Week 10 recap applying key concepts

3BM020: Organisational Strategy and Decision Making Strategy and Tesco: Applying key concepts Learning outcomes • Recap key strategic concepts • Understand the language of strategy • Apply an understanding of strategic concepts to Tesco* *Reminder: Tesco cannot be used for your report Definitions of strategy The determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resource necessary for carrying out these goals” Alfred D Chandler “Competitive strategy is about being different It means deliberately choosing a different set of activities to deliver a unique mix of value” Michael Porter “A pattern in a stream of decisions” Henry Mintzberg “The long-term direction of an organisation” Exploring Strategy Emergence of strategy • Strategy occurs in response to competition • The environment in which firms operate changes – therefore strategies need to change • Ansoff introduced the concept of turbulent environments; this will link into notions of prescriptive and emergent strategies • Porter considered achieving competitive advantage as the goal of organisations • Penrose highlighted the internal role of the organisation – became knows as the resource-based view (RBV) and links to resources and competences (strategic capabilities) Strategy and Tesco • 1929: opened the first store • Arguably a cost leadership, broad target strategy (Generic Strategy) • 1990s recession – introduced “Value” range (changing environment + move to hybrid or differentiation on the Strategy Clock?) • 1996 – overtook Sainsbury’s as UK’s biggest grocer: How? Strategy and Tesco • 1995 – Tesco Clubcard – a game changer: unique resource and distinctive capability which altered the industry structure (5 Forces) • Gave access to raw data – achieve competitive advantage • Size of company’s orders allowed aggressive negotiation with suppliers (Porters Generic Strategies and Forces model) Tesco clubcard and strategy • Fundamentally changed the way all supermarkets did business • Distinctive capability to gain competitive advantage • but the environment changes • did this become a threshold capability? • how did the industry respond? In the news: Tesco Clubcard Tesco and strategy continued • 1996 onwards: • Large investment in land and buildings resources – unique but not imitable? Could other organisations buy that level of land? • Created the ‘out of town’ shopping experience – a unique resource? Why? • Diversification: bank, insurance, credit cards loans, flat-screen TV, mobile phone, clothes, bread, milk and butter (differentiation?) Resource-based view (RBV) of Strategy • developed to answer the question: Why some firms achieve better economic performance than others? • used to help firms achieve competitive advantage and superior economic performance • assumes that a firm’s resources and capabilities are the primary drivers of competitive advantage and economic performance Threshold Capabilities (1) • Threshold capabilities: those essential to compete in a given market, those necessary to achieve parity with competitors in the market – ‘qualifiers’ • Required to be “in the game” • Threshold levels change over time (why?) • changes in Critical Success Factors • new entrants • competitor activity Threshold Capabilities (2) • Distinctive capabilities are those that are required to achieve competitive advantage Distinctive or unique capabilities that are of value to customers and which competitors find difficult to imitate – ‘winners’ What are Tesco’s distinctive capabilities? Strategic capabilities Dynamic capabilities are the means by which an organisation has the ability to renew and recreate its strategic capabilities to meet the needs of changing environments Such capabilities are distinct from ordinary capabilities that may be necessary to operate efficiently now but that may not be sufficient to sustain superior performance in the future Redundant capabilities • Capabilities, however effective in the past, can become less relevant as industries evolve and change • Such ‘capabilities’ can become ‘rigidities’ that inhibit change and become a weakness Rigidities, path dependency and strategic drift • Has the out of town shopping centre become redundant now? • Is this because of social change? Economic change other key drivers of change which could be diagnosed by PESTLE analysis? Has being stuck in the middle led to strategic drift? Refer back to strategic capabilities •Tesco had distinctive capabilities: • Clubcard • Size/land • Brand • Internet shopping •Are these now threshold capabilities? •Are they core rigidities? Has being stuck in the middle led to strategic drift? The Guardian – Monday 17th November, 2014 Porter: forces and Tesco Porter: forces and Tesco • Draw from an understanding of the key drivers in PESTLE • Consider the model’s limitations: a static model • Apply to Tesco: • Some crucial areas (e.g Netto’s return with Sainsbury’s) – evidenced threat of new entrants • Rise of Aldi and Lidl • Highly competitive environment – see price cuts • Recent profits scandal linked to the timing of payments from Tesco suppliers (commercial deals) being ‘booked’ early: evidence of lack of control of supply chains, particularly when these are outsourced Intended strategy: key concept Deliberately formulated or planned by managers May be the result of: •strategic leadership •strategic planning •external imposition of strategy Did Tesco engage in intended strategy when buying land and preventing others using that land? Did this become a redundant capability? Emergent strategy: key concept An emergent strategy comes about through a series of decisions - a pattern which becomes clear over time: ……not a ‘grand plan’, but a developing pattern in a stream of decisions • Would Tesco have been better to follow a more emergent route? • What may this have prevented? • Could this be used to determine the future path? A continuum: emergent strategy processes Cultural Processes • Incremental strategy development can be explained as the outcome of the influence of organisation culture • The paradigm and ‘the way we things around here’ mean that managers try to minimise ambiguity/uncertainty by defining situation as something familiar • Self-reinforcing pattern • Over time may result in strategic drif Summary: strategy and Tesco • A selective approach to some aspects of strategy • Applying them to a case study to develop understanding • Drawing links between concepts • Starting big (general) and moving small (specific) • Criticality surrounding the application of these models • There is no ‘right’ answer – justify the use and inclusion of the models/principles included • Today’s session provides an outline of the approaches you could use – detailed content and criticality is required on your part ...Learning outcomes • Recap key strategic concepts • Understand the language of strategy • Apply an understanding of strategic concepts to Tesco* *Reminder: Tesco cannot... Tesco • A selective approach to some aspects of strategy • Applying them to a case study to develop understanding • Drawing links between concepts • Starting big (general) and moving small (specific)... Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity Four key cost drivers that can help deliver cost leadership: • Lower input costs • Economies of scale