Appunti delle lezioni di Corporate Strategy

Vision assures:

 Consistency in resource allocation in the long term

 Focus for the efforts of individuals in the medium term

 Inventiveness and involvement in the short term

From the vision (i.e., the ambitious project for the long term), goals (i.e., desiderata qualitative in

medium term) and objectives (i.e., specific quantitative target in short term and basins for

compesantions) are obtained.

DISNEY

Disney has resources that create value, which allow it to have a competitive advantage. At the centre

of the strategy there is Mickey Mouse with its features, for instance the fact that he is an actor who

does not get paid (so, no salary). He works only for Disney and he can be difficulty copied, Mickey

is protected by copyright. With him, the control is 100% of the company (e.g., no scandals etc.).

Moreover, he is durable. Since he is an intangible resource, more they use him and more he creates

values (we can have simultaneous usages). Every moment there are new customers, who are children,

and parents know that the contents created by the company are good for their children.

The starting point is to understand the resources that a company has, the larger ones have tons of

resources. 

RESOURCES human, financial, physical and knowledge factors that provide a firm that means

to perform its business process. They are stocks, so stable level of things like: tangible and intangible

assets, human resources and competencies.

P.S. activities are flows, like: R&D, transformation, distribution, marketing etc.; the outflows are

leakage and forgetting.

Firms’ performance depends on 2 elements:

1. Average performance of the industry;

2. Deviation from average performance of the industry (competitive (dis)advantage).

The Resource Based View is based on some fundamentals:

 Each firm is different because an original set of resources;

 Resources could be developed only on the long term (path dependency);

 Resources could be difficult to be imitated;

 –

External environment has fast changes resources are at the basis of development.

Then there are some implications for CS, which is influenced by the availability of resources and the

velocity in accumulation of new ones.

In order to analyse resources and capabilities:

 Understanding role of resources and capabilities in strategy

 Identifying resources and capabilities

 Appraising resources and capabilities

 Developing strategy implications

The process to manage them is:

1. list the resources (finding and understanding all the resources, synthetic understanding);

2. identify their features (making them unique and able to create value for the company);

3. identify resources of value.

The classification of resources is:

 BY NATURE (the most common ones)



- Tangible physical, easy to be identified and full represented in annual report

- Intangible assets;

- Human resources;

- Organizational capacities.

 BY ACTIVITY transformation …

- R&D -

 PER STRATEGIC LEVEL

- Corporate or Business

Tests to understand where to compete are:

- Resources are higher than competitors in the new industry?

- They are critical success factor in the new business?

- Additional resources are equal to those of competitors?

- Resources can be transferred and replicated?

To identify the most important resources you have to analyze them one by one and run a test to

understand if they are relevant or not. The name of this test is DIA, it means that the most valuable

resources you can have in a company are those that have simultaneously three features: demand,

inimitability and appropriability.

1. Does the resource has a demand? It depends on:

  does the resources meet the evolution of customers’ needs?

Customer preferences

 

Resource substitutability are alternative resources available?

2. Is possible to imitate the resources? It depends on:

 

Scarcity is the availability of resource limited?

 

Replicability are barriers to imitation in place? (path dependency- causal ambiguity-

economic deterrent)

3. Does the firm take the profit generated by the resources? It depends on:

 

Property rights is possible to identify the owner of the property right on the resource?

 

Bargaining power does the firm influence the price for customers?

Integrating resources to create organizational opportunity

By combining resources, we can obtain capabilities. These are the results of process, structure,

motivation and system. Basically, things that a company is able to do. Then there are the

organizational competences, so what a company does better than other things and competitors. If

there exists, then it has something distinctive that makes it unique.

  A firm’s capacity to undertake a particular activity;

Organizational capability

 

Organizational competence An internal capability that a company performs better than

(“Firm’s capacity for undertaking a particular activity”)

other internal capabilities

 A internal capability that is central to a company’s

Core competence well-performed that are fundamental to a firm’s

strategy, competitiveness, and profitability (“Capabilities

strategy and performance”)

 

Distinctive competence A competitively valuable capability that a company performs

that an organization does

better than its rivals (“Things particularly well relative to

competitors”)

CASE STUDY 2: ALPHABET’S GOOGLE

Google is monetizing the data that we provide, it is profiling us that later it can sell our contact to

companies. Google is making money thanks to “AdSense”, customizing our profile and selling it, as

well as paying space on websites. Through data and AdSense, firms can target the right audience.

The second stream of revenues is “AdWords”, so the payment from words, by receiving money from

firms to give them the best keywords and put them on the top of the research. Google has all the

information, because users through their researches tell Google what they are interested in.

Google needs to have its own browser, even if it is expensive, since in other browsers we can block

the flow of information. Instead, Google uses cookies and we want to share our data. They want to

go ahead collecting data, just to profile customers. Different industries that are linked one to the other,

this is a corporate perspective. Its business is based on sharing information and so advertising!

Beta (Facebook Group) is one of the major competitors of Google, because they are also collecting

data and sending our profile to adv companies. In case of Apple, the core business is different. For

Apple, the largest source of profits is devices.

From 2016 Google changed its organization and it is now part of a Group, which is Alphabet and that

contains:

 Waymo (that creates self-driving cars);

 Nest (a smart device that we can have in our house to control the temperature);

 Google X (that is investing in AI);

 Chalical (that is investing in studying longevity), etc.

They are investing in different industries and covering a lot of topics, these industries could have a

big chance of development in the future that need massive investments of billions of dollars today.

However, in the conglomerate Google is the only business having revenues. Every single sec. it is

generating cash, which will be used in other companies (and not so many other Groups can do so).

Therefore, Alphabet has both the financial and synergic logic. It has different autonomous businesses,

it has one that is producing cash that will be allocated in other industries.

What there is no in Google is restructuring, we have a venture capital (Google Venture) that is looking

for small ventures with huge potentiality for development. This is tipical to private equity

On one side we have the so-called Cash Cows (Google) and on the other hand we have Stars (other

businesses Google is developing).

Diversification strategy

The scope of one company (the boundaries, the edge of the firm, or in other word the size of the

company in terms of geographical areas, industries and steps of the value chain) can be described

trough 3 dimensions:

 Horizontal → How many industries a company is in and what are these industries;

 Vertical → How many steps of the industry value chain are covered by the company;

 Geographical → geographical area in which a company is present.

If we increase the level of diversification, so the number of industries in which we are in, we are

increasing complexity, and it asks for coordination, and it means time, efforts and so costs. Increasing

the size of a company we have at the beginning an increase in perfomance but when complexity is

huge perfomance starts collapsing. The red line is the right one.

Sources of the form’s growth

There are different sources of competitive advantage that drive the growth:

 → the bigger I am the less costs I have;

Economies of scale

 → company learns by doing, the more the practice

Economies of learning the more they

learn; usually market share is an approximation of learning, if we produce more, we learn

more;

 → same mechanisms of economies of scale but we cut costs because we

Economies of scope

share something between two businesses, like capacity of production, so we can share costs;

 → more users we have in a network more value each single user has.

Network externalities

Users will choose always an industry with a huge network.

Network externalities:

Why companies diversify? The main reason is because they have excess of resources that cannot be

left in the bank account, but they must be invested. However, there could be other reasons:

• Offensive: to attack competitors (ex. Xbox developed to attack Sony operating system);

• respond to competitors’ attack;

Defensive: to

• External: search for opportunities or company for sales;

• Internal: demand reduction in the core business or underutilization of resources;

• General: to do not suggest the direction;

• Specific: They suggest the direction. “the

In this field, the concept of core business is fundamental: primary area of products, capacity,

customers, channel and geographical areas that define what the firm is or wants to be”. Core business

is the set of products, capacities, customers, channels and geographical areas that define what are

company’s ambitions.

There are different criteria to identify core business:

 We can start from understanding the core business’ information, its technology, find a

way to identify core business based on industry features;

 Have a look at the history of the company. Typically, 90% of times, the core business is

related to the first business the company started;

 Look at figures → the core business could be the business which generates more revenues,

or which has the largest market share;

 Identify the core business on the basis of competencies.

The relevance of core business is due to the tendency to re-focus on core business and that the

sustainable growth is around it.

Firms vary by degree of diversification

  Proportion of a firm’s revenues derived from its largest single

Specialization Ratio

business.

  Proportion of a firm’s revenues derived

Related Ratio from its largest single group of

related businesses.

 

Unrelated-Diversified Business units not closely related (Company’s

competencies can be applied across a greater number of industries, Company has

superior strategic capabilities that allow it to keep bureaucratic costs under close

control);

 

Related-Diversified <70% of revenues from a single business unit, Businesses

top managers are

share product, technological or distribution linkage (Company’s

Company’s managers use

skilled at raising the profitability of poorly run businesses,

their strategic management competencies to: Improve the competitive advantage of

their business units, Keep bureaucratic costs under control);

 

Dominant-business Between 70% and 95% of revenues from a single business

unit

 

Single-business > 95% of revenues from a single business unit

PORTFOLIO MATRIX

Matrixes usually have different purposes: