Thursday 23 February 2023

Strategy map

Strategy maps (Bubble charts) are used to understand how firms compete in a marketplace and position themselves with respect to their competition in a particular industry or market segment. Strategy maps are a visible representation of two to three attributes and how all the various competitors within a particular market relate to one another.

In the above we can get a clear picture of the various competitors within a particular industry or market segment and how they compare as well as differ based on 2 to 3 attributes. The attributes or criteria to map really depends on what you are trying to find. 

The best approach is to try and Identify a number of criteria (3 to 7) that support what you are looking for, collect the data and try different variations and see what you get.

Tuesday 21 February 2023

Competitive position

 Determining an organisations competitive position within a market or industry.

An organisation's valuable competitive position is at the intersection of its:

  • Capabilities: what the organisation is able to do well and distinctively,  how those 
  • Market opportunities: What the market demands and is willing to pay for. 
  • Values: The core mission statement of the organisation 
Where all these three intersect, is the prime opportunity for a valuable competitive position.

There are four generic competitive positions which an organisation can take.

Focusing on the horizontal axis we see potential organisational a focus on the source of advantage. 
  • Furthest to the left: are organisations whose focus is on low-cost, there goal is to develop a product or provide a service as economically as possible, their strategy is to appeal to customers on price, by providing a product or service at a lower rate, their goal is to win more market share than their competition, increasing funding by doing more or selling more at a lower rate.
  • Furthest to the right: are organisations who aim to provide superior products or services, their strategy is to provide a niche or superior product/service at a higher rate, their approach is to do less business but for a higher rate.
Focusing on the vertical axis we look at Competitive scope a focus on how broad or narrow the organisations offerings are:
  • High on the Y-axis: represents breadth, how many markets does the organisation cater to, how many different product lines or service to the provide. How broad are the potential buyers 
  • Low on the Y-axis: represents a focused product line in which the organisation does not diversify their offerings, but focuses on their core strength(s).

Cost leadership strategy

Organisations who focus on keeping costs lower than those of their competitors to generate higher profits, by providing standardised products or service at the same or near same rates as the marginal producers. They generate profits by limiting customisation and focusing on creating generic one size fits all products or services which clients can take or leave. Having this high degree of standardisation mass appeal while minimising costs.

Organisations accomplish cost leadership by aggressively undercutting their competition, while providing their goods or services at low costs, via offshoring to cheaper markets, by economies of scale, leveraging capital costs to their maximum potential, pressuring suppliers to lower their rates. Investing in R&D with the sole focus of reducing their cost structure.

Differentiation strategy

Organisations who focus on differentiation target the market segment that is willing pay higher prices for higher quality goods or services, rather than provide generic one size fits all products or services they are looking to monazite on bespoke high quality products or services.

Organisations accomplish this through brand and quality, they position themselves as a superior providers of their product or service lines. They invest heavily in innovative capability offering highly differentiated products or services with a technological superiority which clients are willing to pay for.

Focused Low-Cost strategy

Organisations who focus on keeping costs lower than those of their competitor in a narrow segment of the market. Often leveraged as an entry strategy by foreign firms and new ventures into advanced markets. 

Organisations entering a new market or brining a new capability to market will focus narrowly onto a strategic target and gain a foothold by offering their capability at a lower rate than the competition. Once they establish their reputation as a value added provider they can begin to shifting to a boarder or higher price strategy.

Above we can inspect the difference between a cost leadership and differentiation strategy, Organisations that take a cost leadership approach, aim to provide a service or product of equal value to the industry average, but at a lower cost, meaning that their EVA will be higher than the industry average, because it costs them less to produce something that they can sell for the industry average price. Organisations that aim for a differentiation strategy, are not too concerned with costs, but with providing a superior product or service which they can charge significantly over the average industry price for in order to gain increase their EVA.

Niche strategy.

Organisation who focus on a Niche strategy tend to generate profits from higher consumer willingness to pay by targeting small, often premium segments of the market. 

Organisations offer premium high quality services to a small market, often times this market is too small to generate any significant value with a low-cost approach.

We can simplify our chart to the above four quadrants. These are general competitive positions an organisation can take. In reality things are never a clear cut as they are on a Cartesian axis.

Integrated competitive strategy

In reality organisations often aim for differentiated products or services at low costs. This in principal is attainable, providing high quality products or services supported by cost effective capabilities. Many companies have achieved this, in automotive manufacturing Toyota offers a wide range of relatively high quality automobiles at lower than market prices. They are able to accomplish this through their unique manufacturing culture.

Aiming for an integrated approach comes with the serious risk of being stuck in the middle, not differentiating the product or service enough, while simultaneously not providing a relatively low enough price point for the market,   

Capabilities Analysis

A capability analysis is one of the critical tools in any strategic analysis. It is the primary tool for analysing the internal capabilities of an organisation. There are three primary steps to thinking about a capabilities analysis. 

  • Identify the capabilities & Secondary activates: Start by identifying the value chain, understanding how the organisation takes various raw materials and turns them into products and services. 
    • What are the steps along the way? 
    • Which internal secondary activities support the Primary Capabilities that generate value. These could be anything from human resource practices or R&D, anything that supports the creation of the goods and services the capabilities provide.

  • Internal & External alignement: Next we need to explore how the secondary activates align with the primary capabilities internally to provide value.
    • How well do the secondary activities support the primary capabilities to generate revenue. 
    • We also need to explore how well the primary capabilities are aligned to the marked demands.

  • Sustainability: We must explore whether the capabilities provide a competitive advantage and whether or not that advantage is sustainable. 
    • Are the capabilities imitable, can a competitor simply copy the organisations capabilities.
    • Are the capabilities durable, will they still be valuable in the future.

Sunday 19 February 2023

Organizational Capabilities

A capabilities analysis focuses Ricardian rather than Monopoly rents, each of which is a types of economic rents, referring to how excess profits are earned.

  • Monopoly rents: are caused by barriers of entry which prevent competition from entering the market, such as patents, exclusive licenses, control over scarce resources, or government intervention. 
  • Ricardian rents: are caused by advantages or resource endowments, such as fertile land, access to water, mineral deposits, superior manufacturing, superior quality, marketing, etc.

In short, monopoly rents arise from market power, while Ricardian rents arise from competitive advantage. Ricardian rents come in two basic flavors:
  • Cost advantage: an organisation can provide their product or service in a cheaper way without compromising their product or service. 
  • Demand advantage: the market is willing to pay more for a product or service of a particular organisation.

A capabilities analysis reflects a resource-based perspective that focuses on barriers to imitation, rather than competition. These barriers to imitation whether through cost or demand advantages, are the primary drivers of profits.

There are three main steps in analyzing an organisations capabilities:
  1. Value-chain analysis: Identify the value chain and specific resources and capabilities.
  2. Alignment analysis: Assessing the alignment of capabilities both internally and externally
  3. Sustainability analysis: Determine the degree to which any capability advantage is sustainable over time.

Value chain analysis

The value chain is a classic idea in strategy based on of how an organisation brings a product or service to fruition. The value chain describes all necessary steps to bring a product or service to market.  A traditional value chain for a good or service can look something like below.

Generally an organisation, fits into one the above stages, the first step is to identify where in the value chain our organisation sits. Once an understanding where in the value chain the organisation resides, we next want to unpack the value chain within the organisation. How does the organisation deliver value from within itself, the primary activities that deliver value as well as the secondary activities which enable the primary ones.

Primary Activities are the ones that are involved in the direct value chain, the stages in generating revenue. The secondary activities, support the primary ones in generating value.

Now that we have identified the value capabilities of the organisation we need to identify the resources which support those capabilities.

Tangible Intangible
  • Cash
  • Physical building
  • Patents
  • Talent
  • Brands
  • Reputation
  • Technical Expertise 
  • Loyalty
  • Contracts/Alliances
  • IT Systems
  • Positive culture
  • Talent Acquisition

It important to unpack the value chain, in order to understand the people, processes, and systems that, combined, form the core capabilities of the organisation.

Value network

The value network model is a more appropriate representation for service based industries such as Consulting, Healthcare, Financial, Communication or Airline services. Such services, do not follow a supply chain model in which materials from a supplier are transformed and then sold to a customer. Service based industries, instead have interconnected nodes that interact with one another. This network of nodes has both primary and secondary nodes, much like the Primary and Secondary activities of a value chain model, however these nodes are interconnected to a lesser or greater degree to one another. 

<<insert example here>>

A value network model is far less generic than a value chain model; value networks are very specific to each individual organisation and how it operates, with varying levels of connections between nodes.

Internal and External alignment.

Internal alignment is focused on the degree which internal processes, people and systems align with one another, to generate value and deliver capability. Do the ways of working support the companies mission statement and value proposition.

External alignment is focused on the capabilities and how aligned they are with the organisations value proposition. Are the external capabilities of the organisation aligned with the industry or market demands, does our organisation provide value to the customers. How well do the capabilities align with customer needs.

VIRN Analysis

One way to assess capabilities is through an VIRN Analysis, which stands for Valuable, Inimitable, Non-substitutable
  • Valuable: does the market want this capability, are their customers willing to pay for it.
  • Rare: a capability that is uncommon and only our organisation can provide.
  • Inimitable: is it unique and impossible to copy by competition.
  • Non-Substitutable: there is no other product or service similar enough that a competitor could offer at a lower rate which would affect the demand.
A true competitive advantage capability satisfies all four of the above, It is sought by the market, it is scarce,, difficult to imitate and there are no direct substitutes. What we try to establish is how valuable is the capability that the organisation provides.

Valuable Yes Yes Yes Yes
Rare No Yes Yes Yes
Inimitable No No Yes Yes
Non-Substitutable No No No Yes
Advantage Competative parity Temporary Advantage Conditional Advantage Compatative Advantage

An organisation can succeed in a highly competitive market when its people, processes, and systems are aligned both internally and externally with the value proposition of the organisation.

Sustainable advantage

A competitive advantage is sustainable to the degree which it is captured as well as maintained. There are two main factors when it comes to advantage sustainability: Imitability and Durability. 

Imitability: If a firm's capability is inimitable, its capability can't be imitated, this allows the firm to maintain superiority in an area relative to its competitors. This aligns to the Rarity and Inimitability aspects of our VRIN analysis. 

There can be a large number of barriers to imitation, preventing competitors from eroding a competitive advantage:
  • Legal barriers: there may be a bi-law or licence to operate that gives the organisation an advantage. There could be a patent, or copywrite that protects your competitive advantage.
  • Scarce supply: Access to a particular natural resource, or a geographic location.
  • Unique historical path: Learning hard lessons over time, giving an organization unique industry knowledge and expertise. 
  • Social complexity: the culture of the organisation is too unique to replicate, for example Disney.
  • Tight combination: the more people adopt a service or product, the more valuable it becomes, for example social media or the telephone, if only one person has it, it's useless, but the more users adopt it the more entrenched and valuable it becomes.
  • Credible commitment: An organisation doubles down on a course of action, discouraging competitors from fighting a battle they may not win.
Durability: Can an organisation maintain their competitive advantage over time, there are a number of factors that determine the durability of a competitive advantage:
  • Human capital: People grow old and retire, if an organization's competitive advantage stems from leadership, then eventually when that leader retires if they haven't trained a protégé, then that competitive advantage may retire with them.
  • Physical assets: Equipment and facilities degrade over time, if they are not maintained and upgraded appropriately, an organisations competitive advantage can deprecate over time.
  • Rigidness: A competitive advantage can become a disadvantageous rigidness, that is something that worked in the past may no longer serve as a competitive advantage and can even become a hindrance, this could be due to outdated technology or thinking.
  • Value exchange: An organizations asset, though valuable, maybe even more valuable to a competitor or an organisation in a different industry and it may be more valuable to lease or outright sell that asset.

How does an organisation build Capabilities.

There are two ways to build capabilities:
  • Fast way: an organisation can buy them (purchasing capabilities is only possible if factor markets are imperfect, that is the capability is undervalued)
    • Hire more expertise
    • Purchase an existing patent
    • Acquire or merge with another organisation
    • Partner strategically with another organisation. 
    • Licence technology from another organization.
  • Slow way: an organisation can develop them over time.
    • Leverage R&D to create a new product.
    • Knowledge management & training.
    • Superior leadership.
In either case for an organisation to develop internally or acquire externally any capability that could lead to a competitive advantage needs to have superior information or be able to capitalize on existing capabilities (some complementary capability that will enhance the value from the purchased or developed capability) to build their capabilities, or alternatively they can get lucky.

Thursday 16 February 2023

5 Forces framework

Not all industries are equal, the dynamics and structure of an industry or market segment, can impact the future profit potential of firms who operate in a particular industry, or are looking to operate in a particular market or industry.  When we talk about an industry we are referring the "Industry Environment"

Broadly we can think of a three layer onion, with the organisation or business at the core, the 'Macro Environment' as the most outer layer and the 'Industry Environment' between the two. At the 'Industry Environment' layer we analyse the impact of competitors, suppliers, consumers, etc. To understand these market discrepancies we are going to focus our attention onto the 'industry Environment' layer and not focus on the individual organisations that make up an industry or market segment.

If we recall the fundamental principle of business strategy 

This means that in a perfectly level playing field competitors can only compete on price, and in theory consumers will take the best value, meaning all things equal, the competitive space turns into a race to the bottom. We know that in practice this does not generally hold true, in almost all but the simplest of industries their is generally one or a few firms that are the successful leaders, who turn greater profits than their competitors. 

There are two perspectives on profits:

  • Monopoly rents: that some barrier to entry exists, that prevents competition from entering the market to drive the price down, this could be number of things, however generally it is considered to be some sort of governing body. Monopoly rents focus on barriers to competition.
  • Ricardian rents: that inherently one or a few organisations will have some sort of competitive advantage, a trade secret, a patent . Ricardian rents  focuses on barriers to imitation.

From an industrial organisation perspective the 'Industry Environment' greatly influences how profitable an organisation or business can be, in essence firms that operate in highly profitable industries are generally more profitable than firms that operate in low. This can be considered obvious, however the questions we want to answer are: 

  • how can we identify whether an industry is highly profitable? 
  • how to identify if an industry will remain profitable or will turn into a race to the bottom?
  • how to best position oneself for profitability within an industry?

Historically the industries with the highest levels of profitability have the most barriers to entry, meaning the more difficult it is to enter an industry, the fewer competitors will be in that space, cannibalising each other's profits. Most often industries which are protected by patents and government regulation tend to be more profitable then those open to competition. These monopolistic barriers to competition are what often results in certain industries being far more profitable than others.

The Five forces analysis tool takes into account the five key competitive forces that minimize or dampen the prospects of profitability in a particular industry: The five competitive forces all work against or threaten the profitability potential of an industry or a market segment. 

  • will stiff price competition within the industry drive prices down?
  • will the bargaining power of suppliers force organisations to pay more for what they need to stay in business?
  • will the bargaining power of the buyers force prices down?
  • will new entrants into the industry pose a serious competitive risk, with new innovations or just saturating the market?
  • is there a threat of substitution, is there a similar enough product or service that customers could use as an alternative?

Threat of Entry

The threat of entry describes how difficult it is for competitors to enter an industry, the lower the threat level, the less likely a competitor will enter the market. Basically, A low threat of entry means that it is hard for new competitors to enter the industry. 

High sunk costs: It is far less likely for competitors to enter a given industry if they face high sunk costs. Sunk costs are not just regular costs. If the bar to entry is a lot of capital, then entering the industry is not nearly as dangerous as if the requirement is high sunk costs. High sunk costs could come in the form of very expensive assets or licences. Sunk costs discourage new entries into an industry because if things do not go well they will not be able to recoup as much if any of their investment capital.

Incumbents have a competitive advantage: Potential entrants are at a competitive disadvantage compared to existing players, simply not profitable to enter. If the established players within an industry or market have a patent or their brand, pre-commitment contracts, steep learning curves, large economies of scale.

Entrant faces Retaliation: Potential entrants are likely to be forced out of business by strategic pricing behavior of incumbents. an incumbent can operate at a break even point or even a loss to force competition out of an industry.

Scale economies: costs generally decline as an organisation produces more of their product, the more widgets you produce, the cheaper per unit production costs are, the higher profit potential exists per unit.

Scope economies: costs generally decline the higher breadth of related products a firm produces, leveraging lessons learned as well as cross design.

Learning curve Economies: costs decline as an organisation gains more experience and learns how to do things faster/cheaper.

Bargaining power of buyers

In economics there is a concept known as 'monopsony', which means that there are a few concentrated buyers for our good or service. Generally the fewer buyers exist, the more bargaining power they have. The concept is simple, if you are selling to hundreds of thousands of buyers, if one doesn't like your price, you can find a different one. If you are dealing with a 'monopsony', that is a small pool of buyers, and one doesn't like your price, you only have a handful of alternatives; even worse if the 'Monopsony' binds together they can force you to lower your price. A 'Monopsony' is the opposite of a 'monopoly', in  monopoly, there is one seller who any buys must deal with, where as in a 'Monopsony' there few buyers and many sellers.

Switching costs can also be a major factor when it comes to bargaining power of suppliers, if the capital outlay for changing product or service is high, then that will also impact the bargaining power of suppliers. For example if a delivery service has a fleet of trucks, switching to insurance on those trucks could prove to be expensive, if there is a cancelation fee.

Backward integration: one major threat of supplier bargaining power, is if the supplier can backward integrate into the product or service you are providing. For example if you are providing a particular component or service, one of your buyer may simply be able to replicate your product or service and backward integrate it into their own supply chain. Either cutting you out, or drastically increasing their own bargaining power.

Price discrimination: Companies, assuming that there is price opaqueness, can engage in price discrimination, that is some buyers are willing to pay more for the exact same product or service, for example the aviation industry greatly discriminates based on what kind of computer you are using all the way to the dates you are selecting. Price discrimination is the act of optimising the price directly to the consumer, charging individual prices based on what individuals are willing to pay.

Intensity of Rivalry

The intensity of rivalry is often what is thought of when we think of strategic competition. The fewer the number of competitors there are in a space, the less intense the rivalry is. It is visible in the case of Window vs Apple, the appearance is that the competition is fierce, however this is more of a marketing point of view, the reality is that with fewer rivals prices are generally higher, the more competitors in a space, the more competition for customers or consumers the higher the intensity of rivalry in an industry.

It boils down to supply and demand, if the market or industry is growing, there is more potential customers or consumers, then the intensity of rivalry will stagnate, when their is not enough room in the market for all of the existing players, then they will compete with one another for the available consumers of their product or service.

If exist costs are high, this will also increase the intensity of rivalry. In some industries as the Rivalry increases, an organisation can choose to simply leave that industry and redeploy or refocus their capital in a different one, for example apple in the early 2000s exited a number of high rivalry industries to refocus their energy on music players and eventually smartphones. However if the cost of exiting an industry is prohibiting an exit, then that organisation may have to stay and fight for lack of an alternative.

When we have high industry concentration, meaning that there are only a few firms that control the majority of the market share, then price rivalry tends to be low. Two ways of calculating industry concentration are:

  • 4-firm concentration ratio: Simply what is the combined percentage market share of the top four firms in an industry, if that share is high, say 40%+ then competition on price will be low.
  • Hirschman Herfindahl Index (HHI): sum of the squared percentage market shares of all firms in an industry, again the higher the HHI, the less likely price competition will be high. 

Bargaining power of suppliers

In many industries organisations must use suppliers, they need to purchase a good or service to provide their own good or service, the concept is, if you build wooden furniture, you need to buy wood from a supplier. Generally when you are in an industry, ideally you want the bargaining power of your supplier to be low. The lower the bargaining power of your supplier the safer you are from creeping costs. 

The more suppliers you can source material from, the lower their bargaining power is, the fewer you can source from the higher their bargaining power is. If you have a one to one relationship with a particular supplier who has a patent on some component that you need then you have symbiotic relationship, you need each other, however if you are in a position where there is only one supplier, but multiple buyers, then they have more power and can raise their prices, to maximise their profits. 

A mitigating factor can also be if their is a substitute product that your organisation could source to replace or offset the cost of a particular supplier.

Another key factor is the forward integration threat of your suppliers, for example, if our wood supplier suddenly decides that rather than selling their product to us, they simply start manufacturing furniture on their own and sell to our customers, then their bargaining power increases, if we try to drive their price too low, they can turn around and cut us out of the supply chain. 

Threat of substitutes

The threat of substitutes is not a direct apples to apples comparison, a substitute will generally not come from a direct competitor, but the product or service though not the same as the one offered by our organisation, can in the eyes of some consumers can be direct competition. For Example, butter vs margarin, not the same product, and consumers may have a distinct preference, however if the price of one increases significantly over the other a consumer may easily shift, to the more cost effective alternative.

To assess the severity of the threat of substitutes we can take a look at Cross-Price Elasticity.

There are three types of cross-price elasticity:

Perfectly Elastic Demand: Means that as the price of one product increases, the demand of the substitute product also increase, meaning that it is an excellent substitute.

Moderately Elastic demand: as the price increases, some consumers will switch to a substitute product or service.

Perfectly Inelastic demand: Means that as the price of the product increases, the demand of the substitute does not increase, meaning that it may not be a valid substitute, or it can only be a partial substitute and most consumers cannot make the switch.

One major disincentivizor would be a high switching cost, that means is there a hight cost to change products.

Pivotal force

When it comes to the five forces analysis, one must keep in mind that the weakest of the forces is far more dangerous to profits than the strongest; this means that an industry in which you have medium risk across the five forces, you'll generally be able to see more profits than in an industry in which you have four low risks and one high. This one high risk is the Pivotal force, the one that can negatively impact a firms ability to earn profit.

Environmental analysis

Similar to the competitor analysis, the environmental analysis helps us understand the broader competitive environment. However, the distinction is that environmental analysis's focuses more on trends that are impacting the industry or market, such as:

  • Direction of consumer demand within a particular sector.
  • What is the potential of some disruptive technology,
  • what is the impact of change in government regulation.
There are many different types of environmental analyses, that are sometimes referred to as environmental scans.  However six categories that one should factor into their environmental analysis are:

  • Demographic trends: This refers to what is happening in the population. 
    • Is there an aging population, and how might that maybe affect demand within the industry segment?

  • Social-Cultural influences: How are people's outlooks and beliefs influencing the sector
    • What are some trends in fashion that may be influencing the industry? 
    • How does the rise of social media, and the willingness of people to share intimate details about their life online, in various networks?

  • Technological developments: How are technological advances affecting or will affect your business.
    • What new technologies are coming about?
    • How are they impacting this sector and this business?

  • Macroeconomic impacts: Is this an industry that is impacted greatly by the business cycle? 
    • Where is the business cycle right now? growth phase, or contraction phase?  
    • How does that affect demand, and ultimately affect competition, within the industry?

  • Political-Legal pressures: are there any regulation, or by-laws which influence our industry.
    • Where are those laws today? 
    • How might they be changed in the future? 
    • How does that then, ultimately, impact competition?

  • Global trade issues: what are the global trade trends in general. 
    • How might they impact competition moving forward. 
    • Do we need to be concerned about global entry from other competitors, in the near future. 
    • Are there an changes in trade agreements or trade restrictions, that will impact the industry.
Typically, in an environmental analysis, you simply create bullet pointed lists, for each of the above six categories and begin to paint a broad picture of the competitive environment that the organisation is operating in.

Wednesday 15 February 2023

Competitor Analysis

A competitor analysis is an identification of your various competitors and information about their performance, capabilities, objectives/Values, strategy. These are just the basic 

Performance metrics Capabilities Objectives/values Strategy
Competitor 1
Competitor 2
Competitor 3
Competitor 4
Competitor 5
Competitor 6

The primary goal of a competitor analysis is to gain a comprehensive understanding of the competitive landscape, based on various qualitative as well as quantitative data, the metrics above are a good start, but can be augmented with other factors as needed. By understanding the competition, an organisation can identify areas where they can differentiate themselves, such as by offering unique products, providing better customer service, or having lower prices. Additionally, competitor analysis helps businesses stay abreast of market trends and changes, and adjust their own strategies accordingly.

On the surface, competitor analysis can seem rather straight forward, but at the heart of it there's a number of fundamental questions one needs to ask. An approach could be to create strategic group by their similarities,  then use this concept of strategic groups to then prioritize the various competitors that you want to analyze. Once you have that prioritization, then you can dedicate more time focusing on those closer in competition with your organisation. But maintain awareness  your of other competitors that may be a little farther afield however may become relevant in the future.

Tuesday 14 February 2023

SWOT analysis

A SWOT analysis is a strategic planning tool that helps organizations identify their Strengths, Weaknesses, Opportunities, and Threats. It is a comprehensive framework for assessing an organization's internal and external environment, with the goal of maximizing its strengths, minimizing its weaknesses, exploiting opportunities, and mitigating threats. A SWOT analysis can be used to help determine the direction an organisation should take in terms of growth and development. The process of performing a SWOT analysis involves gathering information and data, brainstorming with stakeholders, and evaluating various factors that may impact an organization's success. By using this tool, organizations can make informed decisions, prioritize initiatives, and allocate resources more effectively.

Often times whether something is an opportunity or threat is just a mater of framing, the important thing is to identify them. A swot analysis is a great starting point when performing a strategic analysis, once the four factors are identified, it is important do do a deep dive on each to get an deep understanding as to what impact each identified strength, weakness, opportunity and threat really has.

Monday 13 February 2023

Fundamental principle of Business strategy

The fundamental business strategy principle simply put is: 

"If everyone can do it, it's too difficult to generate and capture value from whatever it is." or
"In a perfectly competitive market, no firm realizes economic profits". 

This means that in a competitive market, profits are competed away, the more suppliers of a good or service the cheaper that good or service becomes and suddenly every organisation providing that good or service is breaking even or just barely turning a profit. A situation such as this will generally result in one or several market organisations shifting their investments into other more profitable avenues.

To be a profitable organization, that organization needs a competitive advantage, something that will draw the market to their product or services, over their competitors. That competitive advantage could be made up of one or multiple factors, it could be as simple a superior marketing resulting in higher consumer trust, it could be quality or cost, or any other factor that makes it's product or service more appealing to the marketplace.

In economics profits are often referred to as 'rents'; the official definition is:
Economic profits (rents) are returns in excess of what an investor expects to earn from investments of similar risk (i.e. in excess of the opportunity cost of capital). The idea behind this is simple, an investor will be drawn to the opportunity which will maximize their return on investment while minimizing their risk. 

Let's say that there are two companies to invest in, both of which guarantee a return of 1 million dollars, however the first company requires an investment of 10 million where as the second requires an investment of 50 million, Obviously any investors will choose the first company. This introduces the concept of Opportunity Cost. Opportunity cost is the concept that while capital is occupied doing one thing it cannot be leveraged for something else. The investor or organisation must choose where to best deploy their assets for the greatest impact.

A common calculation used by strategy researchers to calculate the market value of an asset is to use Tobin's Q or Tobin's ration, a financial concept named after economist James Tobin. It is a measure used to evaluate the value of an asset compared to its replacement cost. Tobin's Q is calculated as the market value of an asset divided by its replacement cost.

If Tobin's Q is greater than 1, it indicates that the market value of the asset is higher than its replacement cost, which suggests that the market perceives the asset to be undervalued and that investment in the asset may yield a good return. If Tobin's Q is less than 1, it indicates that the market value of the asset is less than its replacement cost, which suggests that the market perceives the asset to be overvalued and that investment in the asset may not yield a good return. 

Tobin's Q is not a perfect measure and has limitations, but it provides a useful perspective on the relationship between the market value of an asset and its replacement cost, however it is very difficult to gain an accurate representation of an assets 'replacement value' 

Alternatively to 'Tobin's Q' strategists can leverage the Discounted Cash flow (DCF), a financial analysis technique used to evaluate the potential future cash flows of an investment, and determine its value by discounting those future cash flows to the present. The idea behind DCF is that the value of an investment today is equal to the sum of its expected future cash flows, discounted to reflect the time value of money. The discount rate used in the analysis takes into account the risk and expected return of the investment, and is generally higher for investments with higher levels of risk.

In general, DCF is a useful tool for making investment decisions, as it provides a comprehensive view of an investment's expected future cash flows and its associated risk. However, it is important to note that DCF is based on a number of assumptions, including the discount rate, expected future cash flows, and the expected holding period of the investment. As such, the results of a DCF analysis can be highly sensitive to changes in these assumptions, and care should be taken when interpreting the results.

In essence as a good or service becomes less profitable, the capital used to provide that good or service can and should be relocated to an opportunity where their is greater profitability. 

Fundamentally for an organisation to be profitable, there must exist a market inefficiency to take advantage of, otherwise the profitability will be competed out of exitance and any players in the space will operate at a break even point or with marginal profits. For an organisation to be profitable they need to have some sort of competitive advantage some sort of way to outperform their competition.

There can exist external controls to prevent this equilibrium of competition, these are in place to protect industries, for example if it was not profitable for famers to produce milk, they simply wouldn't this is why the government controls how much milk is produced, to ensure that enough supply is always available without the market crashing.

There are two schools of though when it comes to economic rents

Monopoly rents
: there is some barrier to entry that prevents competitors from entering the market, it could be cost prohibitive, or for example a particular licensing limitation, only a set number of licences to operate are given out and not all competitors can get one. The market is structured in such a way that ensures profitability.
In essence their is some barrier to competition

Ricardian rents: that certain organisations are just better at providing their product or service, they can do it cheaper, faster, at a higher quality whatever they can do they can do it better than their competition which will give them the competitive edge, earning more profits, which they can reinvest into themselves and snowball into success.
In essence their is some barrier to imitation.

Friday 10 February 2023

Buisness Strategy

Business strategy refers to the objectives, plan and execution an organization takes to achieve its desired objectives. It encompasses a broad range of decisions and actions taken by a company to compete in the market, grow, and succeed over the long-term. Effective business strategies take into account a company's strengths and weaknesses, as well as the opportunities and threats presented by the external environment. They provide a roadmap for allocating resources, making investments, and positioning a business for future success. The development and implementation of a well-crafted business strategy is crucial for any organization seeking to achieve sustainable growth and prosperity. 

A strategy map, can be broadly broken down into three broad parts:

  1. Strategic objectives: An organizations values and purpose, its scope of operations from a product and service perspective. The strategic objective(s) of an organization is the north star that all departmental or business units need to follow. 

  2. Strategic plan: The position an organization takes within the market leveraging its internal resources and capabilities to achieve its strategic mission. The action plan to accomplish its mission.

  3. Strategic action: The execution of the Strategic plan to accomplish the strategic mission. The actions to execute the plan to achieve that mission.
Before an organization can establish their strategic objectives, they must first understand its current strategic positioning. Understanding the current situation is the first step in any GAP analysis; before an organization can define a strategic plan for future strategic objectives, it must understand it's current state of affairs. A strategic analysis is conducted from a cross-functional perspective, it is a probing of different business units and departments of the company to gain a holistic understanding for companies strategic direction.

Organizations do not operate in a vacuum, they are members of local as well as global markets, they have rivalries, partners as well as potential rivals and potential partners along with market threats and opportunities. To derive a realistic and value added strategic map all of these complexities must be taken into account. These various factors need to be substantiated by real analytics and data to make informed decisions mitigate the strategic risk.

The three fundamental questions one needs to ask before creating a Business strategy:
  1. What are their values?
    • These values can be found within an organizations mission statement.
    • What is the organizations Scope?
    • What is the mission of the Organization?
    • How are they going to accomplish their values?
    • How does the organization define itself?

  2. What are their Opportunities?
    • What is the external environment which the organization operates in
    • What does the market dictate, what is the marked demand, does it align with the organizations offerings
    • Who are the competitors, how are they  fulfilling the markets needs, what impact do they have on the organizations opportunities.

  3. What are their Capabilities?
    • What does the organization do well?
    • What assets does the organization have which they can leverage to meet market opportunities?
    • What is the organizations competitive advantage? what can the organization do better than their competitions.
The intersection of these three answers, provides the organization with it's valuable competitive advantage.

Thursday 9 February 2023

IaaS > Paas > SaaS

Before cloud providers such as Amazon, Google, Microsoft, Linode and others, if a business wanted to provide an online service or product, they had to manage everything end to end themselves.

that is your organisation would have to purchase, setup and maintain your entire infrastructure stack, it could look something link this

It's a lot of upfront costs, a lot of specialised expertise not just to configure, but to maintain, keep secure and be ready to replace. Running your own infrastructure on premise is not just expensive from a capital cost perspective, but it's operational costs are extremely high as well. This is why the cloud went from relative obscurity in the mid 2000s, to business ubiquity today. 

By leveraging cloud services, you can eliminate your capital and greatly reduce your operational costs. there are three main services that cloud providers offer they are:

Infrastructure as a Service (IaaS) can help a business undergo digital transformation by providing access to virtualized computing resources, such as servers, storage, and networking. With IaaS, a business can quickly scale its IT infrastructure without having to invest in expensive physical hardware. This allows the business to focus on developing and deploying innovative digital products and services, without having to worry about managing the underlying infrastructure.

Platform as a Service (PaaS) offers a complete development and deployment platform for applications. It enables businesses to build, test, and deploy applications on a cloud-based infrastructure, without having to worry about the underlying infrastructure management. This allows businesses to focus on their core competencies and drive innovation, rather than spending time and resources on managing the IT infrastructure. PaaS also provides businesses with the ability to rapidly launch new digital products and services, which is crucial for companies undergoing digital transformation.

Software as a Service (SaaS) provides a way for businesses to access software applications over the internet, rather than having to install and run them on their own computers. SaaS can help businesses achieve digital transformation by providing access to a wide range of applications, from customer relationship management (CRM) systems to enterprise resource planning (ERP) solutions, without having to invest in expensive software licenses and hardware. With SaaS, businesses can focus on driving innovation and delivering value to their customers, while the SaaS provider takes care of software updates, security, and maintenance.

A simple way to think of it is like this:

  • Infrastructure (IaaS): is the hardware that your application or service runs on.
  • Platform (PaaS): is the software that your application needs to run
  • Software (Saas): is the actual application or service.
Here's a simplistic representation.

Wednesday 8 February 2023

Business Model Shift

Successful new businesses generally start with a digital mindset, however established businesses do not have this luxury. Established organisations must shift to a digital model, they must transform what they already have for a digital age. This is no easy feat, established organisations can have years if not decades of business model evolution entrenched in the analogue age. Transitioning a business that was founded in the 1960s to a digital age can seem like a daunting task, but as we say in agile:

Which is the exact approach we take to evolve an existing business model, one step at a time. Digital transformation is more than simply deploying one or several digital solutions and expecting them to work cohesively, resulting in them being adopted by employees and customer alike. We make sound, reasoned, and evidence based decisions for the future digital transformation of an organisation.

There a four high level general steps to help guide a digital transformation of an existing organisation:

  1. Focus: Stay focused on the digital model, it is easy to be sold on a technical silver bullet, there are hundreds of companies consulting as well as vender who will tell you, just implement Sharepoint, implement Drupel, Slack, Teams, any number of digital platforms, however they may or may not be part of your digital answer. Before rolling out, or implementing anything, you must first focus on evolving your business model, then once you have a vision of where you want to shift your business model to, only then should an organisation adjust business process to accommodate it. 

    As an organisation begins to review their business model, they will rethink their economical model potentially discovering new revenue streams within existing offerings. They can reconsider value propositions at their base level, unbundling and reconfiguring them for a digital age. The business may change its customer relationships, external partners as well as channels.

  2. Prioritise: focus on one component at a time, it may be a product, process, platform or customer experience, it may be difficult to choose just one, however focusing your efforts on one component, will not only let your employees and organisation get use to the change gradually, it
    will keep the transformation manageable and not focused.

    There is no universal way of choosing what is right for your organisation, it depends, on a number of variables, it might make sense to start with the lowest hanging fruit, it may make sense to approach the component that will produce the greatest impact to your employees or maybe for your customers, whatever it will be, it will likely be unique to your organisation. The chooses of priority well most likely be based on your organisations most pressing needs, coupled with the proposed evolution of your business model. 

  3. Start with Culture and People: Technology is merely a tool, true organisational transformation begins and ends with people, hence transforming an organisation culture is the responsibility of people. If the people who make up your organisation do not adopt the its transformation, it will fail. This is why change management must be a key player in any digital transformation, large or small.

    Digital transformation is an operational process, as technology and our society evolves, a business must keep pace with these changes, as one business component is transformed the marketplace has a way of evolving. To stay relevant and keep up with the constant marketplace shifts an organisation should priorities the following.
    - What customers want: if customers do not get what they want, they'll move on
    - What employees need: just like customers, if employees do not get what they need, they will also move on.
    - A culture that will support the two: an organisation must adopt a culture that provides employees what they need so that they can provide customers with what they want.

  4. Technology: In todays digital age, employees as well as customers must have the technological channels to support what they need and what they want. Employees need to have the technological support to help them provide customers with what they want. Technological assistance should be considered in every aspect of a business model, how can we use technology to help employees do more with less, help them focus on value added creative work.

    Technology needs to support employees in:
    - Collaboration: making working together seamless and simple, supporting work from anywhere with the same simplicity as if the entire team was in the same room.
    - Communication
    - Products and services to supply customers with what they want and need  
Companies can use their internal IT department for day-to-day operations and maintenance, but for digital transformation initiatives that require specialized skills or technologies, they may choose to leverage external partnerships. These partnerships can bring in new perspectives and expertise to help drive the company's digital transformation efforts forward, resulting in increased competitiveness and business growth.

Tuesday 7 February 2023

Business Model DT

A business model is a representation of the way a company generates revenue and profits by creating and delivering value to its customers. It outlines the products or services the business offers, the target customer segments it serves, the channels through which it reaches customers, the resources and activities required to produce and deliver its offerings, and the sources of revenue and profits. The purpose of a business model is to provide a framework for a company to achieve its strategic and financial goals and to ensure that its operations are sustainable and scalable over time. 

In essence at a high level it defines the following things:

  • What the business does: the service, product or offer it provides to its customers
  • How it does it do the thing that provides value
  • The value proposition for both the company and its customers
  • Current organisational priorities and direction
  • Revenue streams
  • Strategic partners
  • target market
  • cost structure
  • Plans for the future, growth strategies.
  • organisational elements
Transforming an existing business model is more than a few technology initiatives strung together, it's a systemic rethinking of how a business functions. A digital transformation of an organisation can sometimes require a significant business model update, a shift in any of the aspects of a business mode, how you reach your customers, how you generate revenue, who your strategic partners are, any and all facets could require a drastic digital overhaul.

Depending on the unique qualities of an organisations business model along with their level of digital maturity, the organisation may need a drastic digital overhaul, or it may require some digital enhancement of what is already there, most likely something in between. A digital enhancement is either adding a digital channel to the existing business model or augmenting an existing channel with further digital capabilities.

A digital enhancement to an existing business model has the lowest barriers of entry, this is because it is adding capabilities rather than transforming existing ones, digital enhancement are also relatively quick to market. Digitally enhancing a business model could be as simple as partnering with and existing digital entity to augment your services, for example a restaurant could partner with a digital delivers service allowing it to leverage a service such as UberEats.

Another facet of digital transforming a business model are information-based services extensions, these are services which which enhance existing products or service, for example; adding sensors to a product line to provide it's customers with up to date metrics and data, web and mobile apps to provide customers with data, services, and analytics. Creating communication channels for better, quicker and contextually aware support. The barriers of entry are higher because it requires organisations to rethink their core competencies and adjust for a digital age. 

Information-based service extensions is adding a service and support as a product line, this added service could be seen as a loss leader, could be priced into existing revenue streams, can be offered as an upsell depending on what the market is doing and how much direct value to customers it can provide, or the data collected could be resold to a third party. Leveraging information based services to collect important data about a product or services lifecycle and usage, then to use that data to provide a insights or service to the customer, this data could also be potentially sold to a third party.

A third element supporting business model transformation and the one with the highest barriers to entry but at the same time the greatest potential to impact revenue in a positive way is Multisided platforms or MSPs for short. MSPs have already disrupted a range of industries, from taxi services, to food delivery, to lodgings. MSPs are neither the seller nor the buyer, they are the middleman.

Multisided platforms (MSPs) are digital marketplaces, the provide a place for buyers and sellers to connect. The most challenging barrier to MSPs is a chicken and egg problem, MSPs will not attract customers without suppliers, and suppliers will not bother with an MSP who does not have customers, this is why first mover advantage in this space is essential for success. A potential strategy could be to partner with an existing MSP first, and to reassess entering the space once an organisation has established a significant following as well as a trusted reputation.

The digital age has opened up many opportunities for small startups to thrive and succeed in the global marketplace. With access to cloud services providing small businesses access to scalable, affordable, and robust technology infrastructure, eliminating the need for large upfront investments in hardware and software; and the ability to reach a global audience through the internet. The digital age has levelled the playing field in many ways between small startups and larger companies. Small start ups which find it easier to move in an agile mindset can directly compete with larger well established companies that may struggle with legacy systems and slow adoption of new technologies. By leveraging these technologies, small businesses can increase their reach, expand their customer base, and ultimately, achieve their goals and ambitions.

A modern approach to business model design should include
  • How the organisation will approach digital business: digital first rather than digital afterthought.
  • Continuous digital adaption: Digital innovation is a operational necessity, as technology changes, business need to keep up or risk loosing their competitive advantage.
  • Leveraging technology to be the first mover in a new digital space, providing an existing product or service in a new way or leveraging an altogether new digital space that previously did not exist.
There are five archetypes of digital business model transformation.

Archetype Description Example
Reinvent the industry An organization develops a business model that reshapes an entire industry Airbnb’s digital business model that uses digital resources changed the short-term lodging industry
Substitute products and services An organization changes how they supply products by substituting or replacing physical formats with digital formats Netflix moved from shipping physical DVDs on-demand to digital downloads and streaming
Create new digital businesses An organization launches a new product, service, or business line to meet customer needs and wants Security as a service companies have filled an ever demanding need from companies to protect agaisnt DOS attacks
Reconfigure value delivery An organization connects products, services, and information to deliver value in a new way Auto manufacturers offer built-in roadside assistance, connecting cars to support centers using digital technology
Rethink value propositions An organization uses knowledge of the customer and their pain points to add flexibility and new features to a product Smartphones have become indispensable tools because they replace physical items like calculators and cameras and enable people to share and connect

As technology evolves, business model will have to adapt and change or risk falling behind into obscurity. 

Monday 6 February 2023

Employee DT

Digital transformation has the potential to greatly improve the employee experience by streamlining processes, increasing communication and collaboration, while providing access to relevant information and tools in real-time. These digital advantages can result in more efficient workflows, reduced workloads, and increased job satisfaction. Additionally, digital transformation facilitates remote work options and flexible work arrangements, leading to improved work-life balance and increased employee engagement.

With the use of artificial intelligence and machine learning, manual tasks have been automated, freeing up employees to focus on more strategic and creative tasks. Furthermore, the use of digital tools and platforms has facilitated continuous learning and skill development opportunities, leading to employee growth and career advancement. Overall, digital transformation has positively impacted the employee experience by providing more autonomy, meaningful work, and a supportive work environment.

A digital transformation journey lives or dies by employee adoption, the greatest transformation is meaningless unless the most important stakeholders adopt it, and those are the employee if new ways of working are not adopted, then they may as well not exist. There are three main elements to employee digital transformation:

Augmentation: While it's true that certain traditional jobs may become automated or obsolete, however digital transformation also creates new opportunities.

These new jobs often require a different set of skills and knowledge, which may require employees to upskill in order to adapt. Ultimately, digital transformation shifts the focus of work from manual tasks to higher-value activities such as analysis, decision making, and innovation. In this sense, digital transformation doesn't eliminate jobs, but rather transforms them to meet the demands of the digital age. Employee will generally find more satisfaction with these new digitally augmented roles than the manual repetitive ones of the past.

Future readyingThe speed of digital transformation greatly outpaces both academic institutions ability to adapt as well as the number of available candidates on the job market, this is why future readying your workforce is essential for success. It is far more effective to upskill an existing workforce than lose years of experience and bespoke knowledge to hiring new staff. 

This is why it is essential to develop learning programs that are agile, flexible and strategic; ideally in a medium to large transformation, it is essential to have a chief learning officer, someone with a team to ensure that each employee who's role is impacted by the digital transformation has the support they need to embrace the digital change rather than fear it.

Flex forcing: is a combination of providing a work environment along with the training support to broaden the breadth of expertise within a workforce, no longer have T shaped employees with expertise in only one avenue, but rather creating working environments in which employees can work in cross functional teams augmenting their expertise with other related skills. The second factor in flex forcing is to leverage external resources, for non-core, non-operational tasks, leveraging private contractors, the gig economy

Friday 3 February 2023

Operations DT

Digital transformation can enhance customer experience not just by directly impacting the customer journey, but by enhancing the operational capabilities of the organisation to better service their customers. This is not a new phenomenon, there is not a business on this planet who has not switched from the typewriter to the computer.

These changes are now growing at an exponential rate, too fast for an organisation to adopt each one and to many for any organisation to fully comprehend which ones would maximise value to their operations. A digital transformation team can help an organisation navigate these difficult waters, understand their unique value proposition and leverage new technologies to support and enhance their operational capabilities.

Operational transformation occurs in three elements of digital capability:

Core process automation: This is commonly the starting point for most companies in their digital transformation journey. Historically we can think of factories during the industrialisation period as technology evolved we leveraged robotic arms to perform more and more of the dangerous and carcinogenic work rather than forcing humans to sacrifice their health. 

In the digital age we now leverage technological advances to not only reduce the physical burden on humans, we can now leverage, machine learning and basic AI automation to reduce the cognitive burden on humans as well, freeing employees from the mundane repetitive tasks of low level information work and free their time to focus on value added creative problem solving.

Connected and dynamic operations: Revolves around three main technologies: real-time data collected through IOT devices, retained though the cloud and leveraged by machine learning algorithms to realise concepts such as digital threads or twins, letting businesses leverage realtime data to make informed decisions about their operations.

The term digital thread is also used to describe the traceability of the digital twin back to the requirements, parts and control systems that make up the physical asset.

A digital twin is a virtual representation of a physical object. For example, an elevator would be outfitted with various IOT sensors related to vital areas of functionality. These sensors produce data about various aspects of the physical object’s performance, such as energy output, temperature, humidity, bore of weight and more. This data is then relayed to a processing system and applied to the digital copy. This data can be used to make real time data driven decision on maintenance as well as emergency shutdowns.

Once an organisation is informed with such data, the virtual model can be used to run simulations, study performance issues and generate possible improvements, all with the goal of generating valuable insights — which can then be applied back to the original physical object.

Data driven decision making: Leveraging realtime information for up to the second analytics, providing data to decision makers the most up to date information for their decision making.

Digitally transforming a company's operations involves the integration of technology into all aspects of the business, from data driven decision making to customer service and supply chain management. This transformation helps companies streamline processes, increase efficiency, improve customer satisfaction and gain a competitive advantage. It also enables organisations to collect and analyse data, automate repetitive tasks, and enhance decision-making capabilities. A successful digital transformation requires a clear strategy, strong leadership, investment in technology, and a commitment to change management and continuous improvement. The end goal is to create a more agile, customer-focused and data-driven organisation that can quickly adapt to changing market conditions and customer demands.

Thursday 2 February 2023

Customer DT

In digital transformation there are four primary pillars of value:

  • Customer expectations
  • Operations
  • Employee experience
  • Business models
The fundamental pillar of any business is the customer, without them, it is impossible to operate, for they exchange their money for an organizations product and/or service. Without customers any organization large or small, this is why generally the greatest opportunity to add value through a digital transformation is through the customer experience.

Attracting and retaining customers is at the heart of any business and hence at the heart of any digital transformation. Customers are expecting more digital offerings with each year, customers no longer expect a business to have website, and a social media presence, customers now expect virtual agents to answer simple queries, customers expect contactless payment and delivery of their purchase within the same business day if not the next.

Businesses in the coming years will either embrace digital, or be eclipsed by those who do. To remain relative, organizations must apply the principles of customer experience design, similar in principle to user experience design but much broader in scope. Where user experience design focuses on user experience of a particular service or product, Customer experience design focuses on the customers experience with the organization as a whole, each touchpoint, each product, each service must have a consistent and delightful experience, with continuality, if a customer begins a journey with one product as the move between channels their identity and progress must move with them.

To map a customer journey a customer experience designer needs to leverage the same soft skills that a UX designer needs, empathy and creativity to map out the customers journey. The customer journey map is a complex representation of how a potential customer transitions to a loyal customer, it is far too complex and unique to each organisation to create a generic one-size fits all solution. However at macro level, there are five main stages, Awareness, consideration, acquisition, service, loyalty.

These stages are unique to each individual channel, however each channels experience must be as consistent between channels as possible. Each potential and loyal customer must feel that regardless of channel their journey is familiar, simple, and most importantly delightful. Acquiring new customers is valuable, however retaining customers is priceless. 

Each channel touches multiple departments sometimes differently per leg of the customer journey, per channel, understanding these touch points and which department is responsible per channel per leg is essential to providing the maximum customer care, satisfaction and conversion from potential to loyal customer.

Before an organisation can convert a potential customer to a loyal one, it must fist identify the potentials ones, not every person or business is a potential customer. Expending resources on unlikely customers, is a waste which could be better utilised on potential customers. Customer experience designers leverage various experience research techniques to identify and model potential customers to best understand, who they are? where they are? what they want? and any potential pain points that the customer journey needs to address and relieve to successfully acquire a loyal customer.