's internal management costs
Main risks
Risks associated with unfamiliarity with new business areas
Vertical integration, especially backward integration, generally involves a large amount of investment and strong asset specificity, which increases the exit costs of enterprises in this industry.
Horizontal integration (mergers and acquisitions of competitors, cooperation)
advantage
The main purpose is to achieve economies of scale to gain competitive advantage
Applicable conditions
The industry in which the company operates is highly competitive
Economies of scale in the industry in which the enterprise is located are relatively significant
The horizontal integration of enterprises complies with anti-monopoly laws and regulations and can obtain a certain monopoly position in local areas.
The industry in which the company operates has great growth potential
The enterprise has the capital, human resources, etc. required for horizontal integration
intensive strategy
market penetration strategy
Existing products and existing markets
Emphasize the development of a single product and try to gain greater market share through stronger marketing methods
Applicable conditions
The difficulty of such a strategy depends on the nature of the market and the market position of competitors
① When the entire market is growing, companies that want to increase market share can achieve their goals faster. Conversely, penetrating into stagnant or declining markets will be much more difficult
② If a company decides to limit its profits to existing products or market areas and does not allow sales to decline even when the entire market declines, then the company must adopt a market penetration strategy
③If other companies leave the market for various reasons, it is easier to succeed using a market penetration strategy
④ If the enterprise has a strong market position and can use its experience and capabilities to obtain strong and unique competitive advantages, it is relatively easy to implement a market penetration strategy.
⑤The market penetration strategy will be more applicable when the risks associated with the market penetration strategy are lower, senior managers are more involved, and when less investment is required.
market development strategy
Existing products and new markets (other regional markets consumer segments)
Reason (subjective question)
Companies find that the nature of the processes used to produce existing products makes it difficult to switch to producing entirely new products, so they look to develop other markets
Market development is often combined with product improvement
Existing markets or market segments are saturated, and companies can only look for new markets
Conditions of Use
There is an untapped or undersaturated market
Access to new, reliable, economical and high-quality sales channels
The company is very successful in its current business area
The enterprise has the capital and human resources needed to expand its operations
Enterprises have excess production capacity
The main business of the company belongs to companies that are rapidly globalizing
product development
Reasons (own perspective, competitor perspective)
Leverage your company’s understanding of the market
Maintain a leading position relative to competitors
Seek new opportunities from the shortcomings of the existing product portfolio (paid product portfolio is product development, unpaid product portfolio is market penetration)
Enable companies to continue to maintain a solid position in existing markets
Applicable conditions
Enterprise products have high market credibility and customer satisfaction
The industry in which the enterprise is located is a high-tech industry with rapid development that is suitable for innovation.
The industry in which the company is located is in a stage of rapid growth
The company has strong research and development capabilities
Major competitors offer higher quality products at similar prices
Diversification Strategy
New products and new markets
reason
Goals cannot be achieved by continuing operations in existing products or markets
The capital retained by a business as a result of previous successful operations in existing products or markets exceeds the capital required for financial expansion in existing products or markets
A diversification strategy means higher profits than expansion in existing products or markets
type
Related diversification strategies (concentric diversification)
strategy description
Enterprises enter related industries or markets based on existing businesses or markets
It is conducive to obtaining integration advantages, that is, the profitability of two businesses or two markets operating at the same time is greater than the sum of the profitability of operating separately (economies of scope)
Relevance can be reflected in many aspects: products, production technology, management skills, marketing channels, marketing skills, users
Slightly lower risk than uncorrelated diversification
Applicable conditions
The enterprise has a strong competitive advantage in the industry or market, but the growth or attractiveness of the industry or market is gradually declining.
Unrelated diversification strategy (centrifugal diversification)
strategy description
Enterprises enter areas that are unrelated to current industries and markets
The goal is to financially consider balancing cash flow or obtaining new profit growth points, and avoiding industry or market development risks.
Applicable conditions
The company's current industry or market is unattractive, and the company does not have strong capabilities or skills to switch to related products or markets.
advantage
Diversify risks. When existing products and markets fail, new products or markets may provide protection for the company.
Easier access to capital markets
When enterprises cannot grow in their original industries, they find new growth points
Leveraging underutilized resources
Use surplus funds
Obtain funds or other financial benefits, such as accumulated tax losses
Use the company's image and reputation in one industry or market to enter another industry or market. To succeed in another industry or market, corporate image and reputation are crucial.
risk
Risks from original operating industries
overall market risk
Industry entry risk
Industry exit risk
Internal business integration risks
stabilization strategy
meaning
Also known as maintenance strategy, it refers to a strategy that is limited to the operating environment and internal conditions, and the operating conditions expected by the company during the strategic period are basically maintained within the scope and level of the strategic starting point.
Applicable situations
It is suitable for companies whose forecasts of the environment during the strategic period will not change much but whose operations were quite successful in the early stage.
advantage
Can make full use of various resources in the original production and operation fields
Avoid the huge capital investments and development risks necessary to develop new products and markets
Avoid the cost of resource reconfiguration and combination
Prevent imbalances caused by too fast or too hasty development
risk
Once a company's external environment undergoes major changes, the balance among the company's strategic goals, external environment, and company strength will be lost, putting the company in trouble. The stabilization strategy can also easily make enterprises weaken their risk awareness, and even form a corporate culture of fearing and avoiding risks, reducing the sensitivity and adaptability of enterprises to risks.
contraction strategy
meaning
Also known as retreat strategy, it refers to the strategy of enterprises to reduce the original business scope and scale.
reason
active cause
The need for strategic sufficiency in large businesses; the short-term behavior of small businesses
passive cause
External reasons: Due to various reasons, such as the overall economic situation, industrial cycles, technological changes, policy changes, social values or fashion changes, market saturation, and competitive behavior, the external environment on which enterprises rely for survival has experienced a crisis.
Businesses lose their competitive advantage. Due to the internal operating mechanism of the enterprise, poor decision-making, poor management and other reasons, the enterprise is in trouble and has to take defensive measures.
Way
austerity and concentration strategies
meaning
Tends to focus on short-term benefits, primarily involving remedial measures to halt profit declines with the aim of producing immediate results
type
Mechanism change: Adjust the management leadership team; re-formulate new policies and management control systems, etc.
Fiscal and financial strategies: strict control of cash flow; debt restructuring; debt-for-equity swaps
Cost reduction strategy: Reduce labor costs, material costs, administrative expenses, assets, etc.; reduce the size of distribution and functional departments
Turn to strategy
More related to changes in the business direction or business strategy of the enterprise
explain
Reposition or adapt existing products and services
Adjust marketing strategy
abandon strategy
Involving changes in the property rights of the enterprise (or subsidiary)
Franchising, subcontracting, outright sales, management and leveraged buyouts, asset swaps and strategic trade
difficulty
Judgment of enterprise or business conditions
exit barriers
Degree of specificity of fixed assets
Exit costs (including labor agreements, relocation costs, spare parts repair capabilities)
Internal strategic connections (relationships with other departments in terms of corporate image, marketing capabilities, financial market channels, shared facilities, etc.
emotional disorder
Government and social constraints (the government opposes or discourages)
Main approaches to development strategy
External development strategy (mergers and acquisitions)
M&A type
Classification by industry where both parties to the merger and acquisition are located
horizontal merger
Refers to the acquiring party and the acquired party being in the same industry
vertical merger
Refers to mergers and acquisitions between enterprises that are closely related to their business objects but are at different stages of production and marketing. Forward M&A and Backward M&A
Diversified M&A
Refers to mergers and acquisitions between companies in different industries and not closely related in business operations.
Classification by attitude of acquirer
Friendly mergers and acquisitions
Refers to a type of merger and acquisition in which the acquiring party and the acquired party determine the terms of the merger and acquisition through friendly negotiation and realize the transfer of property rights when both parties basically agree on the opinions.
hostile takeover
Also known as a hostile merger, it usually refers to a type of merger and acquisition in which the acquiring party takes coercive measures to acquire the other party's enterprise regardless of the wishes of the acquired party after friendly negotiations are rejected.
Classified by the identity of the acquirer
Industrial capital mergers and acquisitions
Generally done by non-financial companies. The purpose is to obtain industrial profits
Financial capital mergers and acquisitions
Acquisitions are generally carried out by investment banks or non-bank financial institutions. Purpose to obtain investment profits
Classification by source of acquisition funds
LBO
When the acquirer implements an enterprise acquisition, its main source of funds is external liabilities, which is completed with the support of bank loans or financial market borrowings.
non-leveraged buyout
The acquirer’s main source of funds is free funds (80%)
M&A motivation
Avoid entry barriers, enter quickly, seize market opportunities, and avoid various risks
Gain synergy
Unified deployment of production, marketing and personnel between the two enterprises
Transfer pricing within the company; complementary advantages and sharing of resources such as information, personnel, product categories, advanced technology and management, distribution channels, trademarks and brands, financing channels, etc.
Technology transfer, digestion, absorption and feedback after technological innovation within the company
Overcome negative externalities of enterprises, reduce competition, and enhance control over the market
Reasons for failed mergers and acquisitions
poor decision making
Before the merger and acquisition, the potential costs and benefits of the target enterprise were not carefully analyzed, and the merger and acquisition was carried out too hastily. As a result, the acquired enterprise could not be reasonably managed.
The attractiveness of the industry where the high-priced M&A target is located and one's own management ability of the acquired company, thus overestimating the potential economic benefits brought by the M&A.
After merger and acquisition, enterprise integration cannot be carried out well.
Paying exorbitant M&A fees
Cross-border mergers and acquisitions face political risks
Precautions
Strengthen the assessment of political risks in host countries and improve dynamic monitoring and early warning systems
Adopt flexible international investment strategies to build a solid foundation for risk control
Implement corporate localization strategies to reduce conflicts and frictions with host countries
Internal Development Strategy (New)
meaning
Also known as endogenous growth, it refers to a company using its own scale, profits, activities and other internal resources to achieve expansion without acquiring other companies.
motivation
The process of developing new products enables companies to gain a deep understanding of the market and products
No suitable acquisition target exists
Maintain a unified management style and corporate culture
Provide career development opportunities for managers
The consideration is lower because no additional amount is paid for goodwill when acquiring the asset
Mergers and acquisitions often create hidden or unpredictable losses, whereas internal developments are less likely to create this
This may be the only reasonable way to achieve true technological innovation
Can be carried out in a planned manner, easy to obtain financial support from corporate resources, and costs can be spread over time
The risk is lower. In an acquisition, the buyer may also have to bear the consequences of previous decisions made by the acquiree
Internal development costs increase more slowly
shortcoming
Adding competitors to the market compared to buying existing businesses in the market may intensify competition within a market
Companies cannot have access to other companies’ knowledge and systems, which may be more risky
Lack of economies of scale or experience curve effects from the start
When the market is developing very fast, internal development appears too slow
Entry into new markets can involve very high barriers
Application conditions
The industry is in an imbalanced situation and structural barriers have not yet been fully established.
The behavioral barriers of existing companies in the industry are easily restricted
The enterprise has the ability to overcome structural and behavioral obstacles, or the cost to the enterprise of overcoming the obstacles is less than the profit after entry.
Aspects of ability to overcome barriers to entry
The assets, skills, and distribution channels of the company's existing business have a strong correlation with the new business field.
When a company enters a new field, it has the unique ability to influence its industry structure and make it serve itself.
After an enterprise enters a new field, it is conducive to developing the existing business content of the enterprise.
Corporate strategic alliance
meaning
A cooperative relationship established between two or more business entities to achieve a certain strategic purpose
Basic Features
From the perspective of economic organization form, strategic alliance is an "intermediate organization" between enterprises and the market.
From the perspective of corporate management, the parties forming a strategic alliance are an equal partnership formed through prior agreement on the basis of resource sharing, mutual advantage, mutual trust, and mutual independence.
Performance of alliance companies
equality of dealings
The long-term nature of the partnership
complementarity of overall interests
Openness of organizational form
From the perspective of corporate behavior, alliance is a strategic cooperative behavior
motivation
Promote technological innovation
Avoid business risks
Avoid or reduce competition
Realize resource complementation
Open up new markets
Reduce coordination costs
Main types
From the perspective of equity participation and contractual linkage
Joint venture
Mutual shareholding investment
functional protocol
Technical Exchange Association
Alliance members exchange technical information with each other and enhance their competitiveness through "knowledge" learning.
Cooperative research and development agreement
Share ready-made scientific research results, jointly use scientific research facilities and production capabilities, and jointly develop new products
Production Marketing Agreement
jointly produce and sell a product
Industrial Coordination Agreement
Establishing an industrial alliance system with comprehensive collaboration and division of labor, often seen in high-tech industries
The main differences between equity alliances and contractual alliances
Compared with equity-type strategic alliances, contractual strategic alliances have more essential characteristics of strategic alliances because they place more emphasis on the coordination and tacit understanding of related enterprises.
It has greater advantages than equity-based strategic alliances in terms of operational flexibility, autonomy and economic benefits.
Insufficiencies, such as poor ability of enterprises to control alliances, loose organizations lacking stability and long-term interests, insufficient communication among members within the alliance, and low organizational efficiency
Relatively speaking, equity-type strategic alliances are conducive to expanding the financial strength of the company and enhancing the trust and sense of responsibility of both parties by partially "owning" the other party. Therefore, they are more conducive to long-term cooperation. The disadvantage is that they have poor flexibility.
Classification of cooperation content at different stages
Strategic alliances in the research and development stage
License agreement, license exchange contract, technology exchange, technical personnel exchange plan, joint research and development, investment for the purpose of acquiring technology
Strategic alliances in the manufacturing stage
Entrusted customized supply, auxiliary manufacturing contract, parts standard agreement
Strategic alliances at the sales stage
sales agency agreement
comprehensive strategic alliance
Adjustment of product specifications and joint risk sharing
Control
Enter into an agreement
Strictly define the goals of the alliance
Carefully design alliance structure
Accurately assess invested assets
Specify liability for breach of contract and dissolution clauses
Establish an alliance of cooperation and trust
business unit strategy
basic competitive strategy
Cost leadership strategy
meaning
A strategy for companies to become cost leaders in the industry by strengthening cost control internally and minimizing costs in areas such as research and development, production, sales, services, and advertising.
Advantage
create barriers to entry
Enhance bargaining power
Reduce the threat of substitutes
Stay ahead of the competition
Implementation conditions
Market conditions (external)
The product has high price elasticity and there are a large number of price-sensitive users in the market.
The products of all companies in the industry are standardized products, and it is difficult to differentiate products.
Buyers pay less attention to brands and most buyers use products in the same way
Price competition is the main means of market competition, and consumers’ switching costs are low
Resources and capabilities (internal)
Equip corresponding production facilities in industries with significant economies of scale to achieve economies of scale
Reduce various factor costs
Improve productivity; productivity is the output of unit factors, and the cost of unit product is the reciprocal of each other. Improving productivity goes hand in hand with lowering costs. Adopting the latest technology, technology or process and making full use of the learning curve to reduce it are necessary means to improve productivity
Improve product process design; adopt simple product design to reduce costs by reducing product functions while fully meeting consumer needs
Improve production capacity utilization
Choose the appropriate trading organization form
focus
risk
Changes in technology may wipe out past investments in cost reduction and experience gained
New entrants or followers in the industry achieve the same or even lower product costs by imitating or investing in higher-tech facilities.
Market demand has shifted from focusing on price to focusing on the brand image of products, turning the company's original advantages into disadvantages
Differentiation Strategy
meaning
The products and services provided by an enterprise to customers are unique within the industry. This feature can bring additional price increases to the product. If the overflow price of an enterprise's products or services exceeds the increased cost due to its uniqueness, then, Companies that possess this differentiation will gain a competitive advantage
Advantage
create barriers to entry
Reduce customer sensitivity
Enhance bargaining power
Less than the threat of substitutes
Implementation conditions
Market conditions (external conditions)
Products can be fully differentiated and recognized by customers
Customer needs are diverse
The industry in which the company operates is experiencing rapid technological changes, and innovation has become the focus of competition.
Resources and capabilities (internal conditions)
Have strong R&D capabilities and product design capabilities
Have strong marketing capabilities
Have a strong system, management system and good creative culture that can inspire employees' creativity
Have the ability to improve the quality of a certain business as a whole, establish product image, maintain advanced technology and establish and improve distribution channels
risk
The cost for enterprises to differentiate their products is too high
Market demand changes
Competitors' imitation and attacks narrow or even divert established differences
centralization strategy
meaning
A strategy of using cost leadership or product differentiation to gain competitive advantage for a specific purchasing group, product segment, or regional market. Generally used by small and medium-sized enterprises, it is divided into concentrated cost leadership strategy and concentrated differentiation strategy.
Advantage
The advantages of cost leadership and differentiation strategies in resisting the five competitive forces of the industry can also be reflected in the concentration strategy.
Since the concentration strategy avoids direct competition with competitors on a large scale, for some small and medium-sized enterprises that are not strong enough to compete with powerful large companies, the implementation of the concentration strategy can enhance their relative competitive advantages.
For large companies, adopting a centralized strategy can avoid direct conflicts with competitors and put the company in a competitive buffer zone.
Implementation conditions
There are differences in needs among buyer groups
The target market is relatively attractive in terms of market capacity, growth rate, profitability, competition intensity, etc.
No other competitor in the target market adopts a similar strategy
Enterprise resources and capabilities are limited, making it difficult to achieve cost leadership or differentiation in the entire industry, and can only select individual market segments.
risk
Risks caused by narrow target market
Differences in demand among buyer groups become smaller
Entry and competition of competitors
"Strategy Clock"
Cost leadership strategy
Low price and low value strategy, focusing on market segments that are very price sensitive
Low price strategy, which is to reduce the price while trying to keep the quality of the product or service unchanged
Differentiation Strategy
High value strategy, providing customers with higher customer recognition value than competitors at the same or slightly higher price
High value and high price strategy, providing customers with higher recognition value at a particularly high price
mixed strategy
meaning
Companies can gain cost advantages while providing higher recognition value to customers
The following factors will cause a company to obtain both advantages at the same time
Companies that offer high-quality products increase market share, which in turn reduces average costs due to economies of scale. As a result, the company can achieve both high-quality and low-cost positioning in the industry
The accumulation of experience in producing high-quality products reduces costs faster than producing low-quality products. That is, workers must pay more attention to the production of products, which in turn will reduce average costs due to the experience curve
Focusing on improving production efficiency can reduce costs in the production of high-quality products
failed strategy
high value low value
Competitive Strategies for Small and Medium Enterprises
Competitive strategy in fragmented industries
meaning
In fragmented industries, industry concentration is very low. No company occupies a significant market share, and no one company can have a significant impact on the development of the entire industry.
Performance of fragmented industries
A large number of small and medium-sized enterprises, many of which are private enterprises; lack of industry leaders
Reasons for industry fragmentation
Low barriers to entry or existing barriers to exit
Diversified market demands lead to a high degree of product differentiation (including diverse demands for the products themselves, as well as fragmented consumption locations)
There are no economies of scale or it is difficult to achieve economies of scale
Other factors, such as government policies and local regulations that restrict the concentration of certain industries, and the fact that no company in a new industry has mastered sufficient skills and capabilities to occupy an important market share, etc.
Strategic choices for fragmented industries
Overcome fragmentation – gain cost advantage
way
Franchise or franchise
Technological innovation to create economies of scale
Discover industry trends early
Increase added value - improve product differentiation
Specialization-goal agglomeration
specialization strategy
Specialization by product type or product segment
Customer Type Specialization
Geographic area specialization
Beware of potential strategic pitfalls
avoid demand dominance
Maintain strict strategic constraints
Avoid over-centralization
Understand competitors' strategic goals and overhead costs
Avoid overreacting to new products
Competitive strategies in new industries
Emerging industries are newly formed or re-formed industries that are formed because technological innovation, the emergence of new consumer demands, or other economic and social changes elevate a product or service to the level of a potentially viable business opportunity.
Common characteristics of the internal structure of emerging industries
technological uncertainty
strategic uncertainty
Rapid changes in costs
Budding businesses and start-ups
first time buyer
Obstacles and opportunities for the development of emerging industries
developmental disabilities
Difficulties in selecting, acquiring and applying proprietary technology
Inadequacy of raw materials, parts, capital and other supplies
Customer confusion and wait-and-see
Reactions to substituted products
Lack of courage and ability to take risks
opportunity
Low barriers to entry
Competition structure is not established
Strategic choices for emerging industries
Shape industrial structure
Enterprises strive to establish industry rules of the game
Correctly Treat the Externalities of Industrial Development
Coordination of the overall interests of the industry and the individual interests of enterprises
Pay attention to changes in industry opportunities and obstacles, and take the initiative in industrial development and changes
Choose the right time and field to enter
Situations suitable for early entry
The image and reputation of a company are crucial to customers, and a company can enhance its reputation by being a pioneer.
The learning curve in the industry is very important. Experience is difficult to imitate and will not become obsolete due to continuous technological upgrading. Early entry into enterprises can start this learning process earlier.
Customer loyalty is very important, and businesses that sell products or services to customers first will benefit.
Early partnerships with raw material suppliers and distribution channels are crucial to industry development
Not suitable for early entry situations
The market segments that compete in the early stage are different from the situation after the industry matures. After the companies that enter early have established a competitive foundation, they face excessive switching costs.
In order to shape the industrial structure, a high price needs to be paid to open up the market, including customer education, regulatory approval, and technological development. However, the benefits of opening up the market cannot be exclusive to enterprises.
Technological changes make early investments obsolete and late entrants benefit from having the latest products and processes
blue ocean strategy
connotation
Blue ocean pioneers do not regard competition as their benchmark, but follow a completely different set of strategic logic, namely "value innovation"
The reason why it is called value innovation is that it does not focus on competition, but strives to make a leap in the value of both customers and enterprises, thereby opening up a new, non-competitive market space.
The vast majority of blue ocean markets are actually new markets developed by tapping new demands within the red ocean market and expanding the boundaries of existing industries.
The difference between blue ocean and red ocean
Red Ocean: Compete in the existing market, participate in competition, compete for existing needs, follow the law of value and cost interchange, integrate corporate behavior into a system based on differentiation or low-cost strategic choices
Blue Ocean: Expand competitive market space, avoid competition, create and seize new demands, break the law of mutual exchange between value and cost, pursue differentiation and low cost at the same time, and integrate corporate behavior into a system
established principles
Rebuilding market boundaries
Reduce the risk of searching
Focus on the big picture rather than the numbers
Reduce planning risks
Go beyond existing needs
Reduce the risk of scale
Follow a sound strategic sequence
Reduce business model risk
Buyer utility: Whether the products and services have outstanding utility and whether there are compelling reasons for buyers to purchase them
Strategic Pricing: Is the price easily affordable by the buyer public?
Target cost: Can the cost structure meet the target cost?
Market education: all employees, business partners, the public
Overcome key organizational barriers
Reduce organizational risk
Cognitive Impairment: Organizations Obsessed with the Status Quo
Resource Barrier: Limited Resources
Motivation Barrier: Lack of Motivated Employees
Organizational Political Obstacles: Opposition from Powerful Vested Interests
Make execution part of the strategy
Reduce management risk
Pay attention to strategy execution
The foundation of execution lies in employees
Build trust and loyalty at the grassroots level and inspire collaboration
The key is "fair process"
How fair processes affect people's attitudes and behavior
Strategy development: Invite participation - explain the story - clarify expectations
Attitude: Trust and Loyalty
Behavior: voluntary cooperation-contribution beyond one's job
Strategy execution: Exceed expectations and execute voluntarily
Basic law path to reconstruct market boundaries
Examine alternative industries
The concept of alternative products is broader than alternatives. Products or services with different forms but the same function or core utility are substitutes, while alternatives also include products or services with different functions and forms but the same purpose.
Red Ocean Thinking: Accept the definition of existing industries and become the best among them
Blue ocean view: Enterprises not only compete with their own industry rivals, but also compete with other industry rivals who choose products or services.
Across strategic groups
Red Ocean Thinking: Accept the existing strategic group divisions and strive to dominate the group.
Blue ocean perspective: break through existing group divisions, figure out what factors determine customer choice, and find gaps in the market
Redefining industry buyer groups
Red Ocean thinking: only focus on a single buyer (buyer), not the end user
Blue ocean view: The buyer is a buyer chain composed of buyers, users and influencers. Focus shifts from buyers to users
Look at complementary products or services
Red Ocean thinking: Similar methods define the scope of products or services and provide cars to customers
Blue ocean view: Complementary products or services contain untapped needs. The simple way is to analyze what customers need before, during and after using the product.
Reset customer functional or emotional appeals
Red Ocean thinking: Accept the fixed functional or emotional orientation of existing industries
Blue ocean perspective: Enterprises change existing functions or emotional orientations and discover new spaces
Across time (correctly predicting trends in the development and change of the external environment)
Red Ocean Thinking: Formulate strategies that only focus on current competitive threats
Blue ocean perspective: From a business perspective, understand how technology and policy trends change the value of customer acquisition, how they affect business models, and seize the future development trend of the industry.
functional strategy
marketing strategy
Determine target market
market segmentation
concept
Through market research, enterprises divide the market of a certain product into several consumer groups based on obvious differences in certain characteristics or variables of consumer demand. This is the market classification process.
Basis for consumer market segmentation
Geographic segmentation: Segment the consumer market according to the geographical location of consumers and other geographical variables (including urban and rural areas, terrain and climate, transportation, etc.)
Demographic Segmentation: Segment the consumer market by demographic variables (including age, gender, income, occupation, education level, family size, family life cycle stage, religion, race, nationality, etc.)
Psychological segmentation: Segment the consumer market according to consumers’ lifestyle, personality and other psychological variables.
Behavioral segmentation: based on the time when consumers purchase or use a certain product, the benefits the consumer pursues, the user situation, the consumer's usage rate of a certain product, the consumer's loyalty to the brand (or store), consumption Segment the consumer market by using behavioral variables such as the buyer’s purchase stage and consumer attitudes towards the product
Basis for industrial market segmentation
Some of the variables used to segment industrial markets are the same as those used to segment consumer markets, such as pursuit of benefits, user profile, degree of use, trust in the brand, purchase preparation stage, user attitude towards the product, etc.
Also includes: end users, customer size, other variables
Target market selection
undifferentiated marketing
After market segmentation, the enterprise does not consider the characteristics of the sub-markets, but only focuses on the commonality of the sub-markets. It decides to launch only a single product and use a single marketing mix, striving to meet the needs of as many customers as possible to a certain extent.
Differential Marketing
The company decides to serve several sub-markets at the same time, involving different products, and makes corresponding changes in channels, promotions and pricing to adapt to the needs of each sub-market.
centralized marketing
It means that enterprises concentrate all their efforts to target one or a few sub-markets with similar properties, trying to occupy a larger market share in fewer sub-markets.
Market positioning
main method
Positioning based on attributes and benefits
Position based on price and quality
Target based on usage
Based on user targeting
Positioning based on product grade
Positioning based on competitive situation
Combination positioning using various methods
Considerations
The total cost of a company moving its brand positioning from one submarket to another
How much revenue will a company earn after repositioning, and how much revenue will depend on the buyers and competitors in the submarket, as well as how high the sales price can be set in the submarket.
Design marketing mix (product, promotion, distribution, price)
Product Strategy
product mix strategy
Product portfolio width, length, depth and relevance
Width: refers to how many product categories the company has
Length: refers to the total number of product items included in an enterprise's product portfolio
Depth: refers to the number of colors, varieties, and specifications of each product in the product category
Relevance: refers to the degree of close correlation between various product categories of an enterprise in terms of final application, production conditions, distribution channels, etc.
Product mix strategy types
Expand product portfolio. Including expanding the width and length of the product portfolio and enhancing the depth of the product portfolio
Reduce product portfolio. Doing the opposite of expanding product portfolio
product extension
extend downward
The company originally produced high-end products, but later decided to add low-end products
extend upward
The company originally produced low-end products, but later decided to add high-end products
Two-way extension
After the company originally positioned in the mid-range product market grasped the market advantage, it decided to extend its product categories in both upper and lower directions. On the one hand, it added high-end products, and on the other hand, it added low-end products to expand its market position.
Brand and Trademark Strategy
single business name
A business uses the same trademark for all its products
Each product has a different brand name
Companies use different brand names for each product
private label
Many retailers sell private label merchandise so that customers build loyalty to the retailer rather than the manufacturer of the product.
product development strategy
New products: mainly refer to products that open up new markets, products that replace existing products, and substitutes for existing products
Reasons for product development
The enterprise has a high market share and strong brand strength, and has a unique competitive advantage in the market
There is potential growth in the market
Changing customer needs require new products. Continuous product updates are the only way to prevent new products from becoming obsolete
Need to carry out technological development or adopt technological development
Businesses need to respond to competitive innovations in the market
Investment Risks in Product Development
In some industries, there is a lack of new product ideas
The ever-smaller market segments result in reduced market capacity
Product development involves complex R&D processes and the probability of failure is high
Companies usually need to do a lot of product ideation to develop a good product, which is expensive
Even if the product is successful, the life cycle of the new product may be short because it is "imitated" by competitors and innovated and improved.
promotion strategy
Purpose
Win the attention of potential customers; generate benefits; stimulate customers' desire to buy; stimulate customers' purchasing behavior
Components of a Promotional Mix
advertising promotion
Placing advertisements in the media can create a good impression on potential customers of the company's products and services. Advertising promotions should carefully consider the location, timing, frequency and form of advertising
Business promotion
Use non-media promotional techniques designed to encourage customers to purchase products or services. For example, trial product discounts, gifts
publicity
Refers to promoting the corporate image and establishing a good public image for the company and its products.
personal selling
The company's sales representatives have direct contact with prospective customers. Sales representatives can fully explain product details, answer customer questions, and demonstrate product uses
Distribution strategy
meaning
Is the best way to ensure that the product reaches the customer
Distribution channel type
direct distribution
Directly from manufacturer to consumer without going through middlemen
indirect distribution
Exclusive distribution: using only one retailer per geographic market
Intensive distribution: selling products through many stores in each geographic market
Price Strategy
Pricing target
Maximize profits by leveraging demand price elasticity and cost information
Achieve target return on investment. This objective would lead to the adoption of cost-based pricing
Achieve target market share
When the market is very price sensitive, the pricing goal is to enhance competitiveness rather than lead the market
Pricing Strategy
product differential pricing
Pricing based on market segments
Location (space) based pricing
Product-based version pricing
Time-based pricing
dynamic pricing
product launch pricing method
Penetration Pricing - Low Price (Market Share)
Skimming Pricing – High Price (Profit)
research and development strategy
type
Product Research-New Product Development
Process research - Process research focuses on the process of producing products or providing services, aiming to establish effective processes to save money and time, thereby increasing productivity
Source of motivation for R&D
demand pull
technology push
The strategic role of R&D
Porter’s basic strategy (cost leadership, differentiation)
Porter's value chain
Ansoff matrix
product life cycle
R&D positioning
Become a company that introduces new technology products to the market
Become an innovative imitator of successful products
Become a low-cost producer of successful products
R&D policy
Enhance product or process improvements
Strengthening the foundation of applied research
Become an R&D leader or follower
Develop intelligent technology or manual processes
Invest high, moderate or low amounts of money in R&D
Conduct R&D in-house or outsource
Leveraging the research power of universities or private industry
Policies to encourage innovative ideas
Financial support must be given to innovation, which can be achieved through funding for R&D and market research, as well as venture capital for new ideas
Employees must be given the opportunity to work in an environment that generates innovative ideas, which requires appropriate management styles and organizational structures
Management actively encourages new ideas from employees and customers
Form a development team and establish relevant management organizations
Where appropriate, corporate recruitment policies should focus on recruiting employees with innovative skills
Dedicated managers are responsible for obtaining information related to innovative ideas from the environment or from the company's internal communications.
Strategic plans should help achieve innovation goals; employees who successfully achieve goals should be rewarded
Production and Operations Strategy
Main factors and stages involved in production operations strategy
batch
Mass production - low cost (specialized division of labor can be achieved)
Small-scale production - high cost (unable to achieve specialization)
type
Many varieties - high cost (requires sufficient flexibility)
Less variety - low cost (standardized production)
demand changes
Fluctuating demand - low capacity utilization (high costs)
Stable demand - high capacity utilization (low cost)
visibility
Refers to the extent to which production and operation processes are visible to customers
High visibility (service industry) - high employee skill requirements - unit cost may be relatively high
Low visibility (production-oriented industries) - low employee skill requirements - unit costs may be low
Capacity planning: balancing production capacity with market demand
Types of capacity planning
Leading strategy (offensive)
Increase production capacity in anticipation of demand growth
Lagging strategy (conservative)
Increase production capacity only when companies meet capacity production or overproduction due to increased demand
Matching strategy (robust)
Increase production capacity in small amounts to respond to changes in market demand
Ways to balance capacity with demand
Resource-to-order production
Order→Resource→Production
Construction companies may receive large orders for new roads and bridges. The construction company will only start purchasing the necessary resources after signing the contract
Order production
Resources→Order→Production
The business will have the appropriate labor and equipment, but the business will not start producing the product or providing the service until the order is actually received
Inventory production
Resources→Production→Order
Common in manufacturing companies
Just-in-time production system (JIT)
Just-in-time production methods refer to the production of products that accurately meet customer needs in terms of time, quality and quantity, regardless of whether the customer is the end user of the product or another process on the production line (on-demand production)
elements
keep improving
Eliminate waste. Seven types of waste: waste of overproduction; waste of waiting; waste of transportation; waste of processing; waste of inventory; waste of action; waste of defective products
Good workplace organization
Reduce work preparation time
Involvement of all employees in the business
advantage
Low inventory, reducing warehousing expenses
Reduces operating costs on inventory as inventory is only available when needed
Reduces the likelihood of inventory deterioration, obsolescence or obsolescence
Avoid situations where a large amount of finished goods cannot be sold due to sudden changes in demand
Because JIT focuses on doing the job right the first time, it reduces the time it takes to inspect and rework products.
shortcoming
Since only a minimum amount of inventory is reserved for the rework of substandard products, there is less room to make up for errors once a link occurs.
Production is highly dependent on suppliers, and if the supplier does not distribute goods on time, the entire production plan will be delayed
Since the company produces all products to actual orders, it does not have spare finished goods to meet unexpected orders.
Procurement strategy
Supply strategy
single source strategy
advantage
Buyers can establish stronger relationships with suppliers
Facilitate confidentiality of information
can generate economies of scale
As the relationship with suppliers deepens, buyers may obtain high-quality supply
shortcoming
If there are no other suppliers, the bargaining power of the supplier will be enhanced
Buyers are vulnerable to supply disruptions
Suppliers are vulnerable to changes in order volumes
Multiple source strategy
advantage
Ability to acquire greater knowledge and expertise
A supply disruption from one supplier has a low impact
Competition among suppliers is conducive to lowering prices for suppliers
shortcoming
Difficulty designing an effective quality assurance program
Supplier commitment is low
Economies of scale ignored
The supplier is responsible for delivering a complete subcomponent
advantage
Allows for the use of external experts and external technology
Can arrange other tasks for internal staff
Buyers are able to negotiate economies of scale
shortcoming
First-tier suppliers are in a prominent position
Competitors have access to the same external firms, so the firm is unlikely to gain a competitive advantage in supply.
Purchasing portfolio (understand)
quality
Raw material quality determines product quality
quantity
Consider two factors (the cost of maintaining inventory and production delays caused by insufficient inventory)
price
delivery
Delivery time and reliability
Purchasing Manager Responsibilities (Understand)
Cost Control
management input
production input
Supplier management
Obtain information about the following matters to use in evaluating purchasing options: availability, quality, price, distribution and suppliers
Maintain inventory levels
HR strategy
The role of human resources strategy
Precisely identify the types of talent the company needs to achieve its short-, medium- and long-term strategic goals
Unlock employee potential through training, development and education
Maximize the share of employees who perform well early in their tenure as a percentage of the total workforce
Recruit enough new young workers who have the potential to become outstanding workers
Recruit enough talents with certain experience and achievements and quickly adapt them to the new corporate culture
Make sure you take all possible steps to prevent competitors from poaching your talent
Motivate talented people to reach higher performance levels and inspire loyalty to the business
Create a corporate culture so that talents can be cultivated and able to display their talents in this culture
human resource planing
steps of human resource planning
Investigate, collect and organize various information related to corporate strategic decisions and operating environment
Determine the duration, scope and nature of human resource planning based on the actual situation of the enterprise or department. Establish an enterprise human resources information system to prepare accurate and detailed information for relevant forecasting work
On the basis of analyzing the factors affecting the supply and demand of human resources, various scientific forecasting methods that are mainly quantitative and combined with qualitative analysis are used to predict the future supply and demand of human resources of the enterprise.
Develop a master plan and various business plans to balance the supply and demand of human resources
Human resources supply and demand balancing strategy
Measures that should be taken when the total supply and demand are balanced but the structure does not match
Carry out internal reconfiguration of personnel, including promotions, transfers, demotions, etc., to fill those vacant positions and meet this part of the human resource needs
Targeted and specialized training of existing personnel to enable them to perform the job openings
Carry out personnel replacement, clear out the personnel that the company does not need, and supplement the personnel that the company needs to adjust the personnel structure.
Measures to be taken when supply exceeds demand
Expand the scale of operations or develop new growth points to increase the demand for human resources
Permanently lay off or terminate employees
Encourage employees to retire early
Recruitment freeze
Shortening employees' working hours, implementing job sharing, or lowering employees' wages can also reduce supply.
Training redundant employees
Measures to be taken when supply is less than demand
Hire people from outside, including rehiring retirees
Adopt various methods to improve the work efficiency of existing employees, such as improving production technology, increasing wages, conducting skills training, and adjusting working methods
Extend working hours and let employees work overtime
Reduce employee turnover rate, reduce employee turnover, and at the same time conduct internal deployment and increase internal mobility to increase the supply of certain positions.
Outsource some of the company's operations to reduce the need for human resources
Human resources acquisition
Human resources training and development - human resource development and training that matches competitive strategies
When an enterprise adopts a cost leadership strategy, it usually emphasizes personal abilities, therefore emphasizing a limited range of knowledge and skills, and implements personal on-the-job training. Enterprises often improve employees' knowledge and abilities by setting up corporate universities or regular training.
Companies that adopt a differentiation strategy emphasize what makes the company different from other companies, and therefore require extensive knowledge, skills, and creativity. Companies that adopt this strategy often deliver external novel information, purchase required skills, or use external training institutions to Team training
Enterprises that adopt a centralized strategy have a more urgent need for knowledge in specialized fields and generally emphasize knowledge and skills with a moderate scope of application. May develop skills themselves or purchase skills using on-the-job training or external training
Human resources performance evaluation - matching of performance management with the company's basic competitive strategy
Enterprises that implement a cost leadership strategy advocate defeating opponents or becoming industry leaders through lower costs. Performance evaluation emphasizes result orientation and aims to control costs. The scope of evaluation is narrow, the information source of evaluation is single, and superiors are the main examiners of evaluation.
The differentiation strategy emphasizes the production of distinctive products, focusing on innovation and novelty, and the evaluation content involves both behavioral and result indicators. The evaluation scope is wide and the evaluation information is rich. It is mainly used for employee development and quality improvement.
Compared with cost leadership and differentiation strategies, for enterprises that adopt centralized strategies, the purpose, content, scope and results application of performance management tend to be a combination of the two.
Human resources salary incentives
Remuneration composition and fairness principles
composition of salary
basic salary
variable pay
indirect compensation
fairness principle
external fairness
internal fairness
individual fairness
pay level strategy
type
leading strategy
matching strategy
procrastination strategy
hybrid strategy
Corporate competitive strategy and compensation strategy
financial strategy
Financial strategy concept
Determination of financial strategy
Financing channels and methods
internal financing
Equity financing
bond financing
Asset Sales Financing
Financing costs
optimal capital structure
dividend distribution strategy
Financial strategy choices
Matching financial risks and operational risks
The size of business risks is determined by specific business strategies
The size of financial risk is determined by the capital structure
Financial strategies for different stages of the product life cycle
Financial strategy choices based on value creation or growth rate
Main factors affecting value creation
Value creation and growth rate matrix
international business strategy
Motivation for international operations
The optimal combination of international production factors
monopoly advantage theory
Imperfect markets for products and factors of production
Market imperfections caused by economies of scale
It is a company that has a monopoly advantage and becomes a necessary condition for foreign investment.
Market imperfections caused by government intervention
Market imperfections caused by taxes and tariffs
Causing companies to invest overseas to exploit their monopoly advantages
location theory
Main factors affecting location advantage
Production factors, market positioning, trade barriers, business environment
product life cycle theory
Starting from technological innovation, analyze the relationship between international trade, foreign direct investment and product life cycle
Investigate from the perspective of product development and production
internalization theory
Based on 3 basic assumptions
The purpose of enterprises operating in an imperfect market is to maximize profits.
When the market for production factors, especially intermediate products, is incomplete, it is possible for enterprises to manage business activities uniformly and replace the external market with the internal market.
International firms are created when internalization crosses national borders
eclectic theory of international production
Ownership advantages Internalization advantages Location advantages = foreign direct investment
Ownership Advantages Internalization Advantages = Export Trade
Ownership advantage = technology transfer
If a company has the above three advantages but only adopts technology transfer, it will lose the benefits brought by internalization advantages and location advantages.
Oligopolistic market reaction
Motivations for international operations of enterprises in developing countries
The main motivations for overseas investment by multinational corporations in developing countries
seek market
seeking efficiency
Rising production costs in the home economy, especially labor costs; competition from low-cost producers
seek resources
To obtain more supplies of natural resources, such as minerals, oil, and natural gas
Seek ready assets
Obtain brands, patents, sales channels, raw material supplies, production facilities, and management experience from developed countries
The main competitive advantages of developing countries’ multinational companies’ foreign investment
Has greater potential to create jobs
The technologies and business models of multinational companies in developing countries are generally close to those used by companies in developing host countries, which means that there is a greater possibility of beneficial connections and technology absorption.
The entry mode is often through new investment rather than mergers and acquisitions, which is more likely to directly promote the improvement of the production capacity of developing countries.
International market entry modes
exit
Target market selection
traditional way
Also called continuous mode. The country-specific path for exporting high-tech products in developed countries is to first go to developed countries with similar economic and technological development levels, and then to developing countries; on the other hand, developing countries first go to developing countries with similar environments, and then gradually move to developed countries. . Primary products such as agricultural products and mineral products and labor-intensive low-end products from developing countries mainly flow to developed countries.
new way
Also called discontinuous mode. In the context of economic globalization, a global division of labor system has been formed in many industries, and new products are used globally simultaneously. Regardless of whether it is a developed country or a developing country, the country-specific path for the export of high-tech products in this industry is to first go to developed countries to occupy the world's largest market, and then to developing countries.
Choosing Distribution Channels and Export Marketing (Learn)
Channel characteristics
Generally speaking, international distribution channels are more complex than domestic distribution channels and involve more intermediate links.
The cost of the international branch campus channel is usually higher than the cost of the domestic distribution channel
Exporters sometimes have to sell to overseas markets through different distribution channels than the domestic market
International distribution channels often provide companies with overseas market information, including how well products are selling in the market and why.
Pricing in Export Markets (Understand)
Pricing is on the high side in order to obtain greater returns than the domestic market
Set prices that bring revenue levels close to those in overseas markets and domestic markets
Pricing is low in the short term, even if profits are low or even losses are incurred
As long as profits can be increased after offsetting variable costs, prices should be set at a price that can sell products in excess of domestic market demand.
external equity investment
foreign securities investment
Foreign Direct Investment
Wholly owned subsidiary
joint venture
non-equity form
Types of strategies for international operations
international strategy
explain
R&D in the home country and promoted to markets in various countries
Foreign branches are responsible for manufacturing and marketing, and have no local decision-making power.
feature
Poor adaptability and high operating costs
Multi-country localization strategy
explain
Research and development according to the needs of various countries, products are produced and sold locally, and local people have decision-making power
Products produced and sold in different countries are different
feature
Good adaptability, high operating costs, high degree of decentralization
globalization strategy
explain
What is produced is decided by the headquarters, and different aspects of product production are deployed in different countries.
Products produced and sold in different countries are standardized
feature
Poor operating performance, low operating costs, and high degree of centralization
transnational strategy
explain
A combination of multi-country localization strategies and globalization strategies
feature
Good adaptability and low operating cost
Corporate strategy for emerging markets
Allocate resources according to industry characteristics
Strategic choices for local companies
"Defender" Strategy
Use local advantages for defense
Focus on customers who prefer domestic products and ignore those who prefer international brands
Frequently adapt products and services to meet the special or even unique needs of customers
Strengthen the construction and management of distribution networks to alleviate competitive pressure from foreign competitors
"Expander" strategy
Extend local advantages overseas
Look for markets that are similar to your home market in terms of consumer preferences, geographic relationships, distribution channels, or government regulations to make the most effective use of your resources.
"The Dodger" Strategy
Avoid the impact of multinational companies
Establish joint ventures and cooperative enterprises with multinational companies
Selling a business to a multinational company
Redefine your core business and avoid direct competition with multinational companies
Focus on and segment the market based on its own local advantages and shift its business focus to certain links in the value chain
Produce products that are complementary to those of multinational companies, or adapt them to suit local tastes
“Counterbalancer” Strategy
Confrontation on a global scale
Don’t just compete on cost
Find markets that are well positioned and easy to defend
Finding a suitable breakthrough in a globalized industry - Reorganization
Learn to obtain resources from developed countries