Marco Abela
Brief Introduction
Definitions
Enterprise Strategies
Restructuring
Local Examples
Small is nice?
Why concentrate at micro level?
Best approach is to put oneself in the shoes
of the enterprise
Benefits
Enterprise
◦ An economic activity of providing goods and
services undertaken by a service, commercial ,
industrial etc. entity.
◦ The primary motive is profit and not mere
employment for oneself and others
Competitiveness
◦ Ability of a firm to offer products and services
that meet the quality standards of the local and
world markets at prices that are competitive and
provide adequate returns on the resources
employed or consumed in producing them.
◦ a comparative concept of the ability and
performance of an enterprise to sell and supply
goods and/or services in a given market
Restructuring
◦ Enterprises adapting to a new environment.
◦ Bringing about a drastic or fundamental internal
change that alters the relationships between
different components or elements of an
organization or system
Strategic management is about taking
"strategic decisions“
In practice, a thorough strategic management
process has three main components
An important part of business strategy is
concerned with ensuring that these resources
and competencies are understood and
evaluated - a process that is often known as
a "Strategic Audit”
Resource Audit
Value Chain Analysis
Core Competencies Analysis
Performance Analysis
Portfolio Analysis
SWOT Analysis
The resource audit identifies the resources
available to a business.
Some of these can be owned (e.g. plant and
machinery, trademarks, retail outlets)
whereas other resources can be obtained
through partnerships, joint ventures or
simply supplier arrangements with other
businesses.
the ability of the business to "finance" its
chosen strategy.
An audit of financial resources would include
assessment of the following factors:
◦ Existing finance funds
◦ Ability to raise new funds
The heart of the issue with Human Resources
is the skills-base of the business.
An audit of human resources would include
assessment of the following factors:
◦ Existing staffing resources
◦ Changes required to resources
Wide range of operational resources
concerned with the physical capability to
deliver a strategy.
These include:
◦ Production facilities
◦ Marketing facilities
◦ Information technology
It is easy to ignore the intangible resources of
a business when assessing how to deliver a
strategy - but they can be crucial.
Intangibles include:
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Goodwill
Reputation
Brands
Intellectual Property
Describes the activities that take place in a business and relates
them to an analysis of the competitive strength of the business.
Influential work by Michael Porter suggested that the activities of
a business could be grouped under two headings:
◦ (1) Primary Activities - those that are directly concerned with creating and
delivering a product (e.g. component assembly); and
◦ (2) Support Activities, which whilst they are not directly involved in
production, may increase effectiveness or efficiency (e.g. human resource
management).
Value Chain Analysis is one way of identifying which activities are
best undertaken by a business and which are best provided by
others ("outsourced").
Activity
Description
Inbound
logistics
All those activities concerned with receiving and storing externally
sourced materials
Operations
The manufacture of products and services - the way in which resource
inputs (e.g. materials) are converted to outputs (e.g. Products)
Outbound
logistics
All those activities associated with getting finished goods and services
to buyers
Marketing
and sales
Essentially an information activity - informing buyers and consumers
about products and services (benefits, use, price etc.)
Service
All those activities associated with maintaining product performance
after the product has been sold
Activity
Description
Procurement
This concerns how resources are acquired for a business (e.g. sourcing and
negotiating with materials suppliers)
Human
Resource
Management
Those activities concerned with recruiting, developing, motivating and rewarding
the workforce of a business
Technology
Development
Activities concerned with managing information processing and the development
and protection of "knowledge" in a business
Infrastructure
Concerned with a wide range of support systems and functions such as finance,
planning, quality control and general senior management
Value chain analysis can be broken down into
a three sequential steps:
1) Break down a market/organisation into its key
activities under each of the major headings in the
model;
2) Assess the potential for adding value via cost
advantage or differentiation, or identify current
activities where a business appears to be at a
competitive disadvantage;
3) Determine strategies built around focusing on
activities where competitive advantage can be
sustained
Core competencies are those capabilities that are
critical to a business achieving competitive
advantage.
The starting point for analysing core
competencies is recognising that competition
between businesses is as much a race for
competence mastery as it is for market position
and market power.
Goal is to focus attention on competencies that
really affect competitive advantage
result of a specific unique set of skills or production
techniques that deliver value to the customer
‘Unique’ value and not a ‘me too’ business
"Me too" businesses (with nothing unique to
distinguish them from their competition) are doomed
to compete on price: The only thing they can do to
make themselves the customer's top choice is drop
price. And as other "me too" businesses do the same,
profit margins become thinner and thinner.
The question, though, is where this uniqueness
comes from, and how it can be sustained
Hamel and Prahalad give three tests to see whether they are true core
competences:
Relevance: Firstly, the competence must give your customer something
that strongly influences him or her to choose your product or service. If
it does not, then it has no effect on your competitive position and is not
a core competence.
Difficulty of Imitation: Secondly, the core competence should be difficult
to imitate. This allows you to provide products that are better than those
of your competition. And because you're continually working to improve
these skills, means that you can sustain its competitive position.
Breadth of Application: Thirdly, it should be something that opens up a
good number of potential markets. If it only opens up a few small, niche
markets, then success in these markets will not be enough to sustain
significant growth.
Black & Decker – small electric motors
Honda – gasoline powered engines
NEC – semiconductors
Federal Express – logistics management
The resource audit, value chain analysis and
core competence analysis help to define the
strategic capabilities of a business.
After completing such analysis, questions
that can be asked that evaluate the overall
performance of the business.
These questions include:
◦ How have the resources deployed in the business
changed over time; this is "historical analysis“
◦ How do the resources and capabilities of the
business compare with others in the industry -
"industry norm analysis“
◦ How do the resources and capabilities of the
business compare with "best-in-class" - wherever
that is to be found- "benchmarking“
◦ How has the financial performance of the business
changed over time and how does it compare with
key competitors and the industry as a whole? -
"ratio analysis"
Benchmarking is the process of identifying "best
best
practice"
practice in relation to both products (including)
and the processes by which those products are
created and delivered. The search for "best
practice" can taker place both inside a particular
industry, and also in other industries (for
example - are there lessons to be learned from
other industries?).
The objective of benchmarking is to understand
and evaluate the current position of a business or
organisation in relation to "best practice" and to
identify areas and means of performance
improvement.
Application of benchmarking involves four key
steps:
1.
2.
3.
Understand in detail existing business processes
Analyse the business processes of others
Compare own business performance with that of
others analysed
4. Implement the steps necessary to close the
performance gap
Strategic Benchmarking
Performance or Competitive Benchmarking
Functional Benchmarking
Internal Benchmarking
External Benchmarking
International Benchmarking
Where businesses need to improve overall
performance by examining the long-term
strategies and general approaches that have
enabled high-performers to succeed.
Re-aligning business strategies that have
become inappropriate
Changes resulting from this type of
benchmarking may be difficult to implement
and take a long time to materialise
Businesses consider their position in relation
to performance characteristics of key
products and services.
services
Benchmarking partners are drawn from the
same sector.
Assessing relative level of performance in key
areas or activities in comparison with others
in the same sector and finding ways of
closing gaps in performance
Focuses on improving specific critical
processes and operations.
operations Benchmarking
partners are sought from best practice
organisations that perform similar work or
deliver similar services.
Process benchmarking invariably involves
producing process maps to facilitate
comparison and analysis.
Achieving improvements in key processes to
obtain quick benefits
Businesses look to benchmark with partners
drawn from different business sectors or
areas of activity to find ways of improving
similar functions or work processes. This sort
of benchmarking can lead to innovation and
dramatic improvements.
Improving activities or services for which
counterparts do not exist.
Involves benchmarking businesses or operations
from within the same organisation (e.g. business
units in different countries).
There may be fewer barriers to implementation
as practices may be relatively easy to transfer
across the same organisation.
However, real innovation may be lacking and best
in class performance is more likely to be found
through external benchmarking.
Several business units within the same
organisation exemplify good practice and
management want to spread this expertise
quickly, throughout the organisation
Involves analysing outside organisations that
are known to be best in class. External
benchmarking provides opportunities of
learning from those who are at the "leading
edge".
This type of benchmarking can take up
significant time and resource to ensure the
comparability of data and information, the
credibility of the findings and the
development of sound recommendations.
Best practitioners are identified and analysed
elsewhere in the world, perhaps because there
are too few benchmarking partners within the
same country to produce valid results.
Globalisation and advances in information
technology are increasing opportunities for
international projects.
Where the aim is to achieve world class status or
simply because there are insufficient"national"
businesses against which to benchmark
Portfolio Analysis analyses the overall balance of
the strategic business units of a business.
An important objective of a strategic audit is to
ensure that the business portfolio is strong and
that business units requiring investment and
management attention are highlighted.
Traditionally, two analytical models have been
widely used to undertake portfolio analysis:
◦ The Boston Consulting Group Portfolio Matrix (the
"Boston Box");
◦ The McKinsey/General Electric Growth Share Matrix
the first step is to identify the various
Strategic Business Units ("SBU's") in a
company portfolio.
On the horizontal axis: relative market share
- this serves as a measure of SBU strength in
the market
On the vertical axis: market growth rate - this
provides a measure of market attractiveness
Build Share: here the company can invest to
increase market share (for example turning a
"question mark" into a star)
Hold: here the company invests just enough to
keep the SBU in its present position
Harvest: here the company reduces the amount of
investment in order to maximise the short-term
cash flows and profits from the SBU. This may
have the effect of turning Stars into Cash Cows.
Divest: the company can divest the SBU by
phasing it out or selling it - in order to use the
resources elsewhere (e.g. investing in the more
promising "question marks").
BCG matrix classifies businesses as low and high, but generally
businesses can be medium also. Thus, the true nature of business may
not be reflected.
Market is not clearly defined in this model.
High market share does not always leads to high profits. There are high
costs also involved with high market share.
Growth rate and relative market share are not the only indicators of
profitability. This model ignores and overlooks other indicators of
profitability.
At times, dogs may help other businesses in gaining competitive
advantage. They can earn even more than cash cows sometimes.
This four-celled approach is considered as to be too simplistic.
The McKinsey model argues that businesses
should develop their growth strategies based
on:
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Operational skills
Privileged assets
Growth skills
Special relationships
Strengths, Weaknesses, Opportunities and
Threats.
SWOT analysis is an important tool for
auditing the overall strategic position of a
business and its environment.
a useful summary technique for summarising
the key issues arising from an assessment of
a businesses "internal" position and "external"
environmental influences
The Key Distinction - Internal and External
Issues
Strengths and weaknesses are Internal
factors.
Opportunities and threats are external
factors.
Technological skills
Consumer tastes
leading brands
liberalisation;
tax rates
government policies
new distribution
channels
distribution networks
customer loyalty
production quality
Internal
External
There are certain limitations of SWOT Analysis
which are not in control of management. These
include◦
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Price increase;
Inputs/raw materials;
Government legislation;
Economic environment;
Searching a new market for the product which is not
having overseas market due to import restrictions; etc.
Internal limitations may include- Insufficient research
and development facilities;
Faulty products due to poor quality control;
Poor industrial relations;
Lack of skilled and efficient labour; etc
This process involves understanding the
nature of stakeholder expectations (the
"ground rules"), identifying strategic options,
and then evaluating and selecting strategic
options.
four "generic" business strategies that could
be adopted in order to gain competitive
advantage (Michael Porter)
Based on
◦ the extent of the scope of business activities are
narrow vs broad
and
◦ The extent to which a business seeks to
differentiate its products
This strategy involves selecting one or more criteria
used by buyers in a market - and then positioning
the business uniquely to meet those criteria.
This strategy is usually associated with charging a
premium price for the product - often to reflect the
higher production costs and extra value-added
features provided for the consumer.
Differentiation is about charging a premium price
that more than covers the additional production
costs, and about giving customers clear reasons to
prefer the product over other, less differentiated
products.
With this strategy, the objective is to become the
lowest-cost producer in the industry.
Many (perhaps all) market segments in the industry
are supplied with the emphasis placed minimising
costs.
If the achieved selling price can at least equal (or
near)the average for the market, then the lowestcost producer will (in theory) enjoy the best profits.
This strategy is usually associated with large-scale
businesses offering "standard" products with
relatively little differentiation that are perfectly
acceptable to the majority of customers.
In the differentiation focus strategy, a business
aims to differentiate within just one or a small
number of target market segments.
The special customer needs of the segment mean
that there are opportunities to provide products
that are clearly different from competitors who may
be targeting a broader group of customers.
The important issue for any business adopting this
strategy is to ensure that customers really do have
different needs and wants - in other words that
there is a valid basis for differentiation - and that
existing competitor products are not meeting those
needs and wants.
Here a business seeks a lower-cost
advantage in just on or a small number of
market segments.
The product will be basic - perhaps a
similar product to the higher-priced and
featured market leader, but acceptable to
sufficient consumers.
Such products are often called "me-too's".
Often the hardest part. When a strategy has
been analysed and selected, the task is then
to translate it into organisational action.
Many factors, often beyond the enterprises’
control
Restructuring is a set of changes on the
enterprise aimed to increase efficiency, to
improve the general situation of an enterprise
and to ensure its profitability over long
period of time.
We can define two types of restructuring:
regressive and strategic.
Regressive restructuring includes labor
shedding, cutting of real wage, reduction in
social and unused production assets, and
closure of unprofitable product lines
the implementation of measures that will
ensure good functioning of an enterprise, at
least in the short-run, without significant
costs
a radical change in strategic outlook of the
firm and is accompanied by investment in
new equipment, development of new
products and new markets, increased product
quality, structural changes in labor force, and
improvements in organizational structure
implementation of measures that will ensure
efficient operation of an enterprise and make
it competitive in the long term
Two main types of Strategic restructuring
◦ Hard - which results in investment in new
equipment and technologies
◦ Soft - which is characterized by improvements in
marketing activities, increased promotion of
products etc.
EU Membership
Global Recession
North African Political Crisis
Removal of protective trade barriers
Introduction of standards
Increase in administrative burdens and costs
Main threats – furniture, agro-industry
Institute for the Promotion of Small
Enterprises (IPSE)
joint venture between the Malta Chamber of
Commerce, the Malta Federation of Industry
and the Government of Malta
Tried to change the mentality of businesses
Introduced strategic thinking as a normal
activity ex: business planning; consumer
requests
Support for upgrading of operations
Promotion of clusters
Main effect was the decrease in demand
Approach was through a task-force which
examined each individual case
All assistance was based on the enterprises
increasing their investment, Government
supported the businesses through training
grants
Malta was marketed as a stepping stone for
business in Northern Africa
Very strong trade links, particularly with Libya
Many companies hit very hard: due to lack of
strategic planning
Access to information
Access to analytical tools
Ease of business
Keeping tabs with the business reality
Provision of training
Change of Mentality
Good advice is better than money!
The benefits and threats of being small
marco.abela@maltaenterprise.com