Strategy Formulation: Mintzberg’s View vs Ansloff’s View Porters 5-forces
Competition & Business Strategy in historical perspective – Ghemwat Acquisitions – Dryer
Business Level strategy
Corporate Level strategy
Ethics & sustainability
Mintzberg’s View vs Ansloff’s View
Mintzberg’s The Design School (1990)
One of ten schools of thought from Mintzberg
The design school sees strategy formation as a process of conception •Approach: clear and unique strategies are formulated in a deliberate process. In this process the internal saturation of the organization is matched to the external situation of the environment •Basis: Architecture as a metaphore
•In short: “Establish a fit”
•The internal state of policy: striving, inhibitions and competences that exist within the company •External expectations: what must be sought and achieved if the company is to survive. 7 Premises underlying the Design School
1.Strategy formation should be a controlled, conscious process of thought •Strategies should be formed through a tightly processed of conscious human thought 2.Responsibility that control rests with the chef executive 3.The model of strategy formation must be kept simple and informal 4.Strategies should be unique: the best ones result from a process of creative design 5.Strategies emerge from this design process fully formulated 6.The strategies should be explicit
7.Only once these unique, full-blown, explicit strategies are fully formulated can they be implemented
Ansoff’s View (1991)
•Implicit strategy formation
•Thinking and action must be performed in tandem
•Allow for strategy to evolve organically (trial and error) •Environmental assessment is critical, but!!!
(not needed information below)
Ansoff argued that within a company’s activities there should be an element of core capability. To establish a link between past and future corporate activites Ansoff identified four key strategy components. Porters 5-Forces
Porters 5 forces analysis is a framework for industry analysis and business strategy development. It lists five forces which determine the competitive intensity and therefore attractiveness of a market. Attractiveness refers to the overall industry profitability. An “unattractive” industry is one where the combination of forces acts to drive down overall profitability. An unattractive industry would be one approaching “pure competition”.
Threat of New entrants: Profitable markets that yield high returns will draw firms. This results in many new entrants, which will effectively decrease profitability. Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards a competitive level. •Customer switching costs
•Access to distribution channels
•Incumbency advantages (independent of size)
Threat of substitute products: the existence of close substitutes increases the propensity of customers to switch to alternatives in response to a price increase. •Buyer propensity to substitute
•Relative price performance of substitutes
•Buyer switching costs
•Perceived level of product differentiation
Bargaining power of buyers: The ability of customers to put the firm under pressure, also affects the customers sensitivity to price change.
Bargaining power of suppliers: Suppliers or raw materials, components, labor and services to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources.
Bargaining power of suppliers / buyers
•Product standardization vs differentiation
•Threat of forward and backward integration
Rivalry among existing competitors: For most industries this is the major determinant of the...