Management - Appunti Secondo Parziale

STRATEGIC ACTIVITY 4.0 SYSTEMS

 Firm as a network of interconnected activities that can be the foundation of its competitive advantage

Hard to imitate

 Evolve over time if a firm is to sustain its competitive advantage

 In response to changing environments, firms need to upgrade value creating activities and adapt their activity systems

VANGUARD GROUP

One of the largest investment companies in the world

Clients: individual investors, financial professionals, institutional investors

MISSION: highest-value provider of investment products and services by being their and services

Founded in 1992, Vanguard provides low-cost investing and quality service for its clients

31 Vanguard’s strategic activity system needed to evolve over time as the company grew and market conditions changed (i.e., introduction of a new core activity: customer segmentation)

In 1997 Vanguard had less than 500$ bln assets under management.

Highest-value provider of investment

products through its interconnected activities

In the beginning they did not have any brokers (middlemen who connect clients with their clients to somewhere else), so they were directly in contact and did not have to pay any broker fees

In 2019 Vanguard had $5 trillion assets under management

Customers have changed so Vanguard added a new core activity: CUSTOMER SEGMENTATION

Strategic activity system:

Ikea (1996) Southwest (1996)

SWOT

5.1 ANALYSIS

01. focus on the STRENGTHS

03. focus on the STRENGTHS-32

OPPORTUNITIES THREATS

internal strength

To derive "offensive" alternatives by To use an to internal strength exploit minimize effect of an external using an to the an external opportunity threat

02. focus on the WEAKNESS-

03. focus on the WEAKNESS-OPPORTUNITIES THREATS

internal weakness defensive alternatives

To shore up an to To derive by improve take advantage eliminating or minimizing an internal its ability to weakness mitigate external of an external opportunity to an threat

STARBUCKS COFFEE

1. An American multinational and roastery
2. Traded at NASDAQ stock market
3. 2020: it operates in more than 30,000 locations worldwide across 79 countries in 6 continents
4. Revenue: 23.5 bn USD
5. Net income: 928 mln USD

SWOT analysis

STRENGTHS

• Very profitable
• Premium brand, strong brand recognition
• Worldwide presence
• Great supply chain
• Atmosphere in Starbucks locations (comfy and urban)

WEAKNESSES

• Products not customized to local tastes (coffees are the same in every country)
• Too expensive for many customers (on average a coffee costs 3 euro)

OPPORTUNITIES

• Its business model can be easily replicated to access new countries
• Trends toward healthier lifestyle (reducing fat drinks and sweets)

THREATS

• Exposure to rises in the cost of coffee and dairy products
• The US market is saturated where almost 15,000 of Starbucks locations are located

The idea of Starbucks was conceived in Milan but the company was afraid it would fail in Italy. However, Starbucks was very strong in Italian chain of coffee houses.

1. coffee culture, with rituals and sophisticated habits
2. Customers used to pay 1$ for their coffee "dose"
3. Bars in Italy were everywhere and had loyal customers
4. Many drank their coffee quickly and standing, not Starbucks' model
5. Possible nationalistic animosity
6. Failing in Italy was risky for Starbucks' global reputation
7. Should Starbucks have entered Italy?
8. Italians LOVE Starbucks
9. Italians HATE Starbucks
10. ENTER Italy 100 -200
11. Benefits of adding a new market, harm to the global reputation
12. Losses in Italy + probably potentially big
13. (most Italians will continue to go to their bars)
14. NOT ENTER Italy 0 0
15. Based on our analysis, Starbucks should have entered Italy if it believed that there was a greater probability than 66.7% that Italians would love its restaurants. So Starbucks needed:
16. A THEORY of how Italians would react to Starbucks restaurants
17. To collect INSIGHT from experts
18. how to run them?
19. To run

EXPERIMENTS with restaurants in Italy

How RBV could help were Starbucks' resources valuable in Italy?

Valuable:

• Was Starbucks able to effectively deploy and adapt its resources to Italy?

What Starbucks did:

1. They worked on the probability of success by putting in a very high level of effort. They opened a big Starbucks Reserve Roastery in Milano, at the time only the this in the world after Seattle and Shanghai. It was a flagship restaurant that had global advertising value even in case it was unprofitable. It could survive even if the other restaurants failed.
2. They combined their resources with an Italian retail partner - Percassi group - that had a long experience as a franchise of big brands (Lego, Gucci etc.) and with its own chain (Kiko). Percassi, which manages all Starbucks restaurants in Italy apart from the Roastery, had the knowledge of the Italian market and retail sector that Starbucks lacked. Percassi also provided expert insight and had run

its own “experiments”in the past with international brands

STRATEGY1.0 BUSINESS-LEVEL

We define BUSINESS-LEVEL STRATEGYgoal-directed actions for competitiveThe managers take in their questadvantage single product market.when competing in aManagers need to answer 4 questions:

1. WHO are the customers?
2. WHAT customers’ needs/wishes/desires will we satisfy?
3. WHY do we want to satisfy them?
4. HOW will we satisfy them?

Industry & Firm effectsjointly determinecompetitive advantage.At the firm level,performance is determinedby VALUE and COSTrelative topositionscompetitorsJetBlue was founded by David Neelemand in 2000

• to drive up perceivedin its early years, JetBlue used value innovation
• customer value lowering operating costseven whilebetween 2007 and 2015, JetBlue faced several emergency landings, erratic
• pilot and bad crew behaviorsin 2007, JetBlue was forced to cancel about 1,600 flights, and David Barger
• became CEOin 2015, JetBlue was lagging the Dow

Jones Index and Robin Hayes was appointed CEO in 2017, JetBlue ranked dead last in the annual WSJ survey of US airlines. In 2019, JetBlue became the 6th largest airline company in the US offering approximately 1,000 flights daily, employing 22,000 crew members and servicing 42 million customers annually.

BLUE OCEAN STRATEGY

Since the beginning, JetBlue pursued a combining:

• DIFFERENTIATION strategy
• Perceived customer value in service offerings: high-end flight with multiple amenities (Mint class), additional free services, functional website with all travel-related services
• COST-LEADERSHIP strategy
• Low operating costs: lower training and maintenance costs, 1 type of airplane, point-to-point model by directing traffic to fewer but highly trafficked city pairs, lower cost per available seat-mile in the US

JetBlue's strategies:

• Generic DIFFERENTIATION strategy
• COST-LEADERSHIP strategy

Seeks to create

higher value for Seeks to create the same or similar customers by delivering products value for customers at lower cost with unique features at similar cost but higher price Ex: GM has a broad scope and ranges from the low-cost positioned Chevy Ex: Tesla offers highly differentiated brand (cost leadership strategy) to small market products and pursues a the differentiated Cadillac brand segment (differentiation strategy) Competitive scope is the size (narrow or broad) of the market in which a firm chooses to compete JetBlue is "stuck in the middle", "being everything to everyone" https://www.youtube.com/watch?v=V14kuqYEsxE

DIFFERENTIATION

2.1 STRATEGY

The GOAL of DIFFERENTIATION strategy unique features increase the perceived value Add that will of goods and higher price services in the minds of consumers so they are willing to pay a Achieving competitive advantage with the differentiation strategy 36 improve firm's strategic position: Value drivers to PRODUCT FEATURES

• OXO

utensils with ergonomically designed soft black rubber grips

CUSTOMER SERVICE

• Zappo's superior customer service by offering free shipping both ways

COMPLEMENTS

• Vodafone; TIM; H3G: Smartphones and cellular services

Coffee-evolution of a commodity product Starbucks - differentiation strategy

Why are consumers willing to pay more than 1,000 USD for an iPhone?

Some reasons are:

• Product design, aesthetic, functionality, quality, durability, timely delivery, service

The cost of making an iPhone X is 370,25$ (the highest compared to its predecessor).

Yet, the willingness to pay of some customers is even higher. Apple and carriers sold the iPhone for about 1,000$, but on some websites, such as eBay, some are selling the phone at 5,000$

COST-LEADERSHIP 3.0 STRATEGY

The GOAL of COST-LEADERSHIP strategy

• Reduce cost below the firm's competitors offering adequate value
• Achieving competitive advantage with the cost-leadership

1. Cost drivers to improve firm's strategic position:
• Cost of input factors: Access to lower-cost input factors
• Economies of scale: Decreases in cost per unit as output increases
• Learning-curve effects: The technology remains constant, cumulative output increases, cost per unit ("learning by doing") decreases
• Experience curve: The technology changes, cumulative output remains constant, cost per unit (process innovation) decreases
2. Production capacity:
• Current PC (CPC): Production capacity
• Degree of utilization of PC (AUC): The ratio of current total costs to quantity produced using current capacity
• Maximum units of output that can be produced in a given time-frame: Production capacity
• Units of output that are produced in a given time-frame: Quantity produced
3. Scale economies: Reduction in average unit costs (AUC) that result from increasing the production capacity (PC) under the assumption that the utilization of PC remains constant