macy.ba.ttu.edu

http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #1

MGT. 5391Session # 7

Strategic and Global Management

Main Types of Strategies (Corporate and Business)


Two Types of Strategies:

1.Corporate/ Enterprise2.Business/ GBU/ SBU


Today’s Discussion will focus on Business

Strategies at the GBU/ SBU Division level


Strategies represent integrated and coordinated set of actions

(deployment/execution) that are taken to exploit core competencies to improve the firm’s four capabilities and gain a competitive advantage.

4-4

Strategies


What is a Strategy for Exemplar Performance?

Michael E. Porter defines organization strategy as creating a company’s position, making trade-offs, and forging fit among activities:

“Strategy is the creation of a unique and valuable position, involving position, involving a different

set of activities.”

“Strategy is making trade-offs in competing. The essence of strategy is deciding what not to do.”

“Strategy is creating fit among a company’s activities.”

Source: Michael E. Porter, “What is Strategy”,” Harvard Business Review, November-December, 1996, p. 62


Internal and External Growth Strategies

InternalBusiness

Environment (5)

Corporate & Business Strategies

Market/CustomerInsights

(from EBE)

M&A/JV’s(External Growth)

Value Chain:Core

CompetenciesIdentification

Increased Commercial,

Technological, Organizational,

TeamCapabilities

(InternalGrowth) Increased

Performance

Outsourcing (Non-Core

Competencies)

________________Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)


Discuss the relationship between Discuss the relationship between customers and businesscustomers and business level level strategies in terms of strategies in terms of who, what, who, what, and how.and how.

4-4

What is a business-level strategy?


- Low cost- Differentiation- Integrated low cost/differentiation- Formal/Strategic Alliances- Customer Intimacy- Others

- Focused low cost- Focused differentiation- Product Leadership- Mergers/Acquisitions

(External Growth)- HPO/HPS/HPWS (Best Place to Work)- Customer Service

How to create competitive advantage in each business in which the company competes

1. Business-Level SBU/GBU Strategies:

Summary & Review: A Diversified Company Has Two Levels of Strategy

2. Corporate/Firm Level (Next Week)


THE THREE TYPES OF BUSINESS THE THREE TYPES OF BUSINESS STRATEGIES TO MEET MARKET STRATEGIES TO MEET MARKET

DEMANDSDEMANDSPRODUCT LEADERSHIP

BEST PRODUCT:•OPTIMISED FOR INNOVATION &

SPEED

•PRODUCT FEATURES THAT DELIVER RESULTS

CUSTOMER INTIMACY:BEST TOTAL SOLUTION:

•OPTIMIZED FOR SPEED AND RESPONSIVENESS•VALUED ADVICE

•CUSTOM - TAILORED SERVICE

OPERATIONAL EXCELLENCE:

BEST TOTAL COST:

•OPTIMIZED EFFICIENCE•LOW & LOWEST PRICE

•HASSLE-FREE, RELIABLE

CHOICE

Source: Adopted from: M. Porter, Competitive Advantage, The Free Press, 1985


Example: Four Types of Enterprise/Business Level Strategies

1. Monetize Assets (Sell all or parts)

2. Optimize (Cash Cow)

3. Grow/Create more Market Share• Internal Growth (Increased capabilities and core

competencies)• External Growth (M&A)

4. Combination of above (be specific as to what businesses and/or product lines)


Enterprise Level and S.B.U. Actions to Create EVA and Growth - 1

I. Create New Pathways for Increasing Returns

• Market Services and Knowledge Products: Create Value-added “Price Tower” or Minimally Secure Share or Price; Extract Royalty/License Human Capital Revenue as Appropriate

Proprietary Data Bases and Data Based Management for Operations, Regulatory Acceptance Compliance, Suppliers Performance to Value Chain, Customers Operations Disruptive Technologies for Industry Niche: e.g, Nonstick Conveyance, Noninvasive Monitoring & Process Control, On-line Quality Measurement, Applied Fluid Dynamics in Design, Shift Engineering Emphasis & Capital from Reaction to Raw Materials and Logistics to Customer, in particular, Packaging and Storage, Remote Process Control, I-Situ Quality Control, Quality Bridges from Manufacturing to Customer Use Adaptation of Product Chemistry in Customers’ Operations Recoup Sunk R&D Costs in Negotiated Transactions Transfer and Maintain Technical Competencies, Information / Communication / Learning



I. Create New Pathways for Increasing Returnso Infrastructure for Channel Partners, and Financial Solutions in Credit

Analysis and Credito Create Training & Brokering Ventureo Leverage Internet Protocols for Industry Niche: e.g., Go Direct for Small

Customers with Improved Service Level and Credit Facility, Portal for Industry Niche, Virtual Value Web for

o R&D, Logistics Optimization, Regulatory Compliance & Monitoring, E-Commerce & E-Credit

o Customer Intimacy Strategy: R&D/Technology Innovation, Precision & Accuracy in Support of Data Mining & Harvesting for Customer and Their Consumers, Shared Growth, Shared

o Planning, Co-location, Co-Facility Use, Mirrored Enterprise Unitso Reaction Innovation: i.e., Formulation, Bio-based Solutions, in particular

in Human & Animal Careo E-Commerce Ventureso Creation of “Virtual Organization” to handle your key customers Value-

Chain transitions.o Creation of dot.coms (both inside and outside)


II. Optimize Against Diminishing Returns

• Rationalize Current Operations (Seamless Internal Value Chain for Marketing to R&D to Manufacturing to Technology to Sales & Customer Services to Logistics)

• Introduce Best Practices/High Performance Across Value Web (i.e., Internal Structure, Organization & Cultural Flexibility/Responsiveness/Creativity, Commercial & Financial Architecture, Partnering Solutions, Customer Intimacy - Enterprise Teams)

• Supply and Demand Logistics Renovation: e.g., Automation, Robotics, Gravity-based Conveyance, Packaging, Toll Manufacturing, Integrated Manufacturing & Logistics, SAP Adapted to Operations & Customer Needs.

• Spread All Costs Over Larger Sales Volume



II. Optimize Against Diminishing Returns

•Share Channel / Value Pipelines: e.g, Consortia, Industry Lobby, Value-added Services Delivery through Channel Partners, i.e., Technical Training to Users,Life Cycle Management of Product & Packaging, Credit & Credit Networks to Capture Other Volume/High Value Purchases, Shared Channel Capital Projects Investment, Cross-Selling of Technology with Like Customer Bases)•Consolidate Among Strategic Players (Must Emerge as Critical Mass and Be “More” than Combination)•Roll-up Privately-held Firms (Must Emerge as Critical Mass and Be “More” than Combination)•New user friendly, low cost software emerging in Fall, 2000 will possibly eliminate the use of SAP and other Value-chain systems.



III. Monetize Current & Acquired Assets: Re-channel Capital to Priority Projects or Reduce Risk

• Sell Utilities and Waste Operations for Old and New Manufacturing Sites

• Sell Under Performing Businesses• Sell Nonaligned Businesses• LBO or ESOP LBO Any of the Aforementioned• Create JV’s (in US, LLC’s, LLP’s) to Retain Equity Participation (Or

Control) while Not Duplicating Levy Exposure yet Providing Risk Transfer to a Corporate Entity with “Off the Books” Financing of Assets - Leverage Good Credit with Entrepreneurial Partners

• Establish Toll Manufacturing Network• Create Equipment and Talent Leasing• Trade Assets & Human Capital Talent for More Liquid Position



S.B.U. Competitive Strategies

• Competitive Strategies

• Definitions of Competitors

• Competitive Strategies

– Miles and Snow

– Porter

• First Mover Strategy


Strategy and Competitive Advantage

• Competitive Advantage exists when a firm’s strategy gives it an edge in– Defending against competitive forces and– Securing customers

Key to Gaining a Competitive Advantage• Convince customers firm’s product/service offers

superior value– Offer buyers a good product at a lower price– Use differentiation to provide a better product buyers

think is worth a premium price


Core Competition

• When organizations battle for some desired object/outcome

• Who are our core competitors

– Industry perspective

– Market perspective

– Strategic group perspective


Industry and Market Approaches to Defining Competitors

Industry Market

Same

Product-ServiceCustomer

Needs


Strategic Group Approach to Defining Core Competitors

• Possible strategic dimensions for identifying strategic groups– Price– Quality– Geographic scope– Product line breadth-depth– R&D expenditures– Product characteristics


Different Types of Competitive Strategies

• Miles and Snow typology

– Prospector• Seeks innovation

• Survey dynamic environment and develops new products

• Competitors are uncertain about prospector’s future decisions and actions



– Defender• Searches for market stability• Limited product line• Seeks to defend position• Prevents others from entering its turf• Can create and maintain niches

Different Types of Competitive Strategies (cont.)



– Analyzer• Strategy of analysis and imitation• Copies promising new activities

– Reactor• Lacks a strategic plan• Reacts to environmental changes• Makes adjustments when forced to• Unable to respond quickly to changes

Different Types of Competitive Strategies (cont.)


Porter’s Generic Strategies

• Market Scope

– Broad or Narrow

• Competitive Advantage

– Low cost or differentiated

• Integrated differentiated/low cost


Breadth of Competitive

Scope

Source of Competitive Advantage

BroadTargetMarket

NarrowTargetMarket

Cost

1. CostLeadership

1. CostLeadership

2. Differen-tiation

2. Differen-tiation

4. Focused Differen-

tiation


tiation

3. Focused Low Cost3. Focused Low Cost

Uniqueness

Generic Business Level Strategies



Scope


BroadTargetMarket

NarrowTargetMarket

Cost

1. CostLeadership

Uniqueness



How to Obtain a Cost Advantage

• Determine Core Competencies

• Possible Outsource Non-Core Competencies

• Alter Production Process

• Change in Automation

• New Distribution Channel

• New Advertising Media

• New Raw Material

• Forward Integration

• Backward Integration

• Change Location (i.e., Co-Location) Relative to Suppliers and Buyers

• Direct Sales in Place of Indirect Sales

1. Determine and Control Cost Drivers2. Reconfigure the Value Chain (Supply and/or Demand Chains) as needed


Three Key Questions

2. How can a group of linked value activities be regrouped or reordered?

3. How might coalitions with other firms lower or eliminate costs?

Gallo sold wine through grocery stores rather than liquor stores because they were more efficient distributors

1. How can an activity be performed differently or even eliminated?


Key Criteria:

Cost Leadership Business Level Strategy

Relatively standardized products

Features acceptable to many customers

Lowest competitive price


Unifi, Inc.,Unifi, Inc., one of the world’s largest one of the world’s largest texturizers of filament polyester and texturizers of filament polyester and nylon fiber, makes significant nylon fiber, makes significant investments in its manufacturing investments in its manufacturing technologies to drive its costs lower technologies to drive its costs lower even though prices for raw materials even though prices for raw materials and packaging supplies are rising.and packaging supplies are rising.

4-9

Cost Leadership Strategy


Requirements:Constant effort to reduce costs through:

Building efficient scale facilities

State of the art manufacturing facilities

Simplification of processes

Minimizing costs of sales, R&D and service

Monitoring costs of activities provided by outsiders

Tight control of production costs and overhead

Cost Leadership Business Level Strategy


Major Risks of Cost LeadershipBusiness Level Strategy

Dramatic technological change could take away your cost advantage (e.g., 3-M: Duct Tape)Competitors may learn how to imitate Value Chain (elimination of distribution centers—ship direct)

Focus on efficiency could cause Cost Leader to overlook changes in customer/consumer preferences


Low-Cost Leadership

• Make achievement of low-cost relative to rivals the theme of firm’s business strategy

• Finds ways to drive costs out of business year-after-year

Low-cost leadership means low overall costs, not just low

manufacturing or productions costs!


When does Low-Cost Leadership Work?

• It works when:– Price competition is vigorous– Product is standardized– Buyer incur low switching costs– Industry newcomers use introductory low prices to

attract and buyers and build customer base

• Pitfalls with this strategy– Being overly aggressive in cutting prices– Low-cost methods are easily imitated by rivals– Differentiation matters


Consolidated Stores, Inc.Consolidated Stores, Inc. seeks to earn seeks to earn above-average profits in its Closeout above-average profits in its Closeout Division by retailing brand-name Division by retailing brand-name

merchandise below discount price merchandise below discount price found found by traveling the country in by traveling the country in search of search of manufacturer overruns and manufacturer overruns and discontinued styles and buying discontinued styles and buying leftovers at below wholesale prices. leftovers at below wholesale prices.



Through cost-leadership strategy, low Through cost-leadership strategy, low cost steel producer, cost steel producer, Nucor Nucor CorporationCorporation, relies on investments , relies on investments in efficient-scale facilities to achieve in efficient-scale facilities to achieve strategic competitiveness (operating strategic competitiveness (operating profitably ever since 1966).profitably ever since 1966).




Scope


BroadTargetMarket

NarrowTargetMarket

Cost

1. CostLeadership

1. CostLeadership

2. Differen-tiation


Uniqueness


Differentiation Strategies

• Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals

• Keys to success– Find ways to differentiate that create value for

buyers that are not easily matched or cheaply copied by rivals

– Not spending more to achieve differentiation than the price premium that can be easily changed


Key Criteria:

Differentiation Business Level Strategy

Value provided by unique features and value characteristics

Command premium price

Superior quality

Rapid innovation

Prestige or exclusivity

High customer service



Requirements:Constant effort to differentiate products/services through:

Developing new systems and processes

Product/Service/Quality focus

Maximize Human Resource contributions through low turnover and high motivation

Capability in R&D

Shaping (Consumer) perceptions through advertising


Effectiveness with Differentiation grows out of Value Chain activities

Examples:Examples:

Heineken beerHeineken beer Raw materialsRaw materials

Caterpillar tractorsCaterpillar tractors Service buyers’ needs quickly anywhere in the worldService buyers’ needs quickly anywhere in the world

Intel microprocessorsIntel microprocessors Technological superiorityTechnological superiority

Steinway pianosSteinway pianos Raw materials & Workmanship Raw materials & Workmanship

Mercedes Benz autosMercedes Benz autos Technology and WorkmanshipTechnology and Workmanship



• Creating barriers by perceptions of uniqueness

• Creating switching costs through differentiation

Raising Buyers’ Performance

Lowering Buyers’ Costs

Creating Sustainability through:

Create Value with Differentiation by:


Types of Differentiation

• Unique Taste – Dr. Pepper

• Wide Selection and One-stop Shopping – Home Depot and Amazon.com

• Superior Service – FedEx and Ritz-Carlton

• Spare Parts Availability – Caterpillar

• More for your Money – McDonald’s and Wal-Mart

• Prestige – Rolex

• Quality Manufacture – Honda and Toyota

• Top-of-the-Line Image – Ralph Lauren and Chanel


Firm may be “outfocused” by competitors

Large competitor may set its sights on your niche market

Preferences of niche market may change to match those of broad market

Major Risks Involved With a FocusedDifferentiation Business Level Strategy - 4


Some examples include:Some examples include:

Ralph Lauren and Tommy Hilfiger differentiate their Ralph Lauren and Tommy Hilfiger differentiate their clothing line through imageclothing line through image

Rolex watches are differentiated by prestige and Rolex watches are differentiated by prestige and imageimage

Starbucks Coffee differentiates itself by listening to Starbucks Coffee differentiates itself by listening to customerscustomers

Intel uses speed, innovation, and manufacturing Intel uses speed, innovation, and manufacturing techniques as bases if uniquenesstechniques as bases if uniqueness 4-9

Differentiation Strategy Examples


Signaling Value as well as Delivering Value

• Buyers seldom pay for value that is not perceived!!!

• Signals of Value may be as important as actual value when – Nature of differentiation is hard to quantify– Buyers are making first-time purchases– Repurchase is infrequent– Buyers are unsophisticated


When does Differentiation Work?

• It works when:– There are many ways to differentiate a

product/service that has added-value and pleases customers

– Buyer needs and uses are diverse

– Technological change and product innovation are fast-paced


When does Differentiation Work? (cont.)

• Pitfalls:– Charging to high a price or over

differentiating

– Failing to signal value

– Not understanding what buyers want or prefer and differentiating on the “wrong” things


Competitive Strategy Principle

A low-cost provider strategy can defeat a differentiated strategy when buyers are satisfied with a standard

product and do not see extra differentiating attributes worth

paying for!



Scope


BroadTargetMarket

NarrowTargetMarket

Cost

1. CostLeadership

1. CostLeadership

2. Differen-tiation

2. Differen-tiation


tiation


tiation

3. Focused Low Cost3. Focused Low Cost

Uniqueness



Integrated Low-Cost / Differentiated

• Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation– Make an upscale product at a lower cost– Give customers more value for the money

• Deliver superior value by meeting or exceeding buyers expectations on product attributes and beating their price expectations


Basis for Customer SegmentationIndustrial Markets

1. End use segments (identified by SIC code)

2. Product segments (based on technological differences or production economics)

3. Geographic segments (defined by boundaries between countries or by regional differences within them)

4. Common buying factor segments (cut across product/market and geographic segments)

5. Customer size segments


Basis for Customer SegmentationConsumer Markets1. Demographic factors (age, income, sex, etc.)

2. Socioeconomic factors (social class, stage in the family life cycle)

3. Geographic factors (culture, region or country differences)

4. Psychological factors (lifestyle, personality traits)

5. Consumption patterns (heavy, moderate, and light users)

6. Perceptual factors (benefit segmentation, perceptual mapping)

7. Brand loyalty patterns


Integrated Low-Cost / Differentiation Strategy: Southwest Airlines

Use a single aircraft model (Boeing 737)

Use secondary airports No meals15 minute turnaround

timeNo reserved seats

Focus on customer satisfaction

High level of employee dedication

Unique CultureA “HPWS”

Low-Cost Differentiation


Risk of and Integrated Provider Strategy

• Risk – An integrated provider may get squeezed between strategies of firms using low-cost and differentiation strategies

– Low-cost leaders may be able to siphon customers away with a lower price

– High-end differentiators may be able to steal customers away with better product attributes


Focused Business Level Strategies involve the same basic approach as Broad Market Strategies.

However, opportunities may exist because:

Focused Business Level Strategies - 1

Large firms may overlook small niches

Firm may lack resources to compete industry-wide

May be able to serve a narrow market segment more effectively than industrywide competitors

Focus can allow you to direct resources to certain value chain activities to build competitive advantage


Bang & Olufsen Upscale electronic components

Iams Company Premium pet foods

Snap-on tools High quality mechanics’ tools

Focused Business Level Strategies - 2Focused Business Level Strategies involve the same basic approach as Broad Market Strategies.


Examples:

May be able to retrofit old factories to keep costs down

Minimize R&D costs by copying innovators


Custom manufacturers of parts for

Harley-Davidson motorcycles

Focused Business Level Strategies - 3Focused Business Level Strategies involve the same basic approach as Broad Market Strategies.


Example:

Focused Differentiators may thrive by selecting a small market that is underserved by large players


Southwest Airlines

Integrated Low Cost/Differentiation Strategy

Use a single aircraft model(Boeing 737)

Use secondary airports

Fly short routes

15 minute turnaround time

No meals

No reserved seats

No travel agent reservations

Low Cost

Focus on customer satisfactionFocus on customer satisfaction

New flight services for business travelers(phones and faxes)S.W.A.’s Culture, Values, Philosophies & Principles

New flight services for business travelers(phones and faxes)S.W.A.’s Culture, Values, Philosophies & Principles

High level of employee dedicationHigh level of employee dedication

DifferentiationDifferentiation


Firms using an Integrated Strategy may:

Integrated Low Cost/Differentiation Strategy

Utilize Flexible Manufacturing Systems to create differentiated products at low costs

Adapt more quickly

Learn new skills and technologies

Leverage core competencies through Information Networks across multiple business units

Utilize Total Quality Leadership (TQL) to create high quality differentiated products which simultaneously driving down costs (Six Sigma)


• Creating barriers by perceptions of uniqueness/ customization

• Creating (higher) switching costs through product/service differentiation

Raising Buyers’ (Retail Store)Performance (their Market Share)

Lowering Buyers’ Costs

Creating Sustainability through:

Create Value with Differentiation by:


Effectiveness with Differentiation grows out of Value Chain activities

Examples:Examples:

Heineken beerHeineken beer Raw materialsRaw materials

Caterpillar tractorsCaterpillar tractors Service buyers’ needs quickly anywhere in the worldService buyers’ needs quickly anywhere in the world

Intel microprocessorsIntel microprocessors Technological superiorityTechnological superiority

Steinway pianosSteinway pianos Raw materials & Workmanship Raw materials & Workmanship

Mercedes Benz autosMercedes Benz autos Technology and WorkmanshipTechnology and Workmanship



Focus / Niche Strategies• Involve concentrated attention on a narrow piece of

the total market• Objective

– Serve niche buyer better than rivals• Keys to Success

– Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs

– Develop unique capabilities to serve needs of target buyer segment


What Makes a Niche Attractive for Focusing?

• Big enough to be profitable and offers good growth potential

• Not crucial to success of industry leaders

• Costly or difficult for multi-segment competitors to meet specialized needs of niche members


• Focuser has resources and capabilities to effectively serve an attractive niche

• Few other rivals are specializing in same niche

• Focuser can defend against challengers via superior ability to serve niche members

What Makes a Niche Attractive for Focusing? (cont.)


Risks of a Focus Strategy

• Competitors find effective ways to match a focuser’s capabilities in serving niche

• Niche buyers’ preferences shift towards product attributes desired by the majority of buyers – niche becomes part of overall market

• Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered


Value Chain Analysis


Three Parts of Value-Chain Design

3

SUPPLIERS/VENDORS

1

YOURCOMPANY

2

CUSTOMERS

COMMUNITY

SupplyChain

DemandChain


DevelopDesignConceive SupportDistributeSalesMarketProcedure

Back Front

CoreTechnologies

Market(Customer)

Value Chain


Six Common Factor as to WhyU.S. Organizations are Successful Global Competitors

1. Close ties/direct and formalized partnerships with customers (internal and external).

2. Close ties/direct and formalized partnerships with vendors/suppliers (reduction in number and certification).

3. Integrated and simultaneous efforts to improve quality, cost, delivery and speed (product development) to the marketplace.

4. Greater functional (staff and support units) integration (decentralization) and less stratification (centralization).

5. Integration of technology into manufacturing and marketing strategies linked to continuous organizational improvements that promotes teamwork (teams), training and continuous learning.

6. Create a broad “learning environment” that emphasis's training and re-training, coaching and development (job, team, pass-offs, internal customer and supplychain linkages) -- an “Organizational University.”

Summary: However, it is not surprising that it is very unclear to U.S. Key stakeholdershow you design and implement these six design features and their accompanying strategies. Although organizations feel these (global) pressures (to change), particularly as one moves toward the top, the kind of change that is needed to accomplish these goals is organization wide. Traditional change strategies that begin at the top andorganizations need to more responsive.


Six Questions of the Value Chain:

1. What is the Value Chain?

2. What are the component parts of the Value Chain?

3. How does a firm’s core competencies relate to the Value Chain?

4. How can a firm create value via Value Chain maximization?

Demand Chain? Supply Chain? Both?

5. What gets “outsourced”?6. How to improve the four capabilities?


Financial Saving throughValue Chain Improvement

15 - 25% of Total World-Wide

Sales Revenue________________Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)


Critical Design Elements for Horizontal Organization

Allianceswith Competitors

Suppliers The Firm’s Value Chain

Customers Consumers

OtherAlliances andPartnerships

Supply ChainDemand

Chain


Creating Financial Wealth: The Value Chain Design

Changing Business

Environmen

tPRODUCT

SUPPLYALIGNMENT

MARKETFOCUS

ALIGNMENT

ChangingWants/Needs/Desires

• Ord

er

Entry

• Fin

ance

C

redi

t•

For

ecas

ting

• M

anuf

actu

ring

• Customer Service

• Ware

house/DC’s

• Planning \

Sch

edulin

g

• Purc

hasin

g

• Engin

eerin

g

• SHE

• Log

isti

cs•

App

licat

ion

Tec

hnol

ogy

Suppliers&

Vendors

• Product

R & D

• Sales

Finance• M

arket

Research

• IS/IT

• Marketing • C

onsumer

R &

D

• Sales

Customers &Consumers

HIGH PERFORMANCE ORGANIZATIONSRIGHT SIDE -

“FRONT OF SHOP”LEFT SIDE -

“BACK OF SHOP”

• Competitive

Benchmarking

Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)

• Partnering

• Alliances/JV

• Customer Intimacy

• Organizational Effectiveness

• Training

• SAP/EDI

• E-Commerce

DE

MA

NDSU

PPLY


Source: Digital Capital, D.Tapscott et.al., Harvard Business School Press, 2000


Improved Capabilities via Core Competencies

Horizontal Design’s Core Processes

1st

AlignStrategy

2nd

CreateDemand

3rd

OptimizeSupply

Vision Direction

Strategies

“Front of the Shop” “Back of the

Shop”

_____Source: Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. (forthcoming)

1

2

34


Back(Offering)

Back(Offering)

Front(Market/Customer)

Front(Market/Customer)

MiddleInfrastructure

MiddleInfrastructure

•Creation of products/offerings

•“Platforms for manufacturing products

•Technologies underlying products

•Means used to produce and deliver products and services to customers

•The customers interface

•How the Business goes to market

•How the organization responds to the customer

Each component is a potential source of leverage

Three Potential Sources of Leverage in Leveraged Business Groups


ILLUSTRATIVE SUPPLY CHAIN: FORTUNE 100 COMPANY

DISTRIBUTION, ENGINEERING AND MANUFACTURING

CUSTOMER PLANT

DIRECT

DISTRIBUTION

EXTRENAL DISTRIBUTION

SUPPLY CHAIN CONCEPTEQUIPMENT

RAWMATERIALSPACKAGING

PEOPLE

SUPPLY CHAIN CONCEPT


Leadership team

Product Supply Example:Teams to Manage Order Fulfillment

Outboundlogistics team

Orderentryteam

Assembly

Materials

Product

Customer

Order

Vendor orders

Inbound logistics team


How Do You Create a $18 Billion

Companyin only 13 Years?

____________________________Source: B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)


Direct Business Model:(Dell Computers)

• Sell directly to consumers• Build products to consumer (customer) order • Eliminate retail mark-ups and costs• Reduce risks associated with large inventories of finished goods• Relationship with consumers• Leverage relationship with suppliers and consumers• Use information to enhance the Value Chain____________________________

Source: B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)


The Value Chain: The Dell Example

Suppliers Mfg.ProductSupply

Centers ofCompetency ConsumerCustomers

VariousBusinessSegment

CorporateServices

ExpertiseCenters

______________________Source: Dr. Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)


SupportActivities

Primary Activities

Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value


SupportActivities

Primary Activities

Technological Development

Human Resource Management

Firm Infrastructure

Procurement

Inb

oun

d

Log

isti

cs

Op

erat

ion

s

Ou

tbou

nd

Log

isti

cs

Mar

ket

ing

& S

ales

Ser

vice

MARG

IN

MARGIN

Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value


Inbound Logistics

Superior handling of incoming raw materials to minimize damage and improve the quality of the final product


Operations

Rapid responses to customers unique manufacturing specifications

Consistent manufacturing of attractive products


Outbound Logistics

Accurate and responsive order processing procedures

Rapid and timely product deliveries to customers


Marketing & SalesMarketing & Sales

Extensive personal relationships with buyersExtensive personal relationships with buyers

Strong Coordination among functions in R&D, Marketing and Product DevelopmentStrong Coordination among functions in R&D, Marketing and Product Development

Premium PricingPremium Pricing

Customer Intimacy (formalized – CAT’s and Supplier Enterprise Teams)Customer Intimacy (formalized – CAT’s and Supplier Enterprise Teams)


ServiceComplete field stocking of replacement parts


Procurement

Located in Close Proximity with Suppliers

Systems and procedures used to find the highest quality raw materials

Purchase of highest quality replacement parts


R&D Technological Development

Strong capability in basic research

Investments in technologies to produce highly differentiated products

Coordination among R&D, marketing and product development



Compensation programs and other HR Systems and Processes which encourage worker creativity and performance

Extensive use of subjective performance measures

Superior personnel training/ development & coaching


Firm Infrastructure/Macro Structure (Corporate; GBU/SBU; Supply Chain; Demand Chain, and Enterprise Team(s) Alignment)

A company-wide emphasis on producing high quality products

Highly developed Information Systems to better understand customers’ purchasing preferences


Supplier Value Chain Firm Value Chain Channel Value Chain

Upstream Value

Perform valuable activities that complement the firm’s activities

Buyer Value Chain

Each firm must eventually find a way to become a part of some buyer’s value chain

Ultimate basis for differentiation is the ability to play a role in a buyer’s value chain

This creates VALUE!!

Value chains vary for firms in an industry, reflecting each firm’s unique qualities:

• History• Strategy• Success at Implementation

Value Chains are part of a Total Value System


SupportActivities

Primary Activities

Outsourcing

Technological Development


Firm Infrastructure

Procurement

Inb

oun

d

Log

isti

cs

Op

erat

ion

s

Ou

tbou

nd

Log

isti

cs

Mar

ket

ing

& S

ales

Ser

vice

MARG

IN

MARGIN

Strategic Choice to Purchase Some Activities From Outside Suppliers


SupportActivities

Primary Activities

Technological DevelopmentTechnological Development

Human Resource ManagementHuman Resource Management

Firm InfrastructureFirm Infrastructure

ProcurementProcurement

Inb

oun

d

Inb

oun

d

Log

isti

csL

ogis

tics

Op

erat

ion

sO

per

atio

ns

Ou

tbou

nd

Ou

tbou

nd

Log

isti

csL

ogis

tics

Mar

ket

ing

Mar

ket

ing

& S

ales

& S

ales

Ser

vice

Ser

vice

MARG

IN

MARG

IN

Inbound Inbound LogisticsLogistics

OperationsOperationsOutboundOutboundLogisticsLogistics

ServiceService

Marketing Marketing & Sales& Sales

Technological DevelopmentTechnological Development

Human Resource ManagementHuman Resource Management

ProcurementProcurement

MARGIN

MARGIN

Firms often purchase a portion portion of their value-creating activities from specialty external suppliers who can perform these functions more efficientlymore efficiently

OutsourcingStrategic Choice to Purchase Some Activities From Outside Suppliers


Lets company focus on broader business issues by having outside experts handle various operational details

Strategic Rationales for OutsourcingImprove Business Focus

Permits firm to redirect efforts from non-core activities toward those that serve customers more effectively

Free Resources for Other Purposes

Provide Access to World-Class Capabilities

Accelerate Business Re-Engineering Benefits

Share Risks

The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications

Achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process

Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities

http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #98Future Work TrendsFuture Work Trends

How does it fit together?How does it fit together?

Globalization(External Growth)Globalization

(External Growth)Year 2009+ KPI Goals (Internal)

Year 2009+ KPI Goals (Internal)

Strategic Alliances/Partnerships

(Ext. & Int. Growth)Increased Capabilities

via identified Core Competencies

Business Imperatives:

Capabilities:

Vision Direction and Strategies:

Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. (forthcoming)

Vision Direction Strategies

(Corporate and Business)1st

2nd

3rd

macy.ba.ttu.edu

Documents

Transcript of macy.ba.ttu.edu