How does business risk fit into the management process

Business Risk


How Does Business Risk Fit Into
The Management Process?


Strategic
Inputs

External
Environment

Strategic Intent
Strategic Mission

Internal
Environment

Strategic
Outcomes

Strategic
Actions

Strategy Formulation

3

The Strategic
Management

Process
Strategy Implementation

Business-Level
Strategy

Competitive
Dynamics

Corporate-Level
Strategy

Corporate
Governance

Structure
& Control

Acquisitions &
Restructuring

International
Strategy

Cooperative
Strategies

Strategic
Leadership

Entrepreneurship

Feedback

Strategic
Competitiveness
Above Average
Returns

& Innovation


21st Century Competitive Landscape
Fundamental nature of
competition is changing
• Rapid technological changes
• Rapid technology diffusions
• Dramatic changes in
information and
communication technologies
• Increasing importance of
knowledge
4

The pace of change
is relentless....
and increasing
Traditional industry
boundaries are
blurring, such as...

• Computers
• Telecommunications


21st Century Competitive Landscape
The global economy is
changing
• People, goods, services and
ideas move freely across
geographic boundaries
• New opportunities emerge
in multiple global markets
• Markets and industries
become more
internationalized
5

Traditional sources of
competitive advantage
no longer guarantee
success
New keys to success
include:
•
•
•
•

Flexibility
Innovation

Speed
Integration


Alternative Models of Superior Returns
Industrial Organization
Model

Resource-Based
Model

The External Environment

Resources

An Attractive Industry

Capability

Strategy Formulation

Competitive Advantage

Assets and Skills

An Attractive Industry

Strategy Implementation

Strategy Implementation

Superior Returns

Superior Returns

6


Stakeholders:

Groups who are affected by a firm’s
performance and who have claims on its
wealth

The firm must maintain
performance at an adequate level in
order to maintain the participation
of key stakeholders

Firm
Product Market
Primary Customers
Suppliers
7

Capital Market
Stock market/Investors
Debt suppliers/Banks

Organizational

Employees
Managers
Non-Managers


TABLE 1.1

8

The General Environment: Segments and Elements


Competitor Analysis
• Gathering and interpreting
information about all of the
companies that the firm
competes against.
• Understanding the firm’s
competitor environment
complements the insights
provided by studying the
general and industry
environments.
9


Analysis of the External Environments
• General environment
– Focused on the future

• Industry environment
– Focused on factors and conditions influencing a
firm’s profitability within an industry

• Competitor environment
– Focused on predicting the dynamics of
competitors’ actions, responses and intentions
10


Opportunities and Threats
• Opportunity
– A condition in the general
environment that, if
exploited, helps a company
achieve strategic
competitiveness.

• Threat

11

– A condition in the general
environment that may hinder
a company’s efforts to
achieve strategic
competitiveness.


FIGURE 1.2

12

The Five Forces of Competition Model


FIGURE 1.2

Competitor
Analysis
Components

13


The Context of Internal Analysis
• Global Economy

– Traditional sources of advantages can be overcome by
competitors’ international strategies and by the flow
of resources throughout the global economy.

• Global Mind-Set

– The ability to study an internal environment in ways
that are not dependent on the assumptions of a single
country, culture, or context.

• Analysis Outcome

– Understanding how to leverage the firm’s bundle of
heterogeneous resources and capabilities.

© 2007 Thomson/SouthWestern. All rights reserved.

3–14


FIGURE 3.1

© 2007 Thomson/SouthWestern. All rights reserved.

Components of Internal Analysis Leading to Competitive
Advantage and Strategic Competitiveness

3–15


The Challenge of Internal Analysis
• Strategic decisions in terms of the firm’s
resources, capabilities, and core
competencies:
– Are non-routine.
– Have ethical implications.
– Significantly influence the firm’s ability to earn
above-average returns.
© 2007 Thomson/SouthWestern. All rights reserved.

3–16

The Challenge of Internal Analysis
(cont’d)
• To develop and use core competencies,
managers must have:
– Courage
– Self-confidence
– Integrity
– The capacity to deal with uncertainty and complexity
– A willingness to hold people (and themselves)
accountable for their work
© 2007 Thomson/SouthWestern. All rights reserved.

3–17


FIGURE 3.2

Conditions Affecting Managerial Decisions about Resources,
Capabilities, and Core Competencies

Source: Adapted from R. Amit & P. J. H. Schoemaker, 1993, Strategic assets and
organizational
rent, Strategic Management Journal, 14: 33.
© 2007 Thomson/South-

Western. All rights reserved.

3–18

TABLE 3.1

Financial Resources

Organizational Resources

Physical Resources

Technological Resources

Tangible Resources
•
The firm’s borrowing capacity
•
The firm’s ability to generate
internal funds
•
The firm’s formal reporting
structure and its formal planning,
controlling, and coordinating systems
•
Sophistication and location of a
firm’s plant and equipment
•
Access to raw materials
•
Stock of technology, such as
patents, trademarks, copyrights, and trade
secrets

Sources: Adapted from J. B. Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R.
M.
Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100–102.
©Grant,
20071991,
Thomson/South-

Western. All rights reserved.

3–19


TABLE 3.2

Human Resources

Innovation Resources

Reputational Resources

Intangible Resources
• Knowledge
• Trust
• Managerial capabilities
• Organizational routines
• Ideas
• Scientific capabilities
• Capacity to innovate
• Reputation with customers

• Brand name
• Perceptions of product quality, durability,
and reliability
• Reputation with suppliers
• For efficient, effective, supportive, and
mutually beneficial interactions and
relationships

Sources: Adapted from R. Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal, 13: 136–139;
R.©M.2007
Grant,Thomson/South1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101–104.

Western. All rights reserved.

3–20


TABLE 3.3
Functional Areas
Distribution
Human resources
Management
information systems
Marketing

Management
Manufacturing

Research &
development

© 2007 Thomson/SouthWestern. All rights reserved.

Examples of Firms’ Capabilities

Capabilities
Effective use of logistics management techniques
Motivating, empowering, and retaining employees
Effective and efficient control of inventories through
point-of-purchase data collection methods
Effective promotion of brand-name products
Effective customer service
Innovative merchandising
Ability to envision the future of clothing
Effective organizational structure
Design and production skills yielding reliable products
Product and design quality
Miniaturization of components and products
Innovative technology
Development of sophisticated elevator control solutions
Rapid transformation of technology into new products and processes
Digital technology
3–21


Value Chain Analysis
• Allows the firm to understand the parts of its
operations that create value and those that do
not.
• A template that firms use to:

– Understand their cost position.
– Identify multiple means that might be used to
facilitate implementation of a chosen businesslevel strategy.
© 2007 Thomson/SouthWestern. All rights reserved.

3–22


Value Chain Analysis (cont’d)
• Primary activities involved with:
– A product’s physical creation
– A product’s sale and distribution to buyers
– The product’s service after the sale

• Support Activities
– Provide the assistance necessary for the primary
activities to take place.
© 2007 Thomson/SouthWestern. All rights reserved.

3–23


FIGURE 3.3

The Basic Value
Chain

© 2007 Thomson/SouthWestern. All rights reserved.

3–24

What Are the Firm’s Strengths, Weaknesses,
Opportunities and Threats
•

S W O T represents the first letter in
S trengths
– W eaknesses
– O pportunities
– T hreats
–

•

S

W

O

T

Strategy-making must be well-matched to both

A firm’s resource strengths and weaknesses
– A firm’s best market opportunities and external threats to its wellbeing
–

© 2007 Thomson/SouthWestern. All rights reserved.

3–25