Core Strategy

Core Strategy (Kernstrategie - Grundstrategie)

 Purpose

1. Checking the feasibility (Umsetzbarkeit) of corporate policy

“Process of how we reach feasibility”

2. Specification of corporate policy in terms of:

What - Business domain (Geschäftsbereich)

- Objectives
- Priorities
- Competitive behaviour are?

3. Determining the intended strategic position of the entire company.

What should be our position by the stakeholders and what is our competitive position?

 Contents (Folie 71)

I. Objectives and priorities:

- II.Portfolio: - Product markets

- Technologies
- Geographic expansion

- III. Differentiation:- a. Core competencies

- b. Competitive behaviour
- c. Innovation
- d. Expansion
- e. Communication

IV. Resource allocation (Ressourcenbelegung, bspw. Personaleinsatz)

Objectives, portfolio, basic differentiation, and resource allocation decision stated in the core
strategy define the intended strategy position of a company that should ensure its long-term
success.

I. Objective & prioities

Strategy as a guiding framework:

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Market Share
Market Potential (all potential customer x average size of purchase)
(Where is the potential customer? It’s very difficult to describe)

Market Volume (all current customers x average size of purchase)

(How big is the market at the moment?)

Market share (sales of the firm x 100 / market volume)

(Market potential on market segment) e.g.:

Why is the market share important?

“If you have a big market share, so you have a big position on market”, market power =
market share!!!

Scale effects of increasing market share:

Scale Effects: dynamic learning, technological progress, rationalization/automization

static degression of fixed costs, change in production technologie

Experience Curve Effect:

The experience curve shows the decrease of cost per unit at increasing cumulated production
volume in units (“don’t occur automatically, is no natural law) .

Cost of n- th unit:

C1 = cost of first unit

N = Cumulated production volume
b = Degression factor

“if somebody new entry to the market can have lower costs, but you have the profit”!!!

Why does the effect occur?

What is needed to make the effect occur?

Growth:

A company needs to grow. DOES IT?

1 Why dose a company need to grow?

“If all grow, I must grow too, faster as the others “share-thinking” isn’t always good”

2. How fast must it grow?

“Depend on the stakeholders, when the give money, the company have to grow”!

3. How can it grow?

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Growth or Financial Success?

Financial Success

How to measure financial success?

Profit, EBIT, ROI, ROS, ROCE, ROE

Shareholder value vs. Stakeholder satisfaction

Shareholder value
Continual increase of the company´s monetary value (value of share? Market volume =
multiple of scale?)
“shareholder only think on financial speculation, stoke market says, haow many the company
is worth!”

Customer satisfaction
= perceived level of supplier performance – expected level of supplier performance
“is not easy to answer, differences between perceive and expect”

Employee and Stakeholder satisfaction

Awareness vs. Reputation:

Awareness
Unaided recall vs. aided recall

Is it enough to be well know?

To my mind no! Look to EVOKED SET

Reputation
Also you can say Image!
A bundle of individual associations and emotions, related to a certain object, which provides
that object with a unique gestalt.

Corporate brand meaning

Is a dynamic collective system of knowledge, stored sensual experiences and related affects
continually emerging from interactions among the members of company’s value creation
system.

Market share and Share of Mind

Consideration Sets
Available Set subdivide into Awareness Set and Unawareness Set
Awareness Set subdivide into Processed Set and Foggy Set
Processed Set subdivide into Evoked Set, Hold Set and Rejected Set

Discuss each other?

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Priorities

Hierarchy of Objectives

Why is it important to rank the objectives according to priorities? “don’t without problems, if
you have several objectives, you have always conflicts”

- conflicting objectives
- conflicting leader interests
- Management by objectives
(leaders discus and look to the objectives for the next 3 to 5 years and control the fulfil
the goal objectives)

Balanced Scorecard

To be successful over the time a company needs to at the beginning:

Posses adequate capabilities -> have highly effective and efficient internal processes -> build
strong stakeholder relationship -> and to the end reach its financial objectives!
“also you can say, that balanced scorecard show us, that the company can survey on long
term”

In middle of Balanced Scorecard is strategy around 4 Questions:

What are the financial objectives of our capital owner?

How do we want to achieve excellence at what processes?
What capabilities do we need in the future?
What we want to offer to our customer?

“Here we found an interrelationship customer to part of stakeholders”

II. Portfolio of Product-markets

Ideal Conditions for Forming Strategic Business Units

• Clearly differentiated markets

• Strategic autonomy
• Control of all success factors concerning the served marked
• Potential of unequivocally attributing success and fail

III. Differentiation
III. a. Core competences: Basic Way of Competition

As three areas to see: dominant in the market,

dominant capabilities of the firm
and as result competitive stategy!

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Remember Differentiation by
Price
Technology
Time
Relationship

Example for PRICE: Aspiration in the market is low price, the firm learning ability firm make
cost cutting and the competitive strategy is price (cost) competition.

III. b. Competitive behavior: Level of Aggressiv

Confrontation: Frontal attack, flanking, market encirclement, bypassing

Cooperation: single sourcing, partnership, alliances, networks

III. c. Innovation: Innovation Behavior

Product- vs. Process Innovation

Pioneer vs. Innovation Leader vs. Innovation Follower
Speed of Innovation
Cooperation

e.g.: ZARA is a perfect Innovation leader, need three weeks to copy luxurious model from
other company (prada,…) and bring them in their own store

Success Factors of Innovation Leadership

* Envisioning the “mass” market

* Managerial persistence
* Financial commitment
* Relentless innovation
* Asset leverage

IV. Resource Allocation

Mainly: personal, money, time

How much of our social, financial and personal resources should go in which part like the
European market, or US,….

Core strategy (Summary book page 43)

Based an corporate policy, which mainly builds on capabilities to the organization as well as
the personal preferences of the people leading the organization, management assesses the
alternatives as to how to successfully position their organization in the chosen environment.
That is the rather general statements of corporate mission and philosophy are first considered

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strictly as the expression of top management’s wishes and need to checked for their feasibility
and, consequently, to be reformulated in a more precise manner. For that purpose, the
distinctive capabilities directly or indirectly available to the firm must be related with benefits
that are highly attractive to selected and imposed stakeholders.
Management must check the distinctiveness of the capabilities available to their organization
and the uniqueness of values the organization can provide by establishing and sustaining one
or a number of value-creation system. Challenges arising from developments in the macro-
environment have to be analysed for their potential to represent opportunities for or threats to
the future development of the organization.
Marketing technology contributes a great number of tools for analyses and decision-making.
The resulting core strategy defines the intended strategic position of the organization.
Following the minimum content of a strategy needed to serve the purpose of a guiding
framework, the core strategy must at the least the objectives of the organization, its portfolio
of served markets including the applied technologies, and the basic way in which the
organization intends to differentiate itself from its competitors. Most core strategies also
contain a statement of how to allocate the resources of the organization.

Objectives (I)

The core strategy restates the objectives generally defined in corporate policy in a more
precise way.
Based on extended analyses of the macro, market and internal environments of the
organization, management is now able to specify precisely what their organization is to
achieve.

Portfolio of served markets (II)

The core strategy defines the portfolio of the organization. The portfolio contains the product-
market(s) and the geographic markets to be served.
Product-markets define what selected benefits (value) are to be provided to which customers
and related stakeholders the use what technologies.
Geographic markets define the areas of the world a business organization intends to serve.

E.g.: ALCAN, manufacture of aluminium!!!

In determining their organization’s portfolio, top management, which has adopted a global
business perspective, will primarily think in product-market terms. That is, the focus will be
on cross-national customer segments in particular value categories, whereas specific
characteristics of geographic sub markets will only influence the degree of adaptation and
resource allocation decision.
In all cases, the relevant dimensions of those markets´ economic, cultural, political, and legal
environments, and the specific operating environments of product- and geographic markets
have to be carefully analysed to determine the most attractive markets.

Basic differentiation (III)

Before management can decide what markets should be served, how, and in what sequence, it
has to consider the competitive position of the organization in each of the attractive markets.

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Only if the organization is able to satisfy the existing and potential expectations of customers
and other important stakeholders in the pre-selected markets to a level which it more
attractive than its competitors, can long-term success be ensured.
That is, management has to select the most promising way of differentiation – the way the
organization intends to provide more attractive values than its competitors in selected
markets.
To be able to differentiate effectively the values offered to stakeholders in a market, the
organizational capabilities determining the value perception of those stakeholders, that its, the
market specific success factor, have to be determined for each of the pre-selected markets.
A comparison with the most important competitors will help the organization identify whether
it can excel in any of the success factor – that it, if the organization will be able to profit from
distinctive competencies, which hopefully – can be transformed into competitive
advantages.
Based on the preceding analyses the core strategy defines the ground rules of the
organization’s competitive behaviour.
The rules of competitive behaviour also comprise decision concerning the innovation
behaviour of the organization.
The rules of competitive behaviour may also define the speed and means of growth and the
way the organization intends to manage it.
Finally, as part of the statement of basic differentiation and because competition takes place in
the entire value-creation system of the organization, the core strategy should contain some
rules of behaviour concerning the organization’s role in society. Rules already defined in
business philosophy may be refined or reinstated. They determine the organization’s intended
citizenship.

Resource allocation (IV)

In making resource allocation decisions, management has to find a balance between trying to
serve too many markets or to develop too many markets or develop too many distinctive
capabilities, and selecting too small a number of markets or distinctive capabilities.
For smaller business organisations, spreading available resources across many markets and
capabilities inevitably leads to a lack of sufficient resources in some or each of them, keeping
the business from efficiently exploiting its opportunities.
The company’s management also focus their resource allocation on the further development
of round construction formwork, global logistic, and personnel development to stay ahead of
competitors.

Sub-unit and market strategies

Objectives, portfolio, basic differentiation, and resource allocation decision stated in the core
strategy define the intended strategy position of a company that should ensure its long-term
success. In a next step, management on lower hierarchical levels of the organization must take
similar but more detailed.
If the core strategy states that the company contains more than one organizational sub-unit,
such as strategic business units, divisions, subsidiaries, product lines, or project groups, the
intended strategic position for each of those units has to be determined.
Sub-unit strategies are also interrelated. They must be checked for their logical fit.

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