1 Strategic Management for the Foundation Business Simulation ®: Analysis and Assessment.
-
Upload
domenic-lyons -
Category
Documents
-
view
214 -
download
0
Transcript of 1 Strategic Management for the Foundation Business Simulation ®: Analysis and Assessment.
2
Comparison of SIC and NAICS
SIC code sequence for chewing gum, bubble gum manufacturers
SIC Code
Type of Code Description
20 Sector Food and kindred products
206 3 digit sub-sector Sugar and confectionary product manufacturing
2067 4 digit sub-sector Chewing gum, bubble gum, and chewing gum base
NAICS code sequence for chewing gum, bubble gum manufacturers
NAICS Code
Type of Code Description 1997 Value of Product
Shipments ($000)
311 3 digit sub-sector
Food manufacturing 423,262,220
3113 4 digit sub-sector
Sugar and confectionary product manufacturing
24,301,957
311340 U.S. industry code
Non-chocolate confectionary manufacturing
5,080,263
3113404 Product class Chewing gum, bubble gum, and chewing gum base
1,310,938
3
Porter’s Model of Industry Competition
Potential EntrantsEconomies of scaleCost advantageBrand identityAccess to distributionGovernment policy
Degree of RivalryNumber of competitorsIndustry growthAsset intensityProduct differentiationExit barriers
SubstitutesFunctional similarityPrice performance trendBrand recognition
SuppliersSupplier concentrationNumber of buyersSwitching costsAvailability of substitute raw materialsThreat of forward integration
BuyersBuyer concentrationNumber of suppliersSwitching costsSubstitute productsThreat of backward integration
Threat of new entrants
Bargaining power of buyers
Bargainingpower
of suppliers
Threat of substitute products/services.
Potential EntrantsEconomies of scaleCost advantageBrand identityAccess to distributionGovernment policy
SuppliersSupplier concentrationNumber of buyersSwitching costsAvailability of substitute raw materialsThreat of forward integration
4
Industry Analysis of the North American Railroad Industry
Potential EntrantsHigh barriers to entryEconomies of scaleNo brand identityLow switching costsDeregulated
Degree of Rivalry-Significant
7 competitorsModest industry growthLittle product differentiationHigh exit barriersRigid assets
BuyersLow switching costsMany types of buyersBuyers are dispersed geographically
SuppliersSuppliers are concentratedUnionizedFew buyers
SubstitutesClose substitutesFirms compete primarily on price
Threat of new entrants – minimal
Threat of substitute products/services – significant
Bargaining power of
suppliers – moderate
Bargaining power of buyers –
significant
6
Industry Evolution and Firm Strategy
Firm Level Strategy Introduction Growth Maturity Decline
Products
Must be focused upon new products for new markets.
Expansion of product lines Costs of production must be lowered to compete. Competitors and initial firm are viewed as providing similar products/services.
Firms which remain are trying to compete on price rather than value.
Markets
Niche markets. Expansion into new markets Firms attempt to achieve market penetration of existing and new markets.
Market needs have been met.
Role of TechnologyFirm must begin to recover R&D investments.
Use product R&D to offer added features to existing products
Process R&D to achieve efficiencies (e.g. TQM)
Use in other, higher growth industries.
CompetitionFirst mover has developed new products for new markets.
Firms enter to compete with first mover.
Firms attempt to become low cost provider.
Competitors have relocated to more attractive industries.
Distribution
First mover is providing products/services for a small number of customers.
Development of infrastructure to increase service to existing and new markets.
Long-term relationships are being developed with suppliers/customers.
Minimal Expenses: Existing infrastructure is being utilized.
Pricing
Attempt to recover product R&D costs by price skimming. Few, if any, competitors. Price is inelastic.
Price becomes more elastic as competitors introduce similar products.
Price is elastic. Pricing to achieve economies of scale.
Price to attempt to maintain margins on smaller demand.
Advertising
Firm must communicate value of new products/services to target market.
Because competitors have entered industry, first mover needs to advertise value added features.
Focus is upon existing markets. Message is lower price than competitors.
None: Invest in higher growth industries.
7
Industry Growth and Firm Profitability
FirmProfitability
New product development
Low Moderate High
Low Do not invest
ModerateProcess R&D Process R&D
High Investment in distribution and advertising rather than products/ services
Industry Growth Rate
8
An Industry Analysis as Firms Move Through the Industry Life Cycle
Introduction Growth Maturity Decline
Bargaining Power of Suppliers
Significant: No prior relationships may
exist
Moderate: Distribution
channels become larger and more
extensive
Moderate: Firms will attempt to lock
suppliers into long term contracts to
reduce costs
Minimal: Firms use existing channels
9
An Industry Analysis as Firms Move Through the Industry Life Cycle
Introduction Growth Maturity Decline
Bargaining Power of Suppliers
Significant: No prior relationships may exist
Moderate: Distribution channels become larger and more extensive
Moderate: Firms will attempt to lock suppliers into long term contracts to reduce costs
Minimal: Firms use existing channels
Bargaining Power of Buyers
Significant: No revenues without customers
Significant: Customer acceptance is crucial to generate larger volume of revenue
Significant: Customers put pressure on manufacturers to add value and/or reduce price
Significant: Customers purchase other goods/services
10
An Industry Analysis as Firms Move Through the Industry Life Cycle
Introduction Growth Maturity Decline
Bargaining Power of Suppliers
Significant: No prior relationships may exist
Moderate: Distribution channels become larger and more extensive
Moderate: Firms will attempt to lock suppliers into long term contracts to reduce costs
Minimal: Firms use existing channels
Bargaining Power of Buyers
Significant: No revenues without customers
Significant: Customer acceptance is crucial to generate larger volume of revenue
Significant: Customers put pressure on manufacturers to add value and/or reduce price
Significant: Customers purchase other goods/services
Threat of Substitute Products/Services
None: Substitutes do not exist
Significant: Firms are expanding in coverage: Initial firms may begin to add additional product/service benefits
Significant: Products/services are perceived to be homogeneous. Customers search for
lowest priced provider
Minimal: Competitors utilize funds and resources to grow
within other industries
11
An Industry Analysis as Firms Move Through the Industry Life Cycle
Introduction Growth Maturity Decline
Bargaining Power of Suppliers
Significant: No prior relationships may exist
Moderate: Distribution channels become larger and more extensive
Moderate: Firms will attempt to lock suppliers into long term contracts to reduce costs
Minimal: Firms use existing channels
Bargaining Power of Buyers
Significant: No revenues without customers
Significant: Customer acceptance is crucial to generate larger volume of revenue
Significant: Customers put pressure on manufacturers to add value and/or reduce price
Significant: Customers purchase other goods/services
Threat of Substitute Products/Services
None: Substitutes do not exist
Significant: Firms are expanding in coverage: Initial firms may begin to add additional product/service benefits
Significant: Products/services are perceived to be homogeneous. Customers search for
lowest priced provider
Minimal: Competitors utilize funds and resources to grow
within other industries
Threat of New Entrants
Minimal: Firm with the innovation dominates
Significant: Firms enter the industry with similar products/services
Minimal: Price becomes a significant buying factor for customers. Potential entrants look for more attractive industries
Minimal: Industry profitability and
industry growth are declining
12
An Industry Analysis as Firms Move Through the Industry Life Cycle
Introduction Growth Maturity Decline
Bargaining Power of Suppliers
Significant: No prior relationships may exist
Moderate: Distribution channels become larger and more extensive
Moderate: Firms will attempt to lock suppliers into long term contracts to reduce costs
Minimal: Firms use existing channels
Bargaining Power of Buyers
Significant: No revenues without customers
Significant: Customer acceptance is crucial to generate larger volume of revenue
Significant: Customers put pressure on manufacturers to add value and/or reduce price
Significant: Customers purchase other goods/services
Threat of Substitute Products/Services
None: Substitutes do not exist
Significant: Firms are expanding in coverage: Initial firms may begin to add additional product/service benefits
Significant: Products/services are perceived to be homogeneous. Customers search for
lowest priced provider
Minimal: Competitors utilize funds and resources to grow
within other industries
Threat of New Entrants
Minimal: Firm with the innovation dominates
Significant: Firms enter the industry with similar products/Services
Minimal: Price becomes a significant buying criteria for customers. Potential entrants look for more attractive industries
Minimal: Industry growth is declining as is industry profitability
Degree of Rivalry
Minimal: One firm dominates the industry
Moderate: Firms enter industry with similar products/services. Incumbent firms attempt to grow by expanding into new markets or adding value to existing products/ services
Significant: Because price is a key buying criteria. Firms must expand to generate greater revenues to offset shrinking margins
Minimal: Firms are exiting the industry
14
Core CapabilitiesIntegration of resources and capabilities that serve as a competitive advantage over rivalsIntel’s chip manufacturing technologyExploitation of Coke’s brand name
Capabilities The productive services by which firms deploy resources over time.
Transformation of technology into new productsProcesses which generate economies of scale and/or scope
ResourcesStock of assets that are controlled by the firm:EquipmentPlantTrucksManagersCulture
From Resources to Capabilities to Core Capabilities
15
Criteria for Sustainable Advantage
Criteria Definition Examples
RareCapabilities that few, if any, competitors possess.
Dell direct to customer distributionPatented technology
ValuableCapabilities that allow the firm to exploit opportunities or neutralize threats in its external environment.
Sophisticated external scanning processesFlexible manufacturing systems
Costly to imitate Capabilities that other firms cannot easily develop.
Development of strong brand nameAir/ground hub and spoke operating system (e.g. FedEx)
Non-substitutable Capabilities that do not have strategic equivalents.
Relationships with international governmentsManagerial decision-making
17
Value Chain Elements
Primary Activities Definition ExamplesInbound Logistics Activities used to receive,
store, and disseminate inputs to a production process.
Material handlingWarehousingInventory control
Operations Activities needed to convert inputs into finished goods.
Flexible manufacturingRoboticsAutomation
Outbound Logistics Activities to move finished goods to final consumers.
Transportation infrastructureDistributor network
Marketing and Sales Meeting unmet consumer needs. Communicating with consumers concerning new goods/services or improved goods/services.
New productsRe-designed productsMarketing communications network
Service Activities which enhance or maintain product value.
WarrantyReliable customer service
18
Value Chain Elements
Secondary Activities Definition ExamplesProcurement Activities which address
purchasing the inputs to produce a firm’s products.
Raw material sourcing Investment in plant and equipment to improve production/manufacturing.
Technological development Processes by which new or improved products are developed.Improvements in manufacturing processes.
Product R&DProcess R&D
Human resource management Investments in human capital. Hiring, training, developing, and compensating employees.
Firm infrastructure Support activities to improve primary or other secondary activities
Strategic planningGovernment relations Financial analysis.
19
Value Chain Primary Activities and Capstone Simulation
Primary Activity Simulation ComponentInbound Logistics Process R&D
Operations AutomationTQM (Total Quality Management)
Outbound Logistics Distributor network
Marketing & Sales Sales forecastingPromotion budgetSales budgetPrice adjustments
Service Mean time before failure (MTBF)
20
Value Chain Secondary Activities and Capstone Simulation
Support Activity Simulation ComponentTechnology Development Creating new products (product R&D)
Revising established products (product R&D)Reducing R&D cycle time
Human Resource Management Recruiting, training, and compensating employeesLabor negotiations
Firm Infrastructure Financial analysisSources and uses of funds
Procurement Investment in plant and equipmentSelling of plant and equipment
21
Value Chain Activities and Technology
Product R&D- Purpose is to create differentiation New product creation Revising existing products
Process R&D- Purpose is to lower costs
Total Quality Management (TQM) initiatives primarily reduce operating costs
Automation (improves efficiency)
Outsourcing Based upon the principle that a specific value chain activity can be completed by a third party superior to the firm completing the same activity.
Manufacturing operations in Mexico, Southeast Asia
Outbound logistics completed by a logistics firm (e.g. Ryder)
23
Business Level Strategy
Definition: Actions necessary to gain and maintain competitive advantage over time within a
given product market.
Gaining Advantage: Meeting key success factors superior to competition
Maintaining Advantage: Responding to changing consumer needs more successfully than competition
24
Key Success Factors
Definition: That set of criteria, defined by the customer base, which dictate buying decisions.
Key success factors change over time
Air Freight Industry
Key SuccessFactors
Evolution
1980’s
Point-to-point serviceOn-time reliabilityCompetitive ratesMarket coverage
2000 – 2007
Multi-modal servicesGlobal coverageOn-line real-time trackingLogistics services
25
Cost Leadership Differentiation
FocusedLow Cost
Focused Differentiation
Broad Target
Competitive Scope
Narrow Target
Porter’s Generic Business Strategies
Competitive Advantage
Cost Uniqueness
26
Cost Leadership
Actions necessary to gain and maintain position:
1. Economies of scale through the utilization of excess capacity.
2. Automation and utilization of robotics in manufacturing processes.
3. Development of efficient distribution networks.
4. Implementation of TQM (Total Quality Management) initiatives.
Example: Dell
27
Differentiation
Actions necessary to gain and maintain position:
1. Developing innovative products/services to broad range of customers.
2. Significant investments in R&D.
3. Capability to generate a series of successful new products over time.
4. Development of flexible manufacturing systems.
Example: Toyota
28
Focused Low Cost
Actions necessary to gain and maintain position:
1. Specific, very well defined target market, that is oriented toward products/services where price is an important key success factor.
2. A market that larger scale firms may ignore because these firms may generate greater efficiencies in other markets.
3. Customer may be willing to absorb certain costs (e.g. transportation) in return for lower prices.
Example: Ikea Furniture
29
Focused Differentiation
Actions necessary to gain and maintain position:
1. Customers are willing to pay more for real or perceived superior quality.
2. Brand name is important to customers.
3. Profit margins are such that firms do not need to generate significant economies of scale.
4. Promotion directed toward identification of real or perceived superior quality features.
5. Customers are brand loyal.
Example: Rolls Royce
30
STRENGTHS STRENGTHS WEAKNESS
WEAKNESS
OPPORTUNITIES THREATS OPPORTUNITIES THREATS
Decision Making Utilizing SWOT Analysis
Firm A Firm B
: Utilize strengths of one firm (A) to capitalize upon weakness of competitor (Firm B).(Example: Dell’s direct selling model)
: Transform opportunities to strengths. (Example: Pharmaceutical firms R&D capability develops new drugs: Pfizer-Lipitor)
31
Competitive Dynamics
Competitive advantage may result from responding successfully to competitor’s mistakes
Firm 1 Firm 2
Firm 1
Firm 2 Firm 1 Firm 2
+
-
ROI
: Firm 2 initially responds to firm 1’s successful launch: Firm 1’s second venture is not profitable: Firm 2 learns from firm’s 1’s error and launches its own successful product: Firm 1’s responses to firm 2’s new actions
32
Southwest SWOT Analysis
Strengths Lowest cost carrier within U.S. industryReputation as successful carrierSuccessful business modelProfitable
WeaknessesNo trans-oceanic capabilitiesLabor unionsAge of aircraft
ThreatsEntry of low cost carriersUS Congress recently increased the ownership position from 25 percent to 49 percent for international companies investing in U.S. transportation firms
OpportunitiesAbility to take share from existing and new entrantsSignificant potential to increase market share if America West/U.S. Airways, United, Delta or Northwest are liquidated