Corporate Management and Entrepreneurship

Depend on perceptions and behaviors of thers: customers, stakeholders, shareholders, competitors, environment

• Strategic level: Strategic controlling
• Operational level: Implementation

In other words the indended vs. the realized strategy

1. In what business areas should the company be active? 
   = Heterogeneity of the activity portfolio
   1. Focus
      = Focus on specialized resources/competencies, market power
   2. Diversification
      = diversification of risks, internal finance
2. How should these areas (strategic business units) be managed?
   1. Management holding
      = financial and strategic engagement in strategic business units
   2. Finance holding
      = controlling of financial inputs and outcomes of strategic business units

1. Vertical Integration
   = Integration of upstream of downstream activities
   = to overcome high supplier or buyer power
   Indications:
   1. High concentration of suppliers or buyers
   2. High specificity of products/services
   3. High (suppliers) / low (byer) prices
2. Horizontal Integration
   = Integration of activities at the same stage of the value chain
   Objectives:
   1. Higher concentration in market segment = higher price setting power
   2. Larger size
      >>> higher profitability
3. Development of strategic resources and competencies
   = focus on core competencies
   objectives
   1. Development of unique and complementary capabilities in multiple business areas
   2. Generation and protection of competitive advanteges
4. Risk diversification
   = similar to diversification in stock portfolios
   Objectives
   1. counterbalancing different risk profiles of different business areas
   2. Internal cross-financing between different business areas -> see: growth-share matrix
5. Solely profitability considerations
   = Expected earnings (medium-term)

• Question Marks
  • High market growth, low market share, (high) investments necessary
    = Large negative cash flow
  • Strategy: exploratory positioning, aggressive market penetration
• Rising Stars
  • High market growth, high market share, high investments necessary
    = modest positive or negative cash flow
  • Strategy: price skimming (increase profitability)
• Cash Cows
  • Low market growth (mature market), high market share, no/low investments necessary
    = Large positive cash flow
  • Strategy: milking
• Poor Dogs
  • Low market growth (mature/declining market) low market share, no investments necessary
     = modest positive or negative cash flow
  • Strategy: divestment / timing exit

• PEST Analysis
  = Analysis of the
  • Political
  • Economic
  • Socio-demographic
  • Technological
    Environemnt
• Search for Mega-Trends
  = e.g. digital transformation, urbanization, aging society, water scarcity, increasing sustainabilty orientation -> Mega-Trend-Map

Used to analyze the structure of business Areas / industries where you want to seddle in. -> Attention: It is ALWAYS about the analysis of the industry/sector, not about a specific brand: e.g. Electromobility in general and not Tesla itself.

In the beginning of this analysis it was just about the rivalry among existing competitors before the other 4 points got added (Threat of new entrants, Bargaining power of byers, Bargaining power of suppliers and threat of substitute products or services)

1. Rivalry Among exisitng competitors
2. Threat of new entrants
3. Threat of substitute products or services
4. Bargaining power of Buyers
5. Bargaining power of suppliers

• The intensity of rivalry is greatest if...
  • competitors are numerous or are roughly equal in size and power
  • industry growth is slow
  • exit barriers are high
  • rivals are highly committed to the business and have aspiations for leadership
  • firms can not read each other's signals well -> It is like an implicit communication behaviour and an explicit pricing
• Price competition is most liable (verbindlich) to occur if ...
  • products/services of rivals are nearly identical and there are few switching costs for buyers
  • fixed costs are high and marginal costs are low
  • capacity must be expanded in large increments to be efficient
  • the product is perishable (verderblich) or just not storable

• A supplier group is powerful if...
  • they are more concentrated than the industry it sells to
  • they do not depend heavily on the industry for its revenues
  • industry participants face switching costs when changing suppliers
  • they offer products that are differentiated
  • there is no substitute for what the supplier group provides
  • they can credibly threaten to integrate forward into the industry

• A customer group has negotiating / leverage power if ...
  • there are few buyers, or each one purchases in volumes that are large relative to the size of a single vendor
  • the industry's products are standarized or undifferentiated
  • they face few switching costs in changing vendors
  • they can credibly threaten to integrate backward if vendors are too profitable

• Entry barriers are high if ...
  • Supply-side economies of scle = larger volumes of production lead to lower costs per unit
  • Demand-side benefits of scale = network efects (e.g. social media networks: no value if just yourself are using it, but increases the more people use it): byer's willingness to pay / perceived value for a company's product increases with the numver of other buyers
  • Customer switching costs = fixed costs buyers face when they change suppliers
  • Capital requirements
  • Incumency advantages independent of size = cost or quality advantages not available to potential rivals
  • Unequal access to distribution channels
  • Restrictive government policy
  • Expected retaliation / reaction of incumbents (Arbeitnehmer)

• The threat of a substitute is high if ...
  • it offers an attractive price-performance trade-off to the indutry's product
  • the buyer's cost of switching to the substitute is low

• Commercial Aviation:
  It's one of the least profitable industries because all five forces are strong:
  • Established rivals compete intensely on price
  • Customers are fickle (wankelmütig), searching for the best deal regardless of carrier
  • Suppliers - plane and engine manufacturers, along with unionized labor forces (gewerkschaftlich organisierte Kräfte), bargain away the lion's share of airlines' profits
  • New players enter the industry in a constant stream
  • Substitutes are readily available - such as train or car travel

With the value chain analysis: To analyze consistently all resources, capabilities and activities along the value creation process.

>> Focus on certainactivities relevant for a selected strategy.

1. Primary activities
   1. directly involved in value creation as market processes
   2. are directed toward the creation and sale of a product or service
   3. correspond to direct service provision rocesses (procurement (Beschaffung), production, sales)
2. Support activites
   1. indirect activities to ensure operational readiness
   2. support the continuous execution of primary activities
   3. correspond to indirect service provision processes (have no direct market access)
3. Innovation activities (added from Beier)
   1. serve the development and introduciton f new products (product innovations), processes (process innovations) or structures (structural innovations)
   2. may also have a direct link to the market (especially in the case of product innovations)
   3. support adaptability and innovativeness in the value chain

Strategic Resources = Lasting competitive advantages

Required: VRIS-Test

Resources have to be:

• Valuable = positive influence on effectiveness and/or efficiency of the company 
• Rare = only available for at maximum a few competitors
• Imitation not possible = very difficult to identify or replicate
• Substitution not possible

= lowest costs per product/service unit = leadership!
= consequently approach cost optimization in all activities / processes

Origins/Conditions:

• proprietary (eigene) technologies / exclusive knowledge
• access to unique distribution channels or suppliers
• specific organizational capabilities and structures (functional organization)
• incentive systems regarding: costs and cost reduction
• Low heterogeneity of product portfolio
• modern production facilities and process innvoations = high investments
• low dynamics in technological change
• economies of scale
• economies of scope

1. Economies of scale
   = higher productin lead to lower costs per unit
   Conditions:
   1. procurement = colume discounts
   2. production = lot size effects
   3. experience curves = By doupling the production the conpanies reduce costs by roughly 30% due to learning effects
2. Economies of scope
   = cost advanteges due to the fact that a company offers a variety of different products/services that are interrelated
   Conditions:
   1. avoidance of parallel research
   2. emergence of buyer power due to overall higher output volumes
   3. efficient risk avoidance
   4. better utilization of sales channels

= unique product / service characteristics (as difference to competitors) which are relevant and perceivable for customers

Conditions:

• specific capabilities: marketing, product development, research, quality reputation, technological excellence
• specific organizational capabilities and structures (divisional organization)
• incentive systems towards: quality, creativity and customer orientation

= mainly cost leadership or differentiation strategy but with a narrow focus on a specific customer or product segment

With the Product-Market-Strategy (Ansoff-Matrix):

• Strategies must be adapted (stability vs. adaptation):
  • Strategic level: Strategic conrolling
  • Operational level: Strategy implementation
  • -> Indended vs. realized strategy
• Tools:
  • Strategy Alignment: Congruence Model
  • Operational Implementation: Balanced Scorecard
• Top management responsibilities:
  • Permanent questionning to what extent the current strategy is still adequate
  • Permanent observation and interpretation of relevant internal and external developments
  • Implementation of an sensing and adapting organization ("dynamic capabilities")

Tool to control the strategy alignment:

Tool to control the Operational Implementation:

• Gambardella & McGahan: A Business model is a mechanism for turning ideas into revenue at reasonable cost
• Yunus, Moingeon & Lehmann-Ortega: A value system plus a value constellation
• Oserwalder & Pigneur: A business model describes the rationale of how an organization creates, delivers, and captures value -> most important definition. They developed the Business Model Canvas

• Strategic Choices
  • Customer (Target Market, Scope)
  • Value Proposition
  • Capabilities/Competencies
  • Revenue/Pricing
  • Competitors
  • Output (Offering)
  • Strategy
  • Branding
  • Differentiation
  • Misson
• Create Value
  • Resources/Assets
  • Processes/Activities
• Value Network
  • Suppliers
  • Customer Information
  • Customer Relationship
  • Information Flows
  • Product/Service Flows
• Capture Value
  • Cost
  • Financial Aspects
  • Profit

1. Costs, Inputs -> Efficiency (left part)
2. Value, Outcomes -> Effectiveness (right part)

1. Customer segements
2. Value Propositions (-> Nr. 1&2 together are called "Product-Market fit)
3. Channels
4. Customer Relationships
5. Revenue Streams
6. Key Resources
7. Key Activities
8. Key Partners
9. Cost Structure (-> Nr. 5&9 together give the profitability)

> define the different groups of people/organizations an enterprise aims to reach/serve

• Customer groups need to be separated if ...
  • Their needs require and justify a distinct offer
  • they are willing to pay for different aspects of the offer
  • they are reached through different distribution channels
  • they require different types of relationships
  • they have substantially different profitability
• Different ways to segement customers
  • Mass market
  • Niche market
  • Segmented in different groups by problems/needs (similar customers divided into subsegments)
  • Diversified (unrelated customer groups and products/services)
  • Multi-sided platforms/markets