The origin of the SCP (Structure-Conduct-Performance) paradigm can be traced to the work of the Harvard economist Edward Mason in the 1930s. It was popularized during 1930-60 with its empirical work involving the identification of correlations between industry structure and performance. This is a paradigm that is foundational to industrial organization economics, consistent with the positional view of strategy, as opposed to the resource-based view of strategy. There are two competing hypotheses in the SCP paradigm: the traditional “structure performance hypothesis” and “efficient structure hypothesis”. The structure performance hypothesis states that the degree of market concentration is inversely related to the degree of competition. This is because market concentration encourages firms to collude. The efficiency structure hypothesis states that performance of the firm is positively related to its efficiency. This is because market concentration emerges from competition where firms with low cost structure increase profits by reducing prices and expanding Continue reading
Strategic Management Terms
The Strategic Game Board
The Strategic Game Board is a concept coined by McKinsey & Company, this strategic framework can be used to identify the strategic management options in a competitive landscape by showing the strategists that the business organization can choose where (market segments), how (business system) and when (timing) to compete. A firm’s decisions pertaining to the scope and mode of competition and the time for the overall action should be based on a continuous analysis of the firm’s strengths, vulnerabilities, and resources in relation to those of its competitors. The strategic game board describes the options open to a firm regarding the scope and mode components of strategy. The vertical axis represents a continuum of where-to-compete options ranging from a sharp focus on a narrow market niche to competing across an entire market. The horizontal axis represents a continuum of how-to-compete options ranging from playing entirely by the accepted rules of Continue reading
McKinsey’s Strategic Control Map
Strategic Control Map shows the relationship between size (measured by book value) and performance for shareholders (measured by market-to-book ratio). It was developed by McKinsey consultants D’Silva, Fallon and Mehta in 1996, and it is used to help companies get visibility into their own and competitors performance trajectories and better understand the threats and opportunities for a company’s strategy execution. Strategic Control Map is helpful in analyzing an industry landscape, looking at various companies or firms in this industry, by breaking down overall performance into two key drivers or indicators, helps companies identify their biggest opportunities and threats and boost their odds of hunting for acquisition targets rather than being hunted themselves. Strategic Control Map tracks the relationship between the two dimensions of market capitalization by plotting a company’s size against its performance for shareholders. The principle behind Strategic Control Map is that, market capitalization = book value of assets Continue reading
Environmental Scanning – Meaning, Definition and Importance
Every organisation is responsible for the environment that it creates. The organisation’s operation and structure all directly affected by the environment. Organisation’s environment impacts on resources and opportunities that how they can be treated? It is primary objective of the organisation to take care of the company’s operations that how they are affecting the environment. For the successful growth and development of business it is important to develop such a strategies those can be assist operate the business operations. To understand the environmental scanning it is important to identify the business and how it can affect the environment business around. The definition of environmental scanning is “a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. The environmental scanning process entails obtaining both factual and subjective information on the business environments in which a company is operating or considering entering”. Environment scanning is most commonly done on Continue reading
Concept of Core Competence
Core Competence is the term coined by C K Prahalad and Gary Hamel, in their 1990 article entitled, “The Core Competence of the Corporation“, to explain how some Japanese corporations, such as Sony and Canon, became world market leaders after acquiring several technological capabilities, which allowed these firms to create and lead new markets, since innovative product functionalities and customer interfaces were offered. A core competence is a bundle of skills and technologies that enable a company to provide superior value to customers. A core competence is effectively a company’s specialized capability to create unique customer value. This capability is largely embodied in the collective knowledge of its people and the organizational procedures that shape the way employees interact. Over time, investments made in facilities, people and knowledge that strengthen core competencies, create sustainable sources of competitive advantage. “Core competencies are the collective learning in the organisation, especially how to Continue reading
Business Level Strategies – Cases of Wal-Mart, Apple, Zara and Ikea
Business Level Strategy is concerned more with how a business competes successfully in a particular market. It relates to strategic decisions about the choice of products, identifying and fulfilling the needs of customers, building competitive advantages over competitors, exploiting or creating new opportunities etc. Business level strategies are essentially positioning strategies whereby businesses tend to secure for themselves an identity and position in the market. The aim here is to increase the business value for the corporate and stakeholders by increasing the brand awareness and value perceived by the customers. They can either focus on pricing or product differentiation to increase the perceived customer value. Customers are the foundation of successful business-level strategy – Who will be served by the strategy? What needs shall the strategy satisfy? How will the strategy satisfy those needs? The low cost strategy emphasizes having the lowest costs, not necessarily the lowest price, in a Continue reading