Strategy Risk Formulation at Apple Inc Analytical Review Please see the file “Instructions” for details. And I provide some slides and Porter’s Five Forces

Strategy Risk Formulation at Apple Inc Analytical Review Please see the file “Instructions” for details. And I provide some slides and Porter’s Five Forces as reference. Instructions:
Select a company that you perceive as having strategic issues.
1. Identify the company’s overall strategy and describe the key strategic risks it is
facing as well as their potential impacts. Consider the relevant competitive
forces in your analysis (threat of new entry, supplier power, the threat of
substitution, buyer power, and competitive rivalry).
2. Recommend approaches to mitigate the strategic risks that you have identified
under (#1).
3. Opine on whether the company’s overall strategy can be pursued successfully.
Would your recommended mitigation strategies (see (#2), if implemented,
change your assessment?
Your selected company needs to be one where you can gather a broad array of
information; assuming it is a public company, its 10k filing with the SEC will be a very
productive source of information. We recommend you choose a company that interests
you or that you have read about in a business journal.
Your work will be evaluated based on the following criteria:
? Ability to identify key aspects of points (#1) through (#3) above.
? Supporting Analysis: you are able to support your analytical observations and
strategic recommendations.
? Writing: you are able to communicate your analysis in a clear and concise
manner.
The assignment should be 5 pages max and no more than 2,000 words.
Five pages and the word count refers to your actual analysis section. You do not have to
count in the table of content, cover page, citations, appendix, etc. – should you choose to
include any of those in your paper.
We encourage you to include external sources in your paper but, at the same time, the use
of clear citations is of utmost importance.
When writing the paper imagine you are a new but aspiring analyst at firm writing for a
busy senior executive. Keep your paper clear and concise!
Porter’s Five Forces
Assessing the Balance of Power in a Business
Situation
Five Forces Analysis assumes that there are five important forces that
determine competitive power in a business situation. These are:
1.
2.
3.
4.
5.
Supplier Power: Here you assess how easy it is for suppliers to drive up
prices. This is driven by the number of suppliers of each key input, the
uniqueness of their product or service, their strength and control over you,
the cost of switching from one to another, and so on. The fewer the supplier
choices you have, and the more you need suppliers’ help, the more powerful
your suppliers are.
Buyer Power: Here you ask yourself how easy it is for buyers to drive
prices down. Again, this is driven by the number of buyers, the importance
of each individual buyer to your business, the cost to them of switching
from your products and services to those of someone else, and so on. If you
deal with few, powerful buyers, then they are often able to dictate terms to
you.
Competitive Rivalry: What is important here is the number and
capability of your competitors. If you have many competitors, and they offer
equally attractive products and services, then you’ll most likely have little
power in the situation, because suppliers and buyers will go elsewhere if
they don’t get a good deal from you. On the other hand, if no-one else can do
what you do, then you can often have tremendous strength.
Threat of Substitution: This is affected by the ability of your customers
to find a different way of doing what you do – for example, if you supply a
unique software product that automates an important process, people may
substitute by doing the process manually or by outsourcing it. If substitution
is easy and substitution is viable, then this weakens your power.
Threat of New Entry: Power is also affected by the ability of people to
enter your market. If it costs little in time or money to enter your market and
compete effectively, if there are few economies of scale in place, or if you
have little protection for your key technologies, then new competitors can
quickly enter your market and weaken your position. If you have strong and
durable barriers to entry, then you can preserve a favorable position and take
fair advantage of it.
Porter’s Five Forces
What is Strategy?
A strategy is a set of goals and major policies.
Competitive Strategy is about being different. It means deliberately
choosing a different set of activities to deliver a unique mix of value.
creating a unique and valuable position, involving a different set of
activities;
make trade-offs in competing to choose what not to do; and
creating fit among a compan s activities
(Source: Porter, What is Strategy, HBR)
Strategy is the framework which guides those choices that determine the
nature and direction of an organization.
(Source: Strategy and Survival, Tregoe and Zimmerman)
The
9
Types of Risk
Risk Universe
Operational Risk
Risk of loss from failed
people, processes or systems,
or external events
Strategic Risk
Risk to earnings from adverse
business decisions
Market Risk
Credit Risk
Risk of loss from changes in
market conditions
Risk of loss from default
on debt or obligations
TSAI
Insurance Risk (for
Insurance Firms)
Risk of loss from insurer s
policies
10
What is Strategic Risk?
Risk related to une pected changes in ke elements of
strateg formulation or e ecution Segal
Risk to earnings from adverse business decisions
Strategic risk might arise from making poor business decisions,
from the substandard execution of decisions, from inadequate
resources allocation, or from a failure to respond well to changes
in the business environment.*
*http://www.businessdictionary.com/definition/strategic-risk.html
LeT
11
Types of Strategic Risk
Type of Strategy Risk
Brief Explanation
1
Strategy Development Risk
Examples: Incorrect choices of products/services, distribution, target markets, and/or value
proposition, indicators of good strategic fit, illogical decision making
2
Strategy Execution Risk
Examples: Inability to execute portion of strategy related to products/services, distribution,
target markets, and/or value proposition
3
Competitor Risk
Examples: Powerful competitors, new entrants, competitor attack, innovation, price war.
Key themes include: defensible markets, incumbency, barriers to entry, disruptive
competition and Porter s Five Forces
4
Strategic Relationships Risk
Examples: Unexpected change in strategic relationships (e.g., parent company or joint
venture partner)
5
Supply Chain Risk
Examples: Total or partial collapse of the supply chain, increase in prices, damage to
supplier relationships; unfavorable supply chain participant power
6
External Relations Risk
Examples: Poor communications or damaged relationships with those with public voices,
including media, consumer relations, stock analysts, politicians, rating agencies, other key
stakeholders, balancing opposing requirements
7
Governance Risk
Examples: Fiduciary breaches, suboptimal level of oversight, internal disputes, different
expectations of governance in different cultures, conflict of interest.
8
Legislative/Regulatory Risk
Example: Unfavorable changes in laws/regulations
International Risks
Examples: Unexpected changes in the business environment of foreign countries in which
the compan operates such as une pected changes in the government s stabilit attitude
to ard foreign companies and tariffs We ill cover current events such as Britain s e it
from the European Union, NAFTA trade negotiations, and other implications of policy
changes by the United States and other relevant nations.
9
12
Frigo & Anderson, What is Strategic Risk
Management?
• It is a process of identifying, assessing, and mitigating risks that
could derail strategy
• It aims to create and protect market value
• It is part of enterprise risk management
• It is actioned by board of directors, and management
• It requires a strategic analysis of how external and internal
events or scenarios will affect strategy
• It is an iterative process embedded in strategy: development,
execution, and management
[See also Enterprise Risk Management Aligning Risk with Strategy and Performance]
https://www.coso.org/Documents/2017-COSO-ERM-Integrating-with-Strategy-and-Performance-ExecutiveSummary.pdf
13
Tregoe & Zimmerman
Evaluating Strategy in terms of risk
14
Ansoff matrix Evaluating Strategy in terms of risk II
Source: https://www.youtube.com/watch?v=4dKliWrCywM
15
The five competitive forces that shape strategy
Porter, M. E. (2008).
16
Competitive Rivalry
High
High
High
17 Dobbs, Michael, Porter’s Five Forces in Practice:
Templates for Firm and Case Analysis
https://search-proquest-com.ezproxy.cul.columbia.edu/docview/1189673886/fulltextPDF/3F2D9DF0ED714BA7PQ/1?accountid=10226
17
Competitive Rivalry
Actions:
– Identify which of the competitive rivalry factors are a driving force
– Identify threats and opportunities from situational analysis of competitors
Mitigations
Price cuts (if low cost producer)
Advertising Campaigns (non-price competition)
Service improvements
Customer relations management improvements
Enterprise Resource Planning improvements
New product development
New Markets
Merge with competitor
Exit industry (by sale or disinvestment)
18
Measures of Competitor Threat
1. Concentration Ratio of top 4 or 8 firms If high, Competitor
threat is high
2. Herfindahl-Hirschman Index HHI If high, Competitor threat is
high
https://www.justice.gov/atr/herfindahl-hirschman-index
Example: Strategic stakes factor
Example: Strategic Stakes factor in Competitive Rivalry
Some years ago Facebook considered WhatsApp a high strategic stakes competitor and offered
a huge price close to $20 billion for WhatsApp, which had no revenue! It was a high strategic
stakes competitor because it could undermine Messenger, and thereby reduce the amount of
time that Facebook users spend on Facebook. Snapchat, on the other hand, was a low strategic
stakes competitor of Facebook because Facebook was able to duplicate Snapchat’s technology
without paying anything for it, as a result, Snapchat was a low threat.
19
Measures of Competitor Threat
• Herfindahl-Hirschman index (HHI) is a tool that competition
economists and competition authorities use to measure market
concentration.
• The concentration of firms in an industry is of interest to
economists, business strategists and government agencies.
Source: https://en.wikipedia.org/wiki/Concentration_ratio
20
Buyers
High
High
High
21 Dobbs, Michael, Porter’s Five Forces in Practice: Templates for Firm and Case Analysis
https://search-proquest-com.ezproxy.cul.columbia.edu/docview/1189673886/fulltextPDF/3F2D9DF0ED714BA7PQ/1?accountid=10226
21
Buyers
Actions:
– Identify which of the Buyers factors are a driving force
– Identify threats and opportunities from situational analysis of Buyer threat
Mitigations:
Improve product/service
Differentiate product
Keep costs low
Advertising Campaigns
Improve product/service
Customer relations management improvement
Enterprise Resource Planning improvements
Finance buyer orders
Merge with competitor
Merge with Distributor
22
Measures of Buyer Threat
1. Price elasticity If high, Buyer power is high
2. Income elasticity If 1 or greater, Buyer power is less.
• Price elasticit is defined as Change of Xbo s sale divided b a Change
in the price of Xbo If Change in Xbo s Change in the Price of Xbo 1.5 , it means that if Microsoft raises the Xbox price by 10%, it will lose 15%
of Xbox sales. Buyers have great power over Microsoft.
• Income elasticity is defined as % Change in Xbox sales divided by the %
Change in income. If people’s income increases by 10%, the Xbox’s sold may
increase by x%. If x>1, Xbox is a high growth product, Microsoft has more
power over the buyers of Xbox’s. If x
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