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Chapter Eight

Dr. LE THANH LONG

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Contents

Decision on a low-cost, differentiation, or speed-based strategy

The nature and value of a market focus strategy

SM- S6 Dr. Le Thanh Long 2

Requirements for business success at differentstages of industry evolution

Determine good business strategies in fragmented

and global industries Diversity strategy consideration

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Choosing Business Strategies

Strategic analysis and choice is the phase of thestrategic management process in which business

managers examine and choose a business strategy

sustainable competitive advantage

SM- S6 3Dr. Le Thanh Long

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Choosing Business Strategies

Strategic analysis and choice in single- or dominant-product/service businesses can be addressed with

two basic issues:

What strategies are most effective at building sustainable

competitive advantages for single business units?

Should dominant-product/service businesses diversify to

build value and competitive advantage?


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Evaluating and Choosing BusinessStrategies

The two most prominent sources of competitiveadvantage can be found in the businesss cost

structure and its ability to differentiate the

Businesses that create competitive advantages from

one or both of these sources usually experience

above-average profitability within their industry


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Evaluating and Choosing BusinessStrategies

The highest profitability levels are found inbusinesses that possess both types of competitive

advantage at the same time

to evaluate and choose business strategies based

on core competencies and value chain activities that

sustain both types of competitive advantagesimultaneously


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Evaluating Cost LeadershipOpportunities

Business success built on cost leadership requiresthe business to be able to provide its product or

service at a cost below what its competitors can


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Evaluating a Businesss Cost LeadershipOpportunities


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Sustainable Low-Cost Activities

Some low-cost advantages reduce the likelihood ofbuyers pricing pressure

Truly sustained low-cost advantages may pushrivals into other areas

New entrants competing on price must face anentrenched cost leader

Low-cost advantages should lessen the

attractiveness of substitute products Higher margins allow low-cost producers to

withstand supplier cost increases


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Risks of a Cost Leadership Strategy

Many cost-saving activities are easily duplicated

Exclusive cost leadership can be a trap

Obsessive cost cutting can shrink other competitive

a vantages Cost differences often decline over time


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Evaluating Differentiation

Differentiation requires that the business have

sustainable advantages that allow it to provide

buyers with something uniquely valuable to them

activities in the value chain that create a unique

value important to buyers

Strategists use benchmarking and consider the 5

forces in considering differentiation


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Evaluating

a Businesss

DifferentiationOpportunities


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Advantages of Differentiation Strategy

Rivalry is reduced when a business successfully

differentiates itself

Buyers are less sensitive to prices for effectively

Brand loyalty is hard for new entrants to overcome


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Risks of Differentiation Strategy

Imitation narrows perceived differentiation,

rendering differentiation meaningless

Technological changes that nullify past investments

The cost difference between low-cost competitors

and the differentiated business becomes too great for

differentiation to hold brand loyalty


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Evaluating Speed as a CompetitiveAdvantage

Speed-based strategies, or rapid response to

customer requests or market and technological

changes, have become a major source of

todays intensely competitive global economy

Speed involves the availability of a rapid response

to a customer by providing current products

quicker, accelerating new-product development or

improvement, quickly adjusting production

processes, and making decisions quickly.


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Evaluating aBusinesss

Rapid Response

(Speed)

Opportunities


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Speed can be created by

Customer responsiveness

Product development cycles

Product or service improvements

Speed in delivery or distribution Information Sharing and Technology


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Risks of Speed-based Strategy

Speeding up activities that havent been conducted

in a fashion that prioritizes rapid response should

only be done after considerable attention to training,


,

Some industries may not offer much advantage to

the firm that introduces some forms of rapid

response

Customers in such settings may prefer the slower

pace or the lower costs currently available, or they

may have long time frames in purchasing

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Evaluating Market Focus as a Way toCompetitive Advantage

Market focus: the extent to which a businessconcentrates on a narrowly defined market

Small companies, at least the better ones, usuallythrive because the serve narrow market niches


Market focus allows some businesses to compete onthe basis of low cost, differentiation, and rapidresponse against much larger businesses with

greater resources

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Advantages of Market Focus

Focus lets a business learn its target customers and

establish personal relationships in ways that

differentiate the smaller firm or make it more


.

Low costs can also be achieved

The greatest competitive weapon that can arise is

rapid response.

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Risks of Market Focus

The risk of focus is that you attract major

competitors who have waited for your business to

prove the market


strategies become takeover targets for large firms

seeking to fill out a product portfolio

Slipping into the illusion that it is focus itself, and

not low cost, etc. that is creating the businessssuccess.

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Stages of Industry Evolution andBusiness Strategy Choices

The requirements for success in industry segments

change over time

Strategists can use these changing requirements,

industry evolution, as a way to isolate key

competitive advantages and shape strategic choices

around them


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Emerging Industries

Emerging industries are newly formed or re-

formed industries that typically are created by

technological innovation, newly emerging customer

,

Emerging industries of the last decade have been

the Internet browser, fiber optics, solar heating,

cellular telephone, and online service industries.


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Business Strategies in EmergingIndustries

Technologies that are most proprietary to the

pioneering firms and technological uncertainty will

unfold

information about competitors, buyers, and the

timing of demand

High initial costs but steep cost declines

Few entry barriers


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Business Strategies in EmergingIndustries

First-time buyers requiring initial inducement to

purchase

Inability to obtain raw materials and components

Need for high-risk capital because of the industrys

uncertain prospects


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Emerging Industries

For success in this industry setting, business

strategies require one or more of these features: The ability to shape the industrys structure

The ability to rapidly improve product quality and

performance features Advantageous relationships with key suppliers and

promising distribution channels

The ability to establish the firms technology as the

dominant one The early acquisition ofa core group of loyal customers

and then the expansion of that customer base

The ability toforecast future competitors


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Competitive Advantages and StrategicChoices in Growing Industries

Rapid growth brings new competitors into the

industry

At this stage, growth industry strategies that

,

differentiation, and the financial resources to

support both heavy marketing expenses and the

effect of price competition on cash flow can be key

strengths


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Growth Industries

For success in this industry setting, business strategies

require one or more of the following features: The ability to establish strong brand recognition

The ability and resources to scale up to meet increasingeman

Strong product design skills to be able to adapt products andservices

The ability to differentiate the firms product[s] fromcompetitors entering the market

R&D resources and skills to create product variations The ability to build repeat buying from established

customers

Strong capabilities in sales and marketing


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Competitive Advantages and StrategicChoices in Mature Industries

As an industry evolves, its rate of growth eventually

declines

Firms working with the mature industry

,

buyers who are now making choices among known

alternatives

Competition becomes more oriented to cost and

service as knowledgeable buyers expect similar

price and features


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Mature Industries

Strategy elements of successful firms in maturing

industries often include the following: Product line pricing

Emphasis on process innovation that permits low-cost, ,

synergy Emphasis on cost reduction

Careful buyer selection to focus on buyers who are lessaggressive, more closely tied to the firm, and able to buy

more from the firm Horizontal integration to acquire rival firms whose

weaknesses can be used to gain a bargain price

International expansion to markets where attractive

growth and limited competition still existSM- S6 30Dr. Le Thanh Long

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Competitive Advantages and StrategicChoices in Declining Industries

Declining industries are those that make products

or services for which demand is growing slower

than demand in the economy as a whole or is

Focus on higher growth or a higher return

Emphasize product innovation and quality

improvement

Emphasize production and distribution efficiency

Gradually harvest the business


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Competitive Advantage in FragmentedIndustries

A fragmented industry is one in which no firm

has a significant market share and can strongly

influence industry outcomes

Formula facilities

Increased value added

Specialization Bare bones/no frills


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Competitive Advantage in Global

Industries

A global industry is one that comprises firms

whose competitive positions in major geographic or

national markets are fundamentally affected by their

License foreign firms to produce and distribute the firms

products

Maintain a domestic production base and export products

to foreign countries Establish foreign-based plants and distribution to

compete directly in the markets of one or more foreign

countries


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Four Generic Global CompetitiveStrategies

Broad-line global competitiondirected at

competing worldwide in the full product line of the

industry, often with plants in many countries, to

-

position.

Global focus strategytargeting a particular

segment of the industry for competition on a

worldwide basis.


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Four Generic Global CompetitiveStrategies

National focus strategytaking advantage of

differences in national markets that give the firm an

edge over global competitors on a nation-by-nation

.

Protected niche strategyseeking out countries in

which governmental restraints exclude or inhibit

global competitors or allow concessions, or both,

that are advantageous to localized firms.


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Grand Strategy Selection Matrix


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Model of Grand Strategy Clusters


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Building Value as a Basis for ChoosingDiversification or Integration

The grand strategy selection matrix and model of

grand strategy clusters are useful tools to help

dominant product company managers evaluate and

strategies

Dominant product company managers who choose

diversification or integration eventually create

another management challenge


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