Dr.

Harris Turino
harristk@indo.net.id harristk.blogspot.com

AGENDA
1. What is Strategic Management
2. Market-Based and Resource-Based View of Strategy 3. Formulating Competitive Strategy 4. Company Growth

Definition of Strategic Management

SM is a process that deals with the entrepreneurial work of the organization, with organizational renewal and growth, and, more particularly, with developing and utilizing the strategy which is to guide the organizations operations (Schendel & Hofer, 1979) SM entails the analysis of internal and external environments of firms to maximize the utilization of resources in relation to objectives (Bracker, 1980) SM is the process by which general managers of complex organizations develop and use a strategy to coalign their organizations competences and the opportunities and constraints in the environment (Jemison, 1981)

Definition of Strategic Management

SM is essentially work associated with the term entrepreneur and his function of starting (and given the infinite life of corporations) renewing organizations (Schendel & Cool, 1988) SM is concerned with those issues faced by managers who run entire organizations, or their multifunctional units (Fredrickson, 1990) SM is the formulation, implementation, and evaluation of managerial actions that enhance the value of a business enterprise (Teece, 1990)

Definition of Strategic Management

SM is about the direction of organizations, most often, business firms. It includes those subjects of primary concern to senior management, or to anyone seeking reasons for success and failure among organizations (Rumelt, Schendel & Teece, 1994) SM field can be conceptualized as one centered on problems relating to the creation and sustainability of competitive advantage, or the pursuit of rents (Bowman, Singh & Thomas, 2002).

What is Strategic Management

The field of strategic management deals with (Nag et al, 2007):
the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of the firms in their external environments.

Strategic Management Elements

Innovation Alliance, M&A Diversification Investment Learning, etc. Owner Ownership CEO, TMT Succession Incentives Agency, etc. Globalization Market Industry Competition Technological changes, etc

Strategy

External Environment

Manager

Strategic Management

Firm

Business organization Companies Corporate, SBU Enterprise, etc Profit, return Growth Survival Market share Domination Comp. Adv. Value, etc

Resources

Internal Organization

Performance

Knowledge Technology Capabilities Reputation, etc

Decision making process M&A process Behavior, routine Knowledge transfer, etc

Strategic Management Researches

(Rajagopalan et al, 1993; Schwenk, 1995)

SM = Strategy Content + Strategy Process

Strategy Content: providing rules and guidelines on the types of strategies which lead to the best performance for different types of organizations in different competitive conditions (e.g. generic strategy, game theory, multipoint competition, M&A, diversification, innovation, etc.)
Strategy Process: how strategies are formulated, implemented, modified, and what factors influence them (see 10 schools of thought)

The Essence of Strategy Process

Strategy Process = cognitive perspective in strategic management and strategic decision making (Schwenk, 1995). Strategy process research should adopt a decision making perspective, rather than planning perspective (Fredrickson, 1983). Strategy formulation is treated as a decision making process (Burgeois, 1980; Quinn, 1980, Mintzberg, 1978).

Strategy Process Strategic Decision Making

Definition of Strategy
Strategic Analysis: External analysis (O & P) Internal analysis (S & W)

Vision Mission

Goal Objectives

STRATEGY

Functional Strategies

Strategy is the central integrated and externally oriented concept of how we will achieve our objectives (Hambrick & Fredrickson, 2001)

Implementation and Review

Elements of Strategy
(Hambrick & Fredrickson, 2001)

ARENA Where will we be in?

(which product categories, market segments, geographic area, core technologies?)

DIFFERENTIATOR How will we win?

(uniqueness, reputation, advance technology, low cost?)

ECONOMIC LOGIC

How will we obtain our return?

(lowest cost, premium price to uncomparable services, economies of scale?)

How will we get there?

(organic growth, M&A, joint venture, franchise, licensing?)

How the sequence of our moves?

(penetration, market expansion, brand awareness, go international?)

VEHICLE

STAGING

Example: IKEA
ARENA
Inexpensive contemporary furniture Young, white-collar customers Worldwide

DIFFERENTIATOR
Very reliable quality Fun, non threatening shopping experience Instant fulfilment Low price

ECONOMIC LOGIC
Economies of scale (global regional, and individual-store scale) Efficiencies from replication

Organic expansion Wholly owned store

Rapid international expansion, by region Early footholds in each country; fill in later

VEHICLE

STAGING

Intended and Emergent Strategy

Intended Strategy

Deliberate Strategy

Realized Strategy

Unrealized Strategy Emergent Strategy

The Essence of Strategy

The essence of competitive strategy is how to create and sustain competitive advantage so that firm can achieve above normal return (rent). The are two paradigms to formulate competitive strategy: o Market-Based View (MBV) Firm is a collection of activities Creating unique position of products in the market o Resource-Based View (MBV) Firm is a bundle of resources Creating unique resources to result products

Competitive Strategy
Market-Based View (MBV) Strategy is the creation of valuable and unique position of product or firm in the market through selecting a set of different activities (Porter, 1980) Resource-Based View (RBV) Strategy is the creation of VRIOs resources so that firm can create value more effective and/or efficient than its current or potential competitors (Barney, 1991) In general, they explain the similar variable (i.e. SCA), but starting from different points. In some condition, they provide different results. Case: Franchise

MBV vs. RBV: Process Perspective

Input (production factors , or resources)

Process

Output (Product)

RBVs assumption:
firms are heterogeneous (in terms of their resources and capabilities Inputs are imperfectly mobile (Some inputs may not be traded, bought, imitated, mobilized easily) Isolate unique resources

MBV:

MBVs assumption:

firms are homogenous More efficient process Inputs are perfectly mobile (cost leadership), (firms can get all inputs Select the specific processes and decide how they need to create differentiated products) processes are performed Isolate unique position in (differentiation) the market

RBV:
Accumulate stocks to create unique resources Build routines and policies to combine and process unique resources more efficient and effective

MBV vs. RBV: Strategic Perspective

SWOT Analysis Five Forces Model Game Theory Strategic Group

Game Theory Generic Strategy Multi points competition

Above normal return (SCA)

Create unique position or defend position

Tangible resources Intangible resources Capabilities

Stock Accumulation Dynamic Capabilities

Above normal return (SCA)

Create VRIO resources

VRIO Resources
(Barney, 1991; Barney & Hesterley, 2008)

Valuable?

Rare?

Costly to Imitate?

Organized by Competitive superior Implication capabilities?

Disadvantage

Profit Implication

NO YES YES YES YES NO YES YES YES NO YES YES NO YES

Below normal Normal Above and short run Above+ and short run Above and long run

Parity Temporary Advantage Temporary+ Advantage Sustained Advantage

Example
Company
Toyota

SCA
Efficient production cost
Low price High margin product (from industry trend setter)

Strategic Resources
Kaizen culture Lean manufacturing
Global sourcing Operational excellent Innovative culture Visionary leader

Walmart Apple

Stock Accumulation
(Dierickx and Cool, 1989)

Strategic resources are deteriorated over time. To maintain VRIO, strategic assets stock need to be added, accumulated, expanded, or increased its quality continuously. Example:
o Toyotas lean manufacturing has adopted by its rivals or different industries. o But they can not achieve the quality as high as Toyota.

Experience, knowledge creation, acquisition, R&D, etc

Strategic Assets Stock

Competitive Advantage (CA)

Definition:
o o o CA is typically defined as superior financial performance (Winter, 1995) This idea may be evoked by a range phrase such as: above normal return, value creation, economic value, making money, etc. CA is the creation more economic value than the marginal competitor in its product market (Peteraf & Barney, 2003)
Perceived Benefit (B)

Consumer Surplus (Delivered Value)

Price (P) Cost (C) Producer Surplus (Residual Value) Economic Cost

Economic Value (B C)

Competitive Advantage (CA)

Perceived Benefit Price
$ 80
Economic Cost

$ 100

$ 100

$ 180
$ 50 Economic Cost

$ 150

Firm A has competitive advantage over Firm B. Firm A has positive differential in residual value (rent) of $ 30. It provides a protective cushion for A against competition from B.

Sustainable Competitive Advantage (SCA)

SCA does not depend upon the period of calendar time during which a firm enjoys a competitive advantage (e.g. 5 years, 10 years, 30 years, and so on) A competitive advantage is sustained only if it continues to exist after (repeated) efforts to duplicate by current competitors, substitute, or potential new comers (Lippman & Rumelt, 1982). It may be the effort to duplicate the unique position in the market (MBV) or VRIO resources (RBV). Empirically, SCA may, on average, last a long period of calendar time (Barney, 1991).

 External Analysis Internal Analysis Value Configuration

General Framework
External Environment Insight/Idea Internal Environment

Business Model

PEST analysis Industrial analysis Market analysis Competitive analysis (Five Forces, Strategic group), etc

Vision Mission Objectives

Resources Process Performance

O and T

Strategy

S and W

Business Model
Key Resources Customer Value Proposition

Brand Technology People Channel Partnership

Target Customer Product Benefit Revenue Stream Cost Structure

Key Process

R&D IT Manufacturing Marketing HR Mgt

Profit Formula

Business Environment
Politic/Regulation
Socio Culture
Supplier

General Environment
Economy

New Entrant

Buyer

Industry Environment

Demography

Substitute

Technology
Globalization

Competitive Environment

Company Environment (internal analysis)

Fitness Principal
Our business model and strategy are set up by matching up to external and internal environment. When external environment changes, the power of business model and strategy is deteriorated reduce companys sales and profit

Generic Competitive Strategy

There are three approaches to achieve valuable and unique position (Porter, 1980):

Strategic Advantage
Uniqueness Low Cost Position

Strategic Market

Industry wide

Differentiation
Apple, Microsoft, Nike, BMW

Overall Cost Leadership

Walmart, Toyota, Dell

Particular segment only

Focus Differentiation Ferrari, Louis Vuitton, Rolex, Vertu

Focus Cost IKEA, Southwest

Strategy Formulation
Strategy Formulation is the process of choosing a set of different activities to:
o create or preserve unique and valuable position by: o exploit opportunities (O) and strengths (S) and in the same time: o anticipate threats (T) and improve weakness (W)

Through SWOT analysis, we then creatively choose a set of different activities.

Those set of different activities can be depicted on the value configuration model.

Value Configuration
Firm can be viewed as collection of activities that are performed to design, produce, market, and support its products (Porter, 1985). All these activities can be represented using value configuration model (value activities system). There are three models of value configurations:
o Value Chain: transform input into product o Value Network: serve exchange between customers o Value Shop: solve customer problem

Basic Value Chain

Porter (1980) C U S T O M E R
Costs Selling Price

Value

Basic Value Network

Stabell & Fjedstad (1998)
o Infrastructure o HR Management o Technology Development o Procurement

Support Activities Primary Activities

Network promotion & contract mgt Service provisioning Infrastructure operation

Basic Value Shop

Stabell & Fjedstad (1998)
o Infrastructure o HR Management o Technology Development o Procurement
Problem Finding and Acquisition
Control (Evaluation)

Support Activities

Primary Activities

Problem Solving Choice

Execution

Example
Competitive Strategy

Source of CA
Different Set of Activities

Competitive Advantage (CA)

Valuable Unique Superior Performance

Direct selling JIT inventory Integrated process with global suppliers Efficient working capital management, etc

Dell Computer:
Customized product Lower price

Value Chain: Dell Computer

Support Activities
Infrastructure Exclusive agreement with Intel and Microsoft Exclusive agreement with Samsung, Kodak, Fuji (for printer) Manage network of suppliers around the world

HR Mgt
Tech Dev.

Recruitment, training, performance management, etc.

Little spending on R&D Total quality management to improve supply chain mgt and assembly line Global sourcing for generic component Local sourcing for microprocessor & OS Online communication (e.g. internet, phone)

Procurement

Inbound Logistic:
No warehouse Integrated process JIT inventory 36 days payment

Production (Operation):
Assembly components from supplier

Outbound Logistic:
Immediate delivery No warehouse Zero finished product inventory

Marketing and Sales:

Direct selling Direct payment 7-10 days delivery

After Sales Service:

Online Complain handling

External Analysis
External analysis is identification factors outside the company boundary that might influence its business performance. This analysis helps us to :
o Provide an update understanding about environment where we (will) compete o Identify Opportunities and Threats o Guide in creating scenarios in the future o Initial information to guide strategy formulation

Golden Period
<= 4 hours

Intensive Care
+/- 7 days

Non Intensive Care

+/- 7 days

Post Stroke Rehabilitation

2 months 12 years

First Aid (ICU)

+/- 30 minutes

First Rehabilitation
+/- 7 days

Immediate Integrated Intensive Continuity

Aspect
Politic and Regulation Demography Socio Culture

Description
Align with government focus to develop health sector Inpres: 01/2010 (3rd priority accelerating development) PMK: 659/2009 (world class hospital) 234 mio in 2010, and predicted to 260 mio in 2020 (growth=1.05% p.a) Indonesians behavior and consumption are exposed high risk to stroke attack and its risk factors (hypertension, diabetes, hyper cholesterol, smoking, heart attack, etc) GDB growth Inflation BI rate : Stable: 4.0% - 6.3% : Stable: 5.0% - 6.6% : 6.5% since Aug-2009

Economy

Globalization

Attract more foreign competitor to entry: Kepres No 96 and 118 / 2000 (hospital ownership for foreigner) CAFTA (January 2010) More advance to prevent death from stroke Few rehabilitation providers optimize those technology

Technology

 This analysis includes the description of: 1. Industry Definition 2. Industry Life Cycle 3. Industry Structure 4. Industry Critical Success Factors 5. Industry Competitiveness

 Industry Definition: Post stroke rehabilitation service providers in Indonesia for upmarket. Post stroke rehabilitation service providers: o Their customers are dominated by stroke patients. o Fee >= IDR 100.000 / therapy / hour

Emerge

Growth

Shakeout

Mature

Decline or Extension
Life cycle extension

Industry Sales or Profit

rapid growth of suppliers many differentiation opportunities new customer relatively easy to catch

Sales

Time

Description of the functions, characteristics, activities and interrelationships of organizations within a defined industrial sector.
Post stroke rehabilitation service providers:
o o o Stroke Unit Stroke Clinic General rehabilitation

Fragmented geographically No market domination Relatively low differentiation Low switching cost Monopolistic market competition

The elements needed by companies in defined industrial sector to exist or succeed.

Specialist (neurologist, medical rehabilitation, audiologist, psychologist, etc.) attract, recommendation, coordinator. Sourcing to high skill therapies increase recovery and close interactions. Building comfortable condition make patients enjoy. Equipments support therapies and as physical evidence.

Rivalry Intensity: Industry growth Fixed cost Differentiation Switching cost Exit barriers

New Entrant

New Entrant Threat: Invested capital Cost advantage Differentiation Switching cost Access to channel Regulation

Supplier
Bargain power of Supplier: Supplier concentration Buying volume Differentiation Switching cost Strategic value of input Integration threats

Rivalry

Buyer
Bargain power of Buyer: Buyer concentration Buying volume Differentiation Switching cost Information availability Benefit for buyers Integration threats

Substitute
Substitution Threats: Price Switching cost Customer preference

 What Five Forces Analysis for?

o Broader understanding about external factors that influence level of competitiveness, o Identify the strength of each forces o As guidance to formulate business strategy

Five Forces Analysis does not aim to test the attractiveness of an industry.

RIVALRY INTENSITY New Entrant Less differention Low switching cost High growth industry HIGH No market power Relatively less fixed cost Low exit barrier

NEW ENTRANT THREAT: Relatively low investment Less differention Low switching cost Low restriction of regulations

Supplier

MEDIUM

Rivalry
MEDIUM LOW

MEDIUM

Buyer

BARGAIN POWER OF SUPPLIER: Strategic value Buying volume Differentiation Switching cost For 3 kinds of input: knowledge, equipment & talent; financial; and general input.

Substitute

BARGAIN POWER OF BUYER: Less differention Low switching cost High benefit for buyer Much credence attribute Less power of negotiation

SUBSTITUTION THREAT Low switching cost Much substitutes as supplement

 Competitive environment analysis aim to get understanding about rivals (their products, target market, cost structure, positioning, strategy, etc.) Strategic group: group of companies that pursue similar strategies, characteristics and competencies. Strategic group can be used to:
o Simplification in analyzing our rivals (competitors) o Identify the closest rivals o Identify where we are (will be)

Broad

Distribution Channel

STROKE CLINIC

Moderate GENERAL REHAB

STROKE UNIT

Narrow

1-2

2-4

>4

Number of Therapies

Stroke Unit
# of therapy Specialist Inpatient Nursing home # of channel Structure Differentiation Target 23 Much Available (some) None - Few 1-2 part of hospital

Stroke Clinic
34 One few Mostly not available Some Few to some independent business

General Rehab
1-2 One None None 1-2 individual business Technical skill Therapist reputation broader

Hospital reputation Various therapies Specialist Various POD Stroke patient Stroke patient

Internal Analysis
Internal analysis is identification factors inside the company boundary that might influence business performance (strength and weakness). This analysis helps us to:
o Provide an update overall internal condition to compete in defined industry. o Additional information to guide strategy formulation o Identify the strategic assets that can be exploited for future growth.

Where do We Start From?

Business Model Critical Success Factors (CSF)

Value Configuration

 Identify industry critical success factors (CSFs).

Analyze the strength of those CSFs in our company (compare to rivals, especially within strategic group or closest strategic group). The weak CSFs should become the consideration to build strategic initiatives.

 Summarize (list) all Opportunities and Threats (external analysis) and Strengths and Weaknesses (internal analysis). Respond some or all list by selecting one or more activities. Depict them on the value configuration

Evaluate the connection between activities so that they create logical thinking that create unique and valuable value

Emphasize

Improve

STRENGTHS

WEAKNESSES

From Internal Analysis

OPPORTUNITIES

THREATS

From External Analysis

Graps

Anticipate

Growth and Competition

1
Identify Business Opportunities

Securing the future

2
Develop Innovation

Growth Strategy Competitive Strategy

4
Competitive Advantage

Apply a set of activities for commercialization

Superior Performance (wealth creation)

Strengthen CA

Growth and Competitive Strategy

Growth Strategy
Purpose Time Horizon Identify new business opportunities Future

Competitive Strategy
Outperform the rivals through sustaining the CA Present (now), middle

Generic Strategy

Ansoff (1965): o Market expansion o Product development o Diversification

o Granularity (Viguerie, et al, 2008) o New Growth Platform (Laurie et al, 2006)

Porter (1980): o Differentiation o Cost leadership o Focus

o PEST and SWOT analysis o Five Forces (Porter, 1980) o Strategic Group (Hunt, 1972)

Example of analysis tools

What is Company Growth

What is company growth?
The increasing of firm value

How to measure it?

Market value (# of share x share price) Valuation formula
FCF1 FCF2 Firm Value ... 1 2 (1 wacc ) (1 wacc )
(series of discounted free cash flow in the future)

Revenue From Core Business

Core business:
o Generate current cash flow from current business revenue o Finance current operation and investment for the future

Current (core) business will be deteriorated overtime decreasing current revenue & margin
o Case: Apple in the beginning of 1990s o Case: Pfizer (Norvask) in the end of 2007 o Case: IBM in the 1980s

Company has to grasp more revenue from new business opportunities!

Three Growth Horizon

Future
Horizon-3: Create viable options Horizon-2: Build Emerging Business Horizon-1: Extend and Defend Core Business Now Now
Idea generation Idea development

PROFIT

Idea diffusion New business launced

Existing business that generate cash today

TIME

Future

Sustained revenue growth occurs if there is the flow of portfolio across Horizon

Growth Horizon in Product Life Cycle

Early Adoption Emerging Market Market Growth Late Growth Mature Market
F
E G H I

Declining Market

Industry Sales

D C

Horizon-1
Time

Horizon-2
Circle size is proportionate to sales

Managing Horizon
H1
Firm
Established business, as cash generator

H2
Young business, high revenue growth

H3
Promising ideas for future business

Perspective Focus

Short-term (now)
Maximize profitability & sustainability Strengthen CA

Middle-term
Resourcing to support new business Build CA

Long-term
Explore options for future oppr. Insulate from existing business Screen the most viable options (set priorities)

Challenge

Exploit remaining Take advantage opportunities through before rivals do incremental Increase revenue & innovation market share Transform the business (if needed)

Unhealthy Condition
H1
V V

H2
V -

H3
V V V

Description
Company face serious growth problem Too focus on the future, neglect the current Loss of energy and growth direction Focus on the current, no growth engine Rich of creative ideas, but fail to commercialize

Unclear future prospect

Value-Building Growth
Healthy companies have ability to balance their profit and revenue growth (value-building growth).
o H1 = securing current cash flow (profit) o H2 and H3 = prosperous future revenue growth o Flowing H3 H2 H1 = sustaining the business growth

Revenue and profit often seem like competing objectives.

Too focus on one side is likely to decrease firm value.

1984-1994
High Unrewarded Grower
18%

McKinsey & Co
Average
3%

1994-2004

Growth Giants

Revenue Growth

9% 11
36%

18%

45% 29
GDP Growth

Challenged

6%

27 33%
26%

19%

33%

33 3%
36%

TRS Performers

Low

TRS Performance

High

Pragmatic Thinking
McKinsey & Co (2008):
Firm growth is contributed by three sources: o Market Share Gain organic growth o Merger & Acquisition (M&A) inorganic growth o Portfolio Momentum market growth Along 1999 2006, 416 observed companies enjoyed 10.1% of revenue growth.

6.6%

3.1% 0.4%

Total Growth 10.1%

Portfolio Momentum

M&A

Market Share

Source of Growth: Within Two Periods

Source of Growth
Portfolio Momentum Overall Sample 1999 2006 2003 2008 Growth Giant 1999 2006 2003 2008

TOTAL GROWTH

6.6% +

7.7% + 3.6% + 0.6%

10.0% + 5.0% + 1.8%

11.4% + 5.9% + 3.3%

M&A

3.1% +

Market Share Gain

0.4%

Total Growth

10.1%

11.9%

16.8%

20.6%

Source of Growth: In Some Sub Categories

Source of Growth: In Some Industries

Portfolio Momentum High-tech Retail & wholesale Consumer goods Financial Institutions Telecommunication Health Care Electric power & natural gas 48% 43% 37% 46% 53% 47% 43% 32% M&A 16% 31% 40% 32% 29% 37% 43% 56% 36% 26% 22% 21% 18% 16% 14% 11%

Share Gain

Media & entertainment

Life and Death in History

- Examples From World Class Companies -

Why Growth is Important?

Shareholders Perspectives Managers Perspectives

Increase wealth

Recruit and retain talents Attract capital Increase bargaining position with other parties

SURVIVE (sustaining the business)

The Survivors

The survivors are not the biggest or the strongest, but the fittest to the environmental changes.

Who are The Survivors?

The Survivors In Business The survivors are those who can adapt to

the changes.
Kodak Walkman Firestone ignore digital camera technology late to enter digital music player not enough respond to radial technology move from PC to digital music move from analog film to digital imaging move from jumbo jet to small-medium aircraft

Apple Fuji Film Boeing

The Impact of Environmental Changes to the Company

Environmental Changes
Environmental Changes New Trend (Momentum) Business Opportunities

Case: Vietnam War 1976

Case: Haier in rural China and India

Case: Coca Cola vs. Pepsi

Case: Nike
If you are Nikes CEO, what can you do when faced the significant trend of iPod usage?

Opportunity can also comes from the accident

Generic Growth Strategy

Ansoff (1965)

New Product

Product Development
Develop new product with different characteristics to existing market segments

Diversification
Develop new product to new market segment

Existing Product

Igor Ansoff

Market Penetration
Increase sales per customer Find new customer in existing segment

Market Development
Offer product to new market segment (geographic or customer type)

Existing Market

New Market

Idea Generation
To set up a new business, you have to start with an idea or insight.

Idea or insight may come from anywhere, be captured anytime, inspired by everyone, imitated from any parties, invented through any researches. Creative people have the ability to generate ideas that have not yet recognized by others with regarding its space and time.
Creative ideas may become the source of business opportunities, and finally drive to a new business.

Creative Ideas
Idea
Low cost air transportation Deliver furniture products more efficient Animate characters from folklore & fable Sell thousand books without physical bookstore Sell customized personal computer Invention of copier technology Inexpensive copier machine

Opportunity
Target price sensitive customers Produce knock-down furniture
Animation movie for entertainment Online bookstore

Business
Southwest Airline Olympic Furniture Walt Disney Amazone.com

Sell PC directly to customer Produce copier machine Compact copier for small company

Dell Computer Xerox Canon

Idea and Opportunity

Not every idea can be transferred into business opportunity. Many creative ideas appears in the festival (e.g. Jarum Black Innovation), or in the form of researches in universities. Much of them are still collection of ideas.

Creative ideas is one thing, business opportunity is another thing, though they are closely linked.
Creative ideas have a potential business opportunity if they are in the intersection of three aspects, i.e. customer need, asset we have, and enablers.

Business Opportunity
idea
Something worth we own
assets competency expertise network etc

Something valued by consumer

fulfill their needs solve their problems

Something that accelerates success of an idea

(trend, lifestyle, technology, public figure, etc.)

Business opportunity

We can start to explore business opportunities from any points in the three aspects.

Opportunities: Harman Intl

CAPABILITIES
Resources: brand equity Capabilities: high fidelity technology, stereo system

CUSTOMER NEEDS
People want to have music quality as good as in their home

New capabilities needed: digital technology (acquire Becker)

Digitalization People spend their time much more in the car

Automotive infotainment

ENABLER

Opportunities: Apple iTunes

CAPABILITIES
Resources: brand equity Capabilities: software development, user friendly product design, imaginative marketing Business: consumer electronics, personal computer, computer software

CUSTOMER NEEDS
People want to collect individual music songs rather than buy a CD People want to download high quality music songs with less price

New capabilities needed: digital right management Access to the content (contractual agreement, and Fairplay software )

Internet-based technology Rapid development of digital music Illegal music sharing

Digital music

ENABLER

Introduction
Growth is the biggest challenge for company.

When company grow, many parties enjoy prosperity. In the same time, company also faces higher complexity than before.
o o o o More employees to be supervised More and various problems to be managed More formalization reduce flexibility More competitive forces, etc.

In the certain level, this complexity triggers much problems that influence crisis.

Existence

Survival

Success

Take-off

Resource Maturity

Phase I: Existence
Start-up business that establishes through entrepreneurs creativity in identifying opportunity.

Organization Structure Management Style Formalization Focus:

: Simple, informal : Direct supervision, individual : Nonexistent minimal

o Make and sell products o Get more customers (market penetration)

Challenge:
o how to get enough customer and expand sales broader o how to generate enough money to cover cash demand

Crisis: LEADERSHIP

Phase II: Survival

Young business that grow through direction Organization Structure Management Style Formalization Focus:
o Efficiency of operation o Build competitive position

: More functional : Supervised supervision, central : Minimal

Challenge:
o how to generate enough cash to break even in the short-run (and economic of scale) o how to generate enough cash to stay in in the business, and finance future growth

Crisis: AUTONOMY

Phase III: Success

Completely business entity that grow through delegation Organization Structure Management Style Formalization Focus:
o Market expansion o Product development

: Functional, more decentralized : Functional delegation : Basic and developing

Challenge:
o Disengagement of owner (delegate to professional), or head for growth o How to get resources to achieve faster growth

Crisis: CONTROL

Phase IV: Take-Off

Corporation that grow through coordination among SBUs. Organization Structure Management Style Formalization Focus:
o Consolidate the organization o Product development

: Divisional and decentralized : Watchdog : Many and maturing

Challenge:
o How to grow rapidly and how to finance it o How to overcome owners power syndrome

Crisis: RED TAPE (BUREAUCRACY)

Phase V: Resource Maturity

Corporate entrepreneur that grow through collaboration. Organization Structure Management Style Formalization : Divisional, with team-based, matrix, and flatter. : Participative, mutual adjust. : Extensive

Focus:
o Problem solving and innovation

Challenge:
o How to consolidate and control the financial gain brought on by rapid growth. o How to retain the advantage of small size (flexible and entrepreneurial spirit)

Crisis: ??? (psychological saturation)

Existence

Survival

Success

Take-off

Resource Maturity

Success in Every Phase

Growth has two faces: prosperity and pain (crisis).
Solution for every crisis triggers the next crisis, and threaten the company existence. Not every company can follow the growth phase linearly. Some companies fail to continue to the next phase (fail to overcome crisis).

They could be: o Back to the previous phase o Sell to other investors o Bankrupt (fold the operation)