Strategy Final 12 Ch 007

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STRATEGIC ANALYSIS AND CHOICE IN SINGLE- OR DOMINANT-PRODUCT

BUSINESSES: BUILDING SUSTAINABLE COMPETITIVE

ADVANTAGES

KNV-IBM(METODA) BY: PRESCIENT GROUP

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Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage

Selected Industry Environments and Business Strategy Choices

Dominant Product/Service Businesses: Evaluating and Choosing to Diversify to Build Value


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1. What strategies are most effective at building sustainable competitive advantages for single business units?

2. Should dominant-product/service businesses diversify to build value and competitive advantage? What grand strategies are most appropriate?


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COST LEADERSHIP

DIFFERENTIATION

SPEED MARKET FOCUS


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A. Skills and Resources Sustained capital investment

and access to capital Process engineering skills Intense supervision of labor

or core technical operations Products or services

designed for ease of manufacture or delivery

Low-cost distribution systems

B. Organizational Requirements

Tight cost control Frequent, detailed control

reports Continuous improvement

and benchmarking orientation

Structured organization and responsibilities

Incentives based on meeting strict, usually quantitative targets


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Low-cost advantages reduce likelihood of pricing pressure from buyers

Sustained low-cost advantages may push rivals into other areas, lessening price competition

New entrants must face an entrenched cost leader without experience to replicate cost advantages

Low-cost advantages should lessen attractiveness of substitutes

Higher margins allow low-cost producers to withstand supplier cost increases


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Many cost-saving activities are easily duplicated

Exclusive cost leadership can become a trap

Obsessive cost cutting can shrink other competitive advantages involving key product attributes

Cost differences often decline over time


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A. Skills and Resources Strong marketing abilities Product engineering Creative talent and flair Strong capabilities in basic

research Corporate reputation for

quality or technological leadership

Long tradition in an industry or unique combination of skills

Strong cooperation from channels/suppliers

B. Organizational Requirements

Strong coordination among functions in R&D, product development, and marketing

Subjective measurement and incentives instead of quantitative measures

Amenities to attract highly skilled labor, scientists, and creative people

Tradition of closeness to key customers

Some personnel skilled in sales and operations – technical and marketing


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Rivalry is reduced when a business successfully differentiates itself

Buyers are less sensitive to prices for effectively differentiated products

Brand loyalty is hard for new entrants to overcome


11K.N.V. INSTITUTE OF BUSINESS MANAGEMENT – METODA (RAJKOT) By – PRESCIENT GROUP

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Imitation narrows perceived differentiation, rendering differentiation meaningless

Technological changes that nullify past investments or learning

Cost difference between low-cost competitors and the differentiated business becomes too great for differentiation to hold brand loyalty


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A. Skills and resources Process engineering skills Excellent inbound and

outbound logistics Technical people in sales and

customer service High levels of automation Corporate reputation for

quality or technical leadership Flexible manufacturing

capabilities Strong downstream partners Strong cooperation from

suppliers of major components

B. Organizational Requirements Strong coordination among

functions in R&D, product development, and marketing

Major emphasis on customer satisfaction in incentive programs

Strong delegation to operating personnel

Tradition of closeness to key customers

Some personnel skilled in sales and operations – technical and marketing

Empowered customer service personnel


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Product or service

improvements

Product development

cycles

Information sharing and technology

Speed in delivery or distribution


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Creates a way to lessen rivalry because firm has the availability of something a rival may not

Allows firm to charge buyers more, engender loyalty, or enhance its position relative to its buyers

Generates cooperation and concessions from suppliers since they benefit from increased revenues

Substitutes and new entrants are trying to keep up with the rapid changes rather than introducing them


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Speeding up activities that have not been conducted in a fashion prioritizing rapid response should only be done after attention to training, reorganization, and/or reengineering

Some industries – stable, mature ones – may not offer much advantage to a firm introducing some forms of rapid response


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Involves building cost, differentiation, and/or speed competitive advantages targeted to a narrow, market niche

Allows a firm to “Learn” its target customers Build up organizational knowledge of ways to

satisfy its target market better than larger rivalsRisks of focus strategies

Can attract major competitors to the segment Believing a focus, by itself, creates success, rather

than a form of low cost, differentiation, or speed


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Emerging IndustriesIndustries Transitioning to MaturityMature and Decline IndustriesFragmented IndustriesGlobal Industries


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Proprietary technology and technological uncertainty

Competitor uncertainty regarding inadequate information

High initial cost structureFew entry barriersFirst-time buyers require initial inducements Inability to easily obtain raw materials and

componentsNeed for high-risk capital


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1. Ability to shape industry’s structure2. Ability to rapidly improve product quality3. Establish favorable relations with key

suppliers4. Ability to establish technology as

dominant force5. Acquire a core group of loyal customers6. Ability to forecast future competitors


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Intense competition for market shareIncreased sales to experienced, repeat

buyersGreater emphasis on cost and serviceIndustry capacity “tops” outNew products and new applications

harder to come byIncrease in international competitionDeclining profitability


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Prune the product lineEmphasize process innovationEmphasize cost reductionsFocus on selecting loyal buyersPursue horizontal integrationExpand internationally


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A middle-ground approach to selecting a generic competitive strategy

Sacrificing market share for short-term profitsWaiting too long to respond to price

reductionsRetaining unneeded excess capacityEngaging in sporadic or irrational efforts to

boost salesPlacing hopes on “new” products


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Demand grows more slowly than economy, or even declines

Slowing growth is caused by Technological substitution Demographic shifts Shifts in consumer needs


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Focus on key market segments offering growth opportunity

Emphasize product innovation and quality improvement

Emphasize production and distribution efficiency

Gradually harvest the business


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Being overly optimistic about prospects for an industry revival

Getting trapped in a profitless war of attrition

Harvesting from a weak

position


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No firm has a significant market shareNo firm can significantly influence

industry outcomesExamples

Professional services Retailing Wood and metal fabrication Agricultural products Funeral industry


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Tightly managed decentralization Intense local coordination, high personal service, local

autonomy“Formula” facilities

Standardized, efficient, low-cost facilities at multiple locations

Increased value added Difficult to differentiate products/services

Specialization Product type, customer type, type of order, geographic

areasBare bones/no frills

Intense low margin competition (low overhead, minimum wage)


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Differences in prices and costs among countries due to Currency exchange fluctuations Differences in wage and inflation rates Other economic factors

Differences in buyer needs across countries Differences in competitors and ways of

competing among countries Differences in trade rules and governmental

regulations across countries


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Approach to gain global

market coverage

Generic competitive

strategy


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License foreign firms to produce and distribute a firm’s products

Maintain a domestic production base and export products

Establish foreign-based plants and distribution in foreign countries


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1. Broad-line global competition2. Global focus strategy3. National focus strategy4. Protected niche strategy


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III

III IV

Overcome weaknesses

Maximize strengths

Internal (redirected resources within the firm)

External(acquisition or merger for resource capability)

Turnaround or retrenchmentDivestitureLiquidation

Vertical integrationConglomerate diversification

Concentrated growthMkt. DevelopmentProd. DevelopmentInnovation

Horizontal integrationConcentric diversificationJoint venture


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I II

IV III

Rapid market growth

Slow market growth

Strong competitive

position

Weak competitive

position

1. Concentrated growth

2. Vertical Integration

3. Concentric diversification

1. Reformulation of concentrated growth

2. Horizontal integration

3. Divestiture4. Liquidation


2. Conglomerate diversification

3. Joint venture

1. Turnaround or retrenchment


3. Conglomerate diversification

4. Divestiture5. Liquidation


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Opportunities to build value via diversification, integration, or joint venture strategies are usually found in market-related, operating-related, and management activities. Such opportunities center around reducing costs, improving margins, or providing access to new revenue sources more cost effectively than traditional internal growth options via concentration, market development, or product development


Strategy Final 12 Ch 007

Business

Transcript of Strategy Final 12 Ch 007