Introduction to Organisation

and Management

21st October 2013:

The Competitive Environment of
Organisations – part 1
Mr John Quilliam
 Today’s Agenda

• Assignments:
– Semester 1 - Dec.2nd

– Seminars - Nov. 12th & 25th

• Theme:
– The competitive environment -1
 Semester 1 Assignment;
Case Study:“Meteor : How an Irish start-up changed the face of the mobile
market”
This case was written in 2011 by a team of BESS students as part of their final year assignment.

Assignment
2,500 word essay:
•Assess the attractiveness of the Telecommunications Industry in 1998.

•What was Meteor‟s strategy when they entered the market? What factors caused it to change?

•How do you envisage the Telecommunications* Industry will evolve over the next 5 years?
*N.B. This case is about the MOBILE telecomms. sector

Date Due : 2nd December 2013

.

You may use whatever additional sources of public and private information that you can locate,
provided that full citations are presented.

Attach your essay to the JF BU1510 Submission Cover Form, sign it and hand it to your
Seminar Leader at the tutorial session on 3rd December
 Seminar Nov. 14th
on
Theme 1 :The Historical Context of Management
Assignment:
This is a team exercise. You should arrange to form teams of three to prepare and present the following task:

The paper entitled “ The Gospel of Efficiency” and in particular the section entitled “The Principles of Scientific
Management” is a famous and seminal work from 1911 – exactly 100 years ago- which laid down basic principles
that guided the practice of management for much of the 20th Century. Henry Mintzberg’s paper “The Managers
Job; Folklore and Fact” is also a seminal work, this time from the late 20th Century, and can be said to represent a
contemporary view on the nature of management

Having studied the two papers,

1 List key differences between these two approaches to the job of management.

2 Think of a manager you know – in business, sports, politics, education or any

other walk of life. Which of these writers – Taylor or Mintzberg – best describes
how he/she manages?
 F W Taylor
1856 – 1915 Scientific Management
Separation of planning from execution

Develop a true science of work:

analysis of every step in a work process
creation of a standard process for each step
strict compliance with the prescribed steps

Scientific selection and progressive

development of the worker

Bringing together the science of work

and the progressive development of the worker

Constant and intimate co-operation of

management and workers

So, Taylor viewed Management as

Scholars and writers who plumb the roots of 20th Remote, Elitist and Controlling –
Century life inevitably come back to F W Taylor and his
pervasive – to many , insidious – influence.
Robert Kanigel “The One Best way”1997
Mintzberg on Management Work - Folklore & Fact

• Scientific approach to management was not an accurate description of the reality of

managers' jobs : it was "folklore"

Folklore
– reflective,systematic planner
– careful orchestration , little or no
exception
– preference for aggregated MIS
– management as a science and
profession
Fact
– management work characterised
by brevity , variety & discontinuity
– Constantly interrupted, not enough
time to plan in a systematic way
– action oriented
– strong preference for verbal media
& “soft” data
 Mintzberg on Mintzberg’s Managerial Roles
• Scientific approach of management not an accurate description of the reality of
managers' jobs : it was "folklore"

• Does not accurately depict the full complexity and chaotic nature of managerial
work.

• Falsely conveyed a sense that managers carefully and deliberately evaluated

information before making management decisions.

Mintzberg concluded that the work managers actually performed could best be
represented by three sets of roles, or activities:
• INTERPERSONAL
– figurehead
– leader
– liaison
• INFORMATIONAL
– monitor
– disseminator
– spokesperson
• DECISIONAL
– entrepreneur
– disturbance handler
– resource allocator
– Negotiator
 Where we are...
• I The Historical Context of Organisations & their Management
• the development of business organisations, and the parallel evolution
of the practice of management

• II The Competitive Environment of Organisations

• how are organisations shaped by their environments and in
particular by competition?

• III Modes of Organising

• are there patterns in the ways in which organisations are structured?

• IV Managing People
• getting results with and through people ; leadership and teamwork

• V Managing Today
• Contemporary Managerial Challenges
Competitive theme at a glance…..
Understanding Ghemawat, Hambrick & Fredrickson
strategic
thinking Porter [profit
Competitive dynamics]
forces

Business Gadiesh & Gilbert

system [profit pools]

Virtual
Evans and Wurster commerce
Case Studies
Seminar assignment
Nov. 25
*Xtra-Vision:
Semester 1
Assignment due Dec 2
*Xtra-Vision Case
Is in the Student Pack
Meteor Case
on Blackboard
 “Competition & Business Strategy
in Historical Perspective” Pankaj Ghemawat
• Evolution of ideas about Business Strategy : How they were influenced by
competitive thinking in 2nd half of 20th Century

• Role of 3 institutions: Harvard Business School, Boston Consulting Group,

McKinsey & Co.

• Early ideas include :

– SWOT
– BCG Growth –Share Matrix

• The Two Basic Dimensions of Strategy

• Unbundling Competitive Positions; the disaggregation of businesses into their

component activities
– McKinsey’s Business System
– Porters Value Chain

• Unbundling Industry Attractiveness: Industrial Organisation

– Michael Porter ; the 5 Forces Framework for Industry Analysis
 Ghemawat Fig.1

• SWOT Analysis

Grasp Opportunities Build on Strengths

Manage Threats Minimise Weaknesses

 Ghemawat Fig. 2

Product/Mission Matrix
Ansoff

• A planning tool to helps a business determine its product and

market growth strategy.

• Linked to SWOT

Present Product New Product

Present Mission Market Penetration Product Development

introduce new products into existing
focus on selling existing products into
markets.
existing markets.

New Mission Market Development Diversification

sell existing products into new new products in new markets.
markets.
 Ghemawat Fig 3

Growth Share Matrix – example

Volkswagen AG

High
Stars
?
Market Growth Rate

VW AG
Cash Cows Dogs
340 Subsidiary Companies
150 Countries
94 Production Facilities
Low

High Relative Market Share Low

 Ghemawat Fig 3

Growth Share Matrix

Market Growth Rate

Stars
?
Spending heavily
Spend is heavy but
but costs reducing
………..????
Optimum
Cash Cows Cash flow Dogs

Large positive Disproportionate

cash flow drain on resources
Low

High Relative Market Share Low

 Ghemawat Fig 6

The Two Basic Dimensions of Strategic

analysis of industry and firm capability…....
Industry
Attractiveness

“Unbundling the Two

Basic Dimensions of
Strategy”

Ghemawat Fig. 6

Organisational
Capability
(Competitive Advantage)
 Ghemawat Fig 11

Mapping a business system……..... disaggregating a

business into its component activities

The McKinsey Business System

TECHNOLOGY M’FACTURING DISTR’N MARKETING SERVICES

Design Procurement Transport Advertising Customer

R&D Processing Inventory Retailing Service
Assembly

Vertical Integration : The integrating of successive stages in the production and marketing
process under the ownership or control of a single managing organization:

Forward Integration: Acquisition by a firm of its distribution chain, moving it closer to direct
contact with customers.

Backward Integration: Acquisition by a firm of its suppliers.

Watch industry as an example of a Business
System…..….
SWISS WATCH INDUSTRY
Design Parts Assembly Marketing Wholesaler Retailer

•••
••• •••
•••
JEWEL S

•••
••• •••
••• Best & Co

LUXURY WATCH

Geneva Superb Exclusive Rich, older

Luxury urban.
image supply red carpet
Demanding
fastidious
400 SFr. 1000 SFr. 300 SFr. 3000 SFr. 2400 SFr. 5000 SFr. 12’000 SFr.
3 8 2 25 20 42 100

13% 87%
 The CSD industry business system.....
*

*concentrated soft drinks

•Plastics
•Cans
•Citric •‘Manufacturing’
•Caramel •Investment
•Colouring •Efficiency

Fountain
Raw Concentrate
Material prod Bottling Distr’n Retail Vending Consumer
Shops
•Concentrate •speed Supermarkets
the “secret ingredient” •IT
•Brand •logistics
•Innovation
•Global presence

…..The Value Chain for an Organisation

•
 The Value Chain

• Basis for understanding how goods and services

move through an organisation, and how value is
added to them.

• Value chain identifies :

– Primary Activities that create value for customers
– Secondary or Support Activities
 Ghemawat Fig. 12
The Value Chain

Disaggregating a company‟s operations into strategically relevant activities and

business processes enables us to understand the company cost structure,
 The Value Chain Activities
Primary Activities
Activities, costs and assets associated
with:
Inbound logistics,
Receiving , storing and disseminating inputs
from suppliers, inspection, information,
inventory management

Operations,
Converting inputs into final product; production,
assembly, packaging, quality control

Outbound logistics,
Distributing product to buyers; warehousing,
order processing, shipping, transport fleet
management

Marketing and sales,

Market research, advertising and promotion,
sales force management, dealer support

Service
Providing assistance to buyers, installation,
spare parts, maintenance and repair, technical
assistance, buyer inquiries and complaints
The Value Chain Activities
Support Activities
Activities, costs and assets associated
with:
Procurement,
Purchasing fuel, raw materials, parts, components
etc.

Technology development,
R & D , design, telecomms. systems, databases, IT
systems support

Human resource management,

Recruitment, hiring, training & development, labour
relations , talent & knowledge management

Firm infrastructure
General management, accounting & finance, legal
& regulatory affairs, MIS
 Value Chain Integration

Supplier Producer Distribution Customer

Value chains are linked in a business system ; value of goods and services are
enhanced as they move through the business system. We can use the chain to
understand where value is added
Identify the costs and investment along the
value chain

• Assign the costs/investment to the key activities

• Identify cost drivers….what makes a cost change?
• Understand cost dynamics….how do these costs
behave?
• Ascertain how these costs/investments can be
controlled
• Reconfigure the value chain where appropriate
 Ghamawat Fig 8

A good model for formalising the analysis of the

competitive dynamics?…..Porter’s Five Forces Framework

Threat of
new Entrants

Power of Intensity of Power of

Suppliers Rivalry Buyers

Threat of
Substitutes

See Ghamawat (page 90) & “How Competitive Forces Shape Strategy” by Michael Porter , both in the textbook
What drives competition in the industry?
Porter’s Five Forces
 5 Forces Analysis :
Threat of Entry
• New entrants into an industry threaten to reduce profitability for
incumbent companies.

• Barriers to entry:
– Brand loyalty
– Threat of retaliation
– Economies of scale
– Switching costs
– Government regulation /Legislation
– Capital cost
– Channel access
– Proprietary knowledge/product
 5 Forces Analysis :
Bargaining Power of Buyers
Buyer Power is strong if:

– Concentration of buyers

– Buyers purchase in large quantities.

– A single buyer is a large customer to a firm.

– Buyers can switch suppliers at low cost.

– Buyers can easily vertically integrate to compete

with suppliers.
 5 Forces Analysis :
Bargaining Power of Suppliers
Suppliers power is strong if:

– Importance to buyers.
– Few substitutes
– Switching costs, locked-in buyers
– Brand
– Suppliers can vertically integrate forward to compete with buyers
– Buyers can’t integrate backward to supply their own needs.
 5 Forces Analysis :
Threat of Substitute Products

• Product (Sky box office v. DVD rental)

• Need (Air travel v. video conferencing)
• Share of wallet (Holidays v. DIY)
• Switching Costs
• Buyer propensity to substitute
 5 Forces Analysis :
Competitive Rivalry

• Number & size of competitors

• Growth stage of the Industry
• Exit barriers.
• Capital intensity & investment strategy
• Product Differences
Look at supermarkets……
Leading brands
strong….but
Impact of own label
Threat of new Barriers high ..supply and dist.
Entrants [L] Investment in EPOS and EDI
Prime sites and planning
Opportunities for low cost operators
Intense..

Power of Intensity of Power of

Suppliers [M] Rivalry [H] Buyers [M/H]

Buyers have many

Convenience shopping options;shop on price
Forecourts, Threat of
On line ? Substitution.
but supermarkets still
[M]
dominant
Look at supermarkets……..
Less profitability More profitability
very very
Determinants strong strong average weak weak Notes

Barriers high ..supply and dist.

Threat of New Investment in EPOS and EDI
Entrants Prime sites and planning
Low cost opportunities?
Power of Buyers Buyers ..many options ;shop on
price

Suppliers and majors more

Power of Suppliers interdependent. Leading brands
strong….own label is a threat

Threat of Convenience shopping , forecourts,

Substitutes but supermarkets still dominant

Internal Rivalry Intense Rivalry – highly

Competitive,

Overall

Conclusion: Highly competitive, forces strong thus tending to drive down RoI, need scale to ensure
volume
Look at Book Publishing…....

Upstream

Author Sourcing Editing Publicity &

& Evaluate promotion Printing Binding
selecting &
rewrite

Wholesalers Retailers

Downstream

Readers

Transportation Warehousing Transportation

Look at Book Publishing…..
Less profitability More profitability
Relative very very
Determinants Power strong strong average weak weak Notes

Threat of New Retailers are a threat..as is self-

publishing. Identifying/developing
Entrants talent is value-adding, and
needed.
Power of Buyers Retail consolidation strengthening
power of buyers..
Online sellers; enormous power

Power of Suppliers Agents gaining strength.…others

relatively weak. But publ still a
„choke point‟‟.

Threat of Other media…self-publishing

“E-Reader‟ a huge threat to
Substitutes publishers and booksellers

Internal Rivalry Competitive…discounting,

growing but not cut-throat.

Overall

Conclusion: Book publishing now mostly consolidated in media conglomerates; Giants are are Pearson,
Lagardere, News Corp, Bertelsmann.
To summarise …..
• Two key points:
– How an organisation is shaped by its competitive
environment
– How profit potential is shaped by the 5 forces
identified by Porter
In the next session we will see ….
– How Revenues and Profit can be mapped onto the
business system using Gadeish and Gilbert’s
model of Profit Pools.
– How Firms devise Strategies to anticipate, adapt,
and change; using the Hambrick & Fredrickson
reading
• Seminar Assignment 25th November

The Xtra-Vision case..

The story of the case…..
The case covers developments between 1979 to mid 2013

• Founded in 1979; era of VCR

• 1990’s – Turbulent Times
– Flotation
– Expansion
– Increased competition
– Financial losses
– Bailout 1995
– 1996 Blockbuster Takeover
• 2000s – Expansion
– Stores
– Offerings
• 2010s`- Problems
– Web
– Pirating
• 2013
– Examinership
– Hilco takeover Not covered in the case
– Co=branding with HMV
 The Assignment:

1) Identify significant influences – political, economic, social,

technological and legal - in the environment of the industry.

2) Using the Porter 5 Forces framework, assess the forces driving

competition in the industry

3) In the light of your analysis, what strategic option(s) would you

suggest for Xtra-Vision?

Initially, you should work alone, but you should then arrange a one-hour meeting with a
group of colleagues who have „worked‟ the case to share and discuss various
interpretations.

Study the case thoroughly in advance of the seminar – this will mean reading the
case a number of times, taking notes, and progressing your analysis with each re-
reading.
See you for plenary 4 on

… November 18th 2013