Sm notes

KSF QUESTION NO: 6

On what basis do customers choose between competing brands of sellers?

Key Success Factors (KSFs) for competing brands focus on fulfilling customer preferences.
Important attributes include:

 Quality and Reliability: Customers value durable and dependable products.

 Pricing Strategy: Competitive pricing that offers perceived value for money.
 Unique Features: Innovative attributes that set the product apart.
 Brand Reputation and Trust: A strong, credible brand image influences buying
decisions.
 Accessibility and Convenience: Easy availability and user-friendly products or services.

Example (KSF): In the smartphone industry, Samsung leads through innovation (e.g., foldable
phones), extensive global presence, and trust in product quality.

2. What resources and competitive capabilities does a seller need to have to be

competitively successful?

To succeed, sellers must leverage internal strengths and strategic operations. Critical factors
include:

 Strong Supply Chain: Ensuring timely sourcing, production, and delivery.

 Advanced Technology: Investing in R&D to drive innovation and relevance.
 Skilled Workforce: Building teams adept in design, marketing, and customer
engagement.
 Effective Branding and Marketing: Creating campaigns that capture attention and
foster loyalty.
 Financial Stability: Securing resources for growth and operational resilience.

Example (KSF): Coca-Cola excels through a robust global distribution network, consistent
marketing efforts, and enduring brand equity.

3. What does it take for a seller to achieve a sustainable competitive advantage?

Achieving a long-term edge requires differentiation and adaptability. Key success factors
include:
  Uniqueness: Offering distinctive products or services that competitors find hard to
replicate.
 Customer Loyalty: Fostering relationships through excellent service, consistent quality,
and perceived value.
 Continuous Innovation: Staying ahead of market trends and introducing new solutions.
 Cost Efficiency: Reducing production costs while maintaining quality.
 Corporate Social Responsibility (CSR): Aligning with customer values through ethical
practices and sustainability.

Example (KSF): Tesla secures a sustainable advantage by excelling in electric vehicle

innovation, strong branding, and sustainability efforts that resonate with eco-conscious
consumers.

QUESTION 5:

WHAT STARETEGY RIVAL IS GOING TO MAKE NEXT?

1. Difference Between Competitors and Rivals:

 Competitors: Companies in the same industry, offering the same products, but not
directly targeting the same customer base.
 Rivals: These are "close fighters" or direct competitors who are constantly trying to gain
a larger market share compared to each other.
Example: Coke and Pepsi.
o Rivals focus on taking advantage of each other’s weaknesses and strategies to
gain market dominance.
o Focus: Business intelligence is crucial for analyzing rivals.

2. Key Data Sources to Analyze Rivals:

 Rival analysis requires financial intelligence derived from company documents and
reports.

Financial Statements to Use:

1. Retained Earnings:
The profit that is reinvested into the company rather than being distributed as dividends.
It is often used for:
o Business expansion.
o Long-term company growth.
 2. Balance Sheet:
Provides an overview of assets, liabilities, and shareholders' equity, showing a company's
financial stability.
3. Owner's Equity:
Represents the owners' claim on the company's assets after all liabilities are deducted.
4. Cash Flow Statement:
Tracks the inflow and outflow of cash, which reflects the liquidity and financial health of
the business.
5. Income Statement:
Summarizes revenues, expenses, and profits over a specific period to indicate
profitability.

3. Financial Indicators for Rival Analysis:

 Indicators help evaluate how rivals allocate resources and manage operations.

1. Retained Earnings and Expansion Strategy:

Companies with higher retained earnings are likely reinvesting in business growth, such
as opening new branches, launching products, or entering new markets.
2. Development in Marketing (e.g., Ads):
o A company's expenditure on marketing campaigns is an indicator of its focus on
capturing market attention and expanding its reach.
o Hiring trends for specific departments also indicate areas of business growth and
diversification.
3. Procurement and International Activities:
o Observing procurement strategies and supply chain expansion (e.g., sourcing raw
materials internationally) shows a focus on global market competitiveness.
o Example: If a company shifts from pure leather to synthetic leather, it reflects an
adaptation to new trends or cost-saving measures.
4. Resource Reallocation:
o If a supplier is known for providing premium zippers, buckles, or bag frames, it
strongly hints the company is working on leather bags, not garments.
o
o 2. Supplier Partnerships
o Long-term contracts:
o Check if the company is forming partnerships with suppliers who specialize in
garment-making or bag components. This indicates the company’s priority
product line.
o Shifts in suppliers:
o A shift from garment suppliers to bag material suppliers (e.g., those who deal with
structured leather for handbags) shows a diversification or strategic pivot in their
product focus.
CHAPTER NO 4:

EVALUATING COMPANY RESOURCES

QUESTION 1: IS STRATEGY IS DOING GOOD?

POINT 1. Sales Performance Analysis

Question: Are sales increasing or remaining steady? If they are at the industry average, should
changes be avoided?

Key Idea: The company evaluates its sales performance over a two-year period to determine if
changes are necessary.

Analysis: If sales are consistent with industry averages, it may not be essential to change the
strategy. However, continuous assessment is crucial to identify trends and potential for
improvement.

Example: A clothing retailer may find its sales on par with competitors but notice a growth trend
in sustainable fashion. It could adapt by introducing eco-friendly product lines to stay relevant.

POINT 2. Acquiring New Customers

Question: Is the company focusing on acquiring new customers or solely relying on existing
ones?

Key Idea: Business growth requires a balance between maintaining current customers and
acquiring new ones.

Details:
Over-reliance on existing customers can stagnate growth, as old customers might switch to
competitors or leave the market.

New customer acquisition is essential for long-term success.

The strategy to attract new customers should align with business objectives and diversify
offerings.

Example: In 2011, McDonald's diversified from solely focusing on existing customers by

introducing healthier menu options to attract a new demographic.

POINT 3: Sales Growth Does Not Always Lead to Increased Profit

While it may seem logical that higher sales should result in greater profits, this is not always the
case due to various factors that impact profitability. Here’s a closer look at why sales growth
doesn’t necessarily translate into higher profits:

1. Increased Costs with Higher Sales:

As sales rise, companies often face higher expenses to meet growing demand. These
costs can include:
o Hiring additional staff or paying overtime to boost production.
o Purchasing more raw materials to manufacture increased quantities.
o Expanding marketing efforts to sustain or enhance sales growth.
When these costs exceed the revenue generated from higher sales, overall
profitability may decline.

2. Lower Profit Margins:

Even with rising sales, low profit margins can limit profitability. If a company relies on
discounts or price reductions to drive sales, the profit earned per unit decreases. For
instance, offering a 20% discount might boost sales volume but could reduce overall
profits if the margin is too small.
3. Economies of Scale vs. Diseconomies of Scale:
o Economies of scale occur when increasing production leads to lower per-unit
costs, often through bulk purchasing or streamlined operations.
o However, diseconomies of scale can arise as a company grows too large, resulting
in inefficiencies like higher administrative costs, operational delays, or
coordination challenges. These inefficiencies can erode the benefits of higher
sales.

4. Price Reductions and Discounts:

Boosting sales through price cuts may lead to higher volumes, but it can also shrink
profits per unit sold. For example, lowering a product's price by 10% might attract more
 buyers, but if the reduced price fails to cover the associated costs adequately, total profits
may still decline despite higher sales.

POINT 4: Net Profit: How to Increase Net Profit (Why Gross Profit Can Increase but Net
Profit May Not)

Net profit is the amount remaining after deducting all expenses (operating costs, taxes, interest,
etc.) from the gross profit. While gross profit reflects how much is left after covering the cost of
goods sold (COGS), net profit serves as the ultimate measure of a company’s profitability. It is
possible for gross profit to increase without a corresponding rise in net profit due to high
operational or additional expenses.

Reasons for Gross Profit Increasing but Net Profit Not Increasing:

1. Increased Operating Costs:

A rise in administrative, marketing, or distribution expenses can offset the gains in gross
profit.
o Example: A company boosts sales through heavy advertising, increasing gross
revenue. However, the high advertising costs reduce net profit.

2. High Taxes or Interest Payments:

Even with higher sales and gross profit, large debt repayments or significant tax liabilities
can stagnate or decrease net profit.
o Example: A company generates more revenue but has to pay off a substantial
loan, reducing its net earnings.

3. Wastage and Inefficiency:

Inefficient operations can lead to higher costs from wastage, returns, or production
inefficiencies, negatively impacting net profit.

Solutions to Increase Net Profit:

 Optimize Costs: Use resources more efficiently, such as automating processes to lower
labor expenses.
 Eliminate Unnecessary Spending: Cut back on excess expenses, like reducing
marketing budgets without sacrificing performance.
 Manage Debt and Taxes: Renegotiate loans or implement better tax planning strategies
to lower financial burdens.
Point 5: Credit Ratings and Management Strategies

Analysis:

The notes emphasize the importance of credit ratings and how they relate to the company’s
reputation and borrowing ability. A good credit rating indicates trustworthiness and financial
strength, making it easier for the company to obtain loans or attract investors. In a management
context, this is about ensuring the organization maintains strong credibility in the market.

Example:

 Imagine you’re managing a startup. To expand, you need a loan, but banks will first look
at your credit rating. If you’ve consistently paid your past debts (e.g., small business
loans) on time, the bank trusts you and offers a loan at a low interest rate.
 Strategic management tip: As a manager, ensure your financial records and
performance demonstrate reliability. For example, regularly updating financial statements
to reflect stability can positively influence your rating.

Takeaway:

Good credit ratings are not just about numbers; they reflect the trust others place in your
company. Managers should focus on maintaining transparency and accountability in operations.

Point 6: Strategy's Impact on Defect Reduction

Analysis:

The notes highlight the connection between strategy and operational outcomes, especially
reducing defect rates in processes or products. If a strategy is overly demanding, employees may
face burnout, which can lead to higher defect rates and reduced productivity. A manager must
balance ambition with employee well-being.

Example:

 Good Strategy: A company like Toyota practices the Lean Manufacturing model. This
focuses on reducing waste and improving quality through employee involvement and
efficient processes. The result? Fewer defects and higher employee satisfaction.
 Bad Strategy: A call center sets unrealistic targets for employees, requiring them to
handle 50% more calls daily. Over time, employees burn out, make errors in customer
service, and quit, leaving the company struggling with both quality and retention.

The defect rate refers to the percentage of products that are defective or unusable during
production. A high defect rate leads to wastage, increasing costs and reducing profitability. By
implementing effective strategies, companies can lower the defect rate, minimizing wastage and
improving profitability.

How Good Strategies Reduce Defect Rate:

 Improved Processes: Effective strategies focus on enhancing production processes to

ensure consistency and quality, thereby reducing defects.
o Example: Introducing automated quality checks or providing employees with
training to follow stricter quality control measures.

 Investing in Better Materials: Using higher-quality raw materials may initially seem
more expensive but can significantly reduce defects and rework costs.
o Example: A furniture company opts for higher-quality wood to prevent warping
or breakage during production.

 Employee Training and Engagement: Properly trained employees are less likely to
make mistakes, and an engaged workforce tends to be more diligent in their work.

Takeaway:

Managers should design realistic, achievable strategies that motivate employees while ensuring
sustainable operations. Encourage feedback from employees to improve processes without
overwhelming them.

Point 7: Shareholder Satisfaction

Analysis:

This section focuses on the role of strategy in meeting shareholder expectations. Shareholders
invest in a company expecting returns, either through increased stock prices or financial
dividends. For managers, this means aligning company goals with actions that enhance long-term
value for shareholders.

Example:

 Positive Strategy: Think about companies like Apple. They consistently innovate,
resulting in increased sales and a strong brand image. Their shareholders benefit as the
company grows, and stock prices rise.
 Negative Strategy: A poorly managed company announces ambitious expansion plans
without the resources to execute them. Shareholders lose confidence, and the stock price
plummets.

Takeaway:
Managers must maintain open communication with shareholders, ensuring the company’s
performance and strategy align with investor expectations. This involves setting realistic goals
and achieving consistent growth.

Point 8: Customer Satisfaction

Analysis:

The notes emphasize that customer satisfaction is a key measure of a successful strategy.
Modern customers, especially in developed markets, value more than just product quality—they
care about social responsibility, sustainability, and ethical practices.

Example:

 Good Customer Strategy: A clothing brand like Patagonia focuses on sustainability by

using recycled materials and supporting environmental causes. Customers appreciate this
approach, making them loyal to the brand.
 Bad Customer Strategy: A fast-food chain ignores customer feedback about healthier
menu options. Over time, health-conscious customers switch to competitors, and the
company loses market share.

Takeaway:

Managers must stay attuned to customer preferences, especially as values evolve. In today’s
world, customers want companies to care about more than profit—they expect a commitment to
societal and environmental well-being.

Overarching Connections Across the Notes

1. Interdependence of Credit Ratings and Strategy:

 A company with good credit ratings can secure funding to implement strategies (e.g.,
expanding into new markets or launching innovative products). Managers must ensure
the company's reputation is strong in the eyes of financial institutions and investors.

2. Balancing Ambition and Execution:

 Whether it's reducing defect rates or improving customer satisfaction, managers must
ensure strategies are realistic. For example, setting unachievable goals could lead to
operational failures and damaged reputations.
3. Listening to Stakeholders:

 Both shareholders and customers are essential stakeholders. Managers should regularly
gather feedback, address concerns, and align the company’s actions with their
expectations.

Simplified Key Lessons for Managers

1. Manage Reputation: Focus on building trust with investors and stakeholders through
transparency and reliable operations.
2. Design Balanced Strategies: Ambition is good, but overly demanding goals can
backfire. Prioritize long-term sustainability over short-term gains.
3. Engage Shareholders: Keep shareholders informed and confident in your strategies.
Regular updates and tangible results build loyalty.
4. Prioritize Customer Values: Modern customers want quality and ethical responsibility.
Align strategies to meet these evolving needs.