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Key Strategic Issues, Key

Success Factors
STR6008 International Business
Strategy Module

Richard Frost

Key Strategic Issues


(KSIs)

Thinking Strategically About a


Companys Macro-environment
A companys macro-environment includes all
relevant factors and influences outside its boundaries
Diagnosing a companys external situation involves
assessing strategically important factors that have a
bearing on the decisions a companys makes about its

Direction
Objectives
Strategy
Business model

Requires that company managers scan


the external environment to
Identify potentially important external developments
Assess their impact and influence
Adapt a companys direction and strategy as needed

Lugus Principles
Referring back to this, we know that this
looking outwards and looking for important
changes is one of the three most
important jobs that senior managers must
do (or get done on their behalf)
We will see just how and why this is so,
with a couple of examples, later in this
presentation

What we are really


interested in:
We want to know, as senior managers,
what are the big changes arising from the
external environment and internal situation
of the firm.
We want to know about these, because if
they are big, they will very likely make
problems for our organisation.

What we are really


interested in:
We call these:
The Key Strategic Issues (KSIs).
These may be defined as: Those factors
or events, which may be internal or
external to the organisation, and are
likely to have a major impact on its
ability to achieve its stated strategic
aims and objectives.

What we are really


interested in:
Key Strategic Issues (KSIs). Some authors
call them Critical Strategic Issues (CSIs)
Are usually difficult to solve and take the
allocation of many valuable resources,
over time, to overcome them.
Failing to correctly respond to them,
though, may seriously damage the
business in the short to medium term.
It may even kill it off

Example - KODAK
Kodak was a major producer of
photographic equipment and equipment
based on photography processes silver
nitrate film, cameras, developing
equipment, printers, photocopiers.
It was the worlds biggest producer of
traditional silver nitrate film and in the USA
alone it had 89% of the business.

Example - KODAK
Kodak received a shock back in 1982,
when Sony produced MAVICA, the worlds
first digital camera.
The camera was rubbish, really today
we have cameras of resolution 20Gb or
more, but MAVICA had a resolution of
about 500K pixels

Example - KODAK
Nevertheless, Kodak knew that this was a
strategic issue, because although Mavica
was rubbish, they could see that digital
technology would become very powerful
some time in the future.
And so they set up a technical committee to
report back to the Board of Directors each
year, about the progress of Digital
Photography

Example - KODAK
Each year the group reported back on the
growth of digital, and Kodak knew that one
day their silver nitrate film business would
die but they assessed that it would still
keep going strongly, through the 1980s
and the 1990s.

Example - KODAK
We can describe this business as their Cash Cow
in other words, they sold billions of pieces of film,
and made significant profits from the film business,
to support developments in other areas of their
business.
Each year, the committee reported back on the
progress of digital.
Each year the accountants in Kodak looked at the
cash flow and profits from their film business and
said It is still OK

Example - KODAK
Strangely, even though they watched the
growth of digital camera technology, and
some of Kodaks engineers even
developed and patented some of the best
technology in modern digital cameras, it
was 2000 before Kodak developed their
own digital camera.

Example - KODAK
By then, though, it was too late - the market for
digital cameras was already dominated by
Japanese brands such as Nikon, Fuji, Sony, etc.
To some extent this was caused by Kodaks
reliance on traditional film profits and to some
extent by management belief and knowledge
about the old technology all directors had
grown up with it, not digital, and they wanted to
protect and stay with their baby

Example - KODAK
The end result of this was that they never
really made any inroads into the digital film
business; in 2006 they outsourced all of their
digital camera manufacturing to Flextronics
Meanwhile, even though sales of digital
cameras really began to take off, Kodak
completely exited the digital camera
business in 2010

Example - KODAK
In 2002 an unknown Chinese company
offered Kodak $12 billion to buy the film
stock business, the business making
machines to develop the film (the sort of
machines you used to see in photo shops
like really big photocopiers), the factories
related to this manufacture, and the right to
use the Kodak brand name on film.

Example - KODAK

This is a large film developing machine by


Kodak

Example - KODAK
Kodaks digital committee and the accountants
got together. The committee guys thought that
the price was a good one, but the accountants
wanted to know how long it would be before film
sales collapsed. The digital guys thought and
said: Christmas 2011.
So the accountants looked at the projected
cash flows and profits, and recommended the
Board reject the bid, which they did.

Example - KODAK
In 2007 the Chinese firm came back, offering
this time only $5 billion for the same
business assets.
Again, the digital guys said that the collapse
of film against digital would not happen until
2011 and the accountants computed that the
cash flows and profits from the film business
were worth more, so they rejected the bid
again.

Example - KODAK
The sale of digital cameras overtook those
of traditional cameras in 2009 and by early
2010 the sale of traditional film had
collapsed.
Kodak announced that they would cease
manufacture of traditional film stock by the
end of 2010

Example - KODAK
So, nearly 2 years before the digital guys
had thought it, their traditional business
had collapsed
They had no digital technology to replace
it
Their business selling film developing
equipment also collapsed

Example - KODAK
Kodak filed for Chapter 11 Bankruptcy Protection
in the USA on January 19th, 2012
It sold off or closed down all of its businesses
except those connected with printing
It also sold off almost all of its digital patents, to
firms like Apple, Samsung, etc., for over $525
million.
It left bankruptcy on 3rd September, 2013, as a
printer company.

Example - KODAK
So, even though they knew about,
understood and had taken part in, the
development of digital camera technology,
this major shift in their industry effectively
killed off Kodak.

Example pre-KODAK
Technology change is often a major
company killer when I was a student we
used ancient word processor technology
known as a typewriter!
Famous companies were Smith Corona,
Underwood, Olivetti, Remington, Imperial
Adler and Olympia

Example pre-KODAK

This is an Underwood Touchmaster 5, a machine like


this I learned to type on in 1971!

Example pre-KODAK
When word processing computers became
available from the 1980s onwards, the future of
typewriters was sealed they would die,
because the new technology offered superior
benefits to the end users.
IBM sold off its typewriter business in 1990.
By 1995 nearly all of those firms I listed a
moment ago had either exited the business or
had gone bust

Example pre-KODAK
Underwoods was bought out by Olivetti in
1988;
Remingtons parent company stopped
manufacturing them in 1994;
Olivetti stopped making them only in 2001,
went bust, was bought and sold by various
companies and now exists as a shadow of its
former self, specialising in computer systems
and software.

KSIs - Conclusions
So, it may be that a technology change
massively changes an industry and history
tells us that usually the firms who were big
players with the old technology VERY rarely
become big players in the new one.
This seems to be due to what we might call
the save my baby syndrome I mentioned
earlier

KSIs - Conclusions
But it is not only technology that causes such
deaths;
It may be changing consumer tastes
New legislation
A massive new competitor coming into our
market from overseas
Or one of many other causes! Or several
together!!!

Why are we interested in


these? - 1
First, because KSIs tell us about change
coming up in the industry, and allows us to
assess how big, fast and dangerous these
changes are to our particular business (for
they will not affect all businesses to the
same extent, or in the same ways), and
then think about what reaction to the
change we might need to have

Why are we interested in


these? - 2
Second, because they relate to the
questions we looked at last week:
In particular, question 3

Key Questions Regarding the Industry and


Competitive Environment
What are the
industrys
dominant
economic traits?
How strong are
competitive
forces?
What market
positions do
rivals occupy?
What moves will
they make next?

What forces
are driving
change in the
industry?
What are the
key factors for
competitive
success?

How attractive
is the industry
from a profit
perspective?
3-32

Question 3: What KSIs Are Driving


Industry Change and What Impacts
Will They Have?
Industries change because forces
are driving industry change - so participants
must alter their strategy and actions to suit
KSIs are the major underlying causes
of changing industry and competitive conditions
Where do KSIs originate?
Outer ring of macro-environment
Inner ring of macro-environment

Analyzing Driving Forces:


Three Key Steps
STEP 1: Identify forces likely to exert greatest
influence over next 1 - 3 years

Usually no more than 3 - 4 factors


qualify as real drivers of change

Analyzing Driving Forces:


Three Key Steps
STEP 2: Assess impact

Are KSIs acting to cause market demand for


product to increase or decrease?
Are KSIs acting to make competition more or
less intense?
Will KSIs lead to higher or lower industry
profitability?
How quickly are these changes likely to fall
upon the industry?

Analyzing Driving Forces:


Three
Key
Steps
STEP 3:
Determine what strategy
changes are needed to prepare for the
impacts of KSIs
This shows us how the first and second
part of the Lugus Principles link together,
and how one is dependent on the other
just doing one part in isolation will not
make things better for our organisation!

Common KSIs - 1
Changes in long-term industry growth rate
Increasing globalization of industry bringing in new
and often bigger competitors
Emerging new Internet capabilities and applications
Changes in who buys the product and how they use it
Product innovation
Technological change/process innovation
Marketing innovation

Common KSIs - 2
Entry or exit of major firms
Diffusion of technical knowledge
Changes in cost and efficiency
Consumer preferences shift from standardized to
differentiated products (or vice versa)
Changes in degree of uncertainty and risk
Regulatory policies/government legislation
Changing societal concerns, attitudes, and
lifestyles

External Driving forces are not


the only part of KSIs, though!
So far, we have considered in detail the
external forces acting upon a firm, but as
mentioned earlier, there can also be
internal pressures which the firm must
take account of, if it is to survive.
It is the external and internal forces that
determine the extent of KSIs which any
firm faces at any given time.

Internal issues may arise


from a number of areas:
Leadership problems
Vision [or rather the lack of] and
poor Strategic Thinking/Decisionmaking problems
Resource and Capability problems
Systems and Process problems
Cultural problems

Lugus Principles Check - 2


These will relate very much to issues
inside the organisation and decisions that
senior managers have to make about
changes to structure, systems, processes
and culture, as a part of formulating a new
or amended strategy to deal with the KSIs

Leadership issues
May arise from:
Poor/ineffective senior management
Too many staff in too many layers of
management
Too much bureaucracy and red tape internally
Stereotypical behaviour - Lack of fresh vision
and energy all senior managers came up
through the ranks, together
A disaster most senior managers killed in an
air crash, or a tsunami

Lack of Vision Issues:


Pretty self-explanatory:
Leaders lack the vision to manage the business
and its future development will not see the
need for change;
Cannot produce a sensible strategic plan, or
have a good plan but no idea about effective
execution
Cannot motivate staff below them in the
hierarchy
KODAK?!!

Lack of decisionmaking/poor execution


Leaders may not understand the situation they
are in
They may find it difficult to make any sort of
decision
Personality/power of individuals may sway
thoughts of others
May lack skills or interest to get the job done
Too busy furthering own career/political infighting and so
on
Generally incompetent in the job, but survive somehow?

KODAK?

Poor Culture
Maybe heavily bureaucratic
and naturally resistant to change
May be dominated by reactionary forces
(unions often try to defend members
rights sometimes even in the face of
common sense and survival)
Poor communications, distrust of senior
management, passive resistance to new
ideas, leading sometimes even to
sabotage, are all possible issues.

KEY SUCCESS FACTORS


KSFs

Key Success Factors


Having considered the BIG factors that will
bring change to our industry (or already
have), we must also then think about the
relationship between the second and the
third elements of the Lugus Principles
what is it that we must do right in order to
compete successfully against our rivals,
and to satisfy the needs of our customers?

What we are really


interested in:
What are the Critical or Key things the firm
must get right the Key Success Factors
(KSFs)
[You sometimes will see them called
Critical Success Factors {CSFs} but the
term has the same meaning.]

Why are we interested in


these? - 2
Second, because if we understand KSFs, then
we know the areas of the business and the
processes that we must be good at, in order
to win business from customers and survive
the competitive pressures of our rivals.
We can find answers to these problems by
asking and answering another set of
questions:

Identifying Industry
Key Success Factors
The answers to 3 questions often help pinpoint an
industrys KSFs
On what basis do customers choose
between competing brands of sellers?
What resources and competitive capabilities does a
company need to have to be competitively successful?
What shortcomings are likely to place a company at a
significant competitive disadvantage?

Example 1: KSFs for Bottled Water


Industry
Access to distribution to get a
companys brand stocked and favorably
displayed in retail outlets
Image to induce consumers to
buy a particular companys product
(brand name and attractiveness of packaging
are key deciding factors)
Low-cost production capabilities
to keep selling prices competitive
Sufficient sales volume to achieve
scale economies in marketing expenditures

Example 2: KSFs for


Ready-to-Wear Clothing Industry
Appealing designs and color combinations to
create buyer appeal
Low-cost manufacturing efficiency to keep
selling prices competitive
Strong network of retailers/company-owned
stores to allow stores
to keep best-selling items in stock
Clever advertising to effectively
convey a specific image to induce consumers to
purchase a particular label

A more sophisticated approach


to KSFs
The Academic, Robert Grant, has
developed a new way of looking at KSFs.

IdentifyingKSFs
Prerequisites
for success
How does the firm
survive competition?

What do customers want?

Analysis of competition:
What drives competition?
What are the main dimensions of
competition?
How intense is competition?
How can we obtain a superior
competitive position?

Analysis of demand:
Who are our customers?
What do they want?

Key success
factors
(Grant, 2005)

Identifying KSFs
Grant therefore writes about three
elements:
1. General Prerequisites for success
2. What do customers want?
3. How do we survive competition?

Example: Photocopier
paper Manufacturing
Photocopier paper has to meet very tight
specifications in order to work it must have a
very precise size A4 measurement, to the
nearest 1/10th of a mm
It must meet tight tolerances for thickness,
weight, amount of moisture and surface finish
If it doesnt meet these criteria, it sticks in the
machine, and so on

Example Photocopier
Paper
These are what Grant calls the General
Prerequisites for success dont get these
right and you dont even get to play the
game!

Example Photocopier
Paper
What do customers want?
Well, that technical specification that makes
the General Prerequisites means that the
product has become a commodity
Generally with commodities (nondifferentiated products), customers are only
interested in lowest price, availability and
speed of delivery

Example Photocopier
Paper
How to do this and survive competition?
Get to be very large and efficient in
manufacturing
Sell globally to gain economies of scale
Have a near perfect distribution system
Have a really good sales/ordering/delivery
system

KSF problems
The problem is, anyone with any sense
working in the industry will know all of this,
and generally speaking we find that in large,
mature and sophisticated markets (think, in
the UK, grocery retailing, brewing and
running pubs, cinemas, etc, retail banking),
the costs and systems of delivery, etc.,
done vary much between the big players

KSF problems
So we sense that there are other, superKSFs which firms must get to be good at,
in order to give themselves a competitive
edge over other rivals.
We will look at this in a couple of weeks
time, through resources and capabilities

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