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164 Cards in this Set
- Front
- Back
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Company's strategy
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consists of the competitive moves and business approaches that managers are employing to grow the business, attract and please customers, compete successfully, conduct operations, and achieve the targeted levels of organizational performance.
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sustainable competitive advantage
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attractive number of buyers prefer its products or services over the offerings of competitors and when the basis for this preference is durable.
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A company's strategy is shaped by
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management analysis and choice and partly by the necessity of adapting and learning by doing.
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business model
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explains the rationale for why its business approach and strategy will be a moneymaker
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A winning strategy must fit the following:
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enterprise's external and internal situation, build sustainable competitive advantage, and improve company performance.
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strategic vision
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describes the route a company intends to take in developing and strengthening its business. It lays out the company's strategic course in preparing for the future.
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distinction between a strategic vision and a mission statement
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A strategic vision portrays a company's future business scope (“where we are going”), whereas a company's mission typically describes its present business and purpose (“who we are, what we do, and why we are here”).
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Define Values
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beliefs, traits, and behavioral norms that company personnel are expected to display in conducting the company's business and pursuing its strategic vision and strategy.
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Define Objectives
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organization's performance targets—the results and outcomes management wants to achieve. They function as yardsticks for measuring how well the organization is doing.
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strategic intent
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when it relentlessly pursues an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective.
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Define Strategic Plan
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lays out the company's future direction, performance targets, and strategy
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The managerial process of crafting and executing a company's strategy consists of five interrelated and integrated phases:
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1. Developing a strategic vision
2. Setting objectives 3. Crafting a strategy to achieve the objectives and move the company along the strategic course that management has charted 4. Implementing and executing the chosen strategy efficiently and effectively 5. Evaluating performance and initiating corrective adjustments |
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Char of an effectively worded strategic vision
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graphic, directional, focused, flexible, feasible, desirable, easy to communicate
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shortcomings in strategic visions
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vague or incomplete, not forward-looking, too broad, bland/uninspiring, not distinctive, reliant on superlatives
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strategic vision v mission statement
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vision - where we are going
mission - who we are and what we do |
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strategy-making hierarchy
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corp strategy, biz strategy, functional area w/in each biz, operating strategies w/in each biz.
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strategic vision consists of
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strategic vision, mission statement, financial & strategic objectives, strategy
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strategy implementation involves
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1) building capable org
2) allocating resources to critical activities 3) establish strategy-supportive policies 4) institute best practices, continuous improvements 5) install information, communication and operating systems 6) motivating people 7) tying rewards to performance 8) strategy-supportive culture 9) exerting leadership to drive process forward and keep improving |
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Strategic group mapping
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technique for displaying the different market or competitive positions that rival firms occupy in the industry
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strategic group
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cluster of industry rivals that have similar competitive approaches and market positions
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Key success factors
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Product attributes
Competencies Competitive capabilities Market achievements with the greatest impact on future competitive success in the marketplace. |
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Thinking strategically about a company's external situation involves probing for answers to the following seven questions:
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1. What are the industry's dominant economic features?
2. What kinds of competitive forces are industry members facing, and how strong is each force? 3. What factors are driving industry changes and what impact will they have on competitive intensity and industry profitability? 4. What market positions do industry rivals occupy—who is strongly positioned and who is not? 5. What strategic moves are rivals likely to make next? 6. What are the key factors for future competitive success? 7. Does the outlook for the industry present the company with sufficiently attractive prospects for profitability? |
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PORTERS 5 Forces of Model Competition
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1. firms in other industries offering substitute products
2. suppliers 3. buyers 4. potential new entrants 5. rivalry among competing sellers |
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Weapons to battle rivals/attract buyers
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1.lower prices
2.more or different features 3.better product performance 4.higher quality 5.stronger brand image and appearance 6.wider selection of models/styles 7.bigger/better dealer network 8.low interest rate financing 9.high levels of ads 10.stronger product innovation capabilities 11.better customer service capabilities 12.stronger capabilities to provide buyers w/ custom made products |
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rivalry is stronger when:
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- competitors active in improving market standing/biz perf
- dmd growing slowly - dmd falls off and sellers have excess cap/inv - # of rivals of equal size & competitive capability increases - Products of rivals are commodities or weakly differentiated - Buyer cost to switch are low - Rival makes aggressive moves for customers - Rivals have diverse strategies and objectives and are located in dif countries - Acquisition of weak competitors to turn biz around - 1 or 2 have powerful strategies and others are scrambling to stay in the game |
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rivalry is weaker when:
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- non-aggressive competitors
- dmd growing rapidly - products are strongly differentiated & customer loyalty is strong - switching costs are high - fewer than 5 sellers or so many competitors that anyones actions have little effect on biz |
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competence
core competence distinctive competence |
is an activity that a company has learned to perform well
competitively important activity that a company performs better than other internal activities competitively important activity that a company performs better than its rivals—it thus represents a competitively superior resource strength (basis for sustainable comp adv) |
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value chain
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identifies the primary activities that create customer value and the related support activities
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Company Situation Analysis: The Key Questions
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1. How well is the company’s present strategy working?
2. What are the company’s resource strengths and weaknesses and its external opportunities and threats? 3. Are the company’s prices and costs competitive? 4. Is the company competitively stronger or weaker than key rivals? 5. What strategic issues merit front-burner managerial attention? |
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Identifying a Company’s Market Opportunities
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Opportunities most relevant to a company are those offering:
- Good match with its financial and organizational resource capabilities - Best prospects for profitable long-term growth - Potential for competitive advantage |
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Identifying External Threats
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- Emergence of cheaper/better technologies
- Introduction of better products by rivals - Entry of lower-cost foreign competitors - Onerous regulations - Rise in interest rates - Potential of a hostile takeover - Unfavorable demographic shifts - Adverse shifts in foreign exchange rates - Political upheaval in a country |
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Low-Cost Provider Strategies Keys to Success
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- Make achievement of meaningful lower costs than rivals the theme of firm’s strategy
- Include features and services in product offering that buyers consider essential - Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match |
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When Does a Low-Cost Strategy Work Best?
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- Price competition is vigorous
- Product is standardized or readily available from many suppliers - There are few ways to achieve differentiation that have value to buyers - Most buyers use product in same ways - Buyers incur low switching costs - Buyers are large and have significant bargaining power - Industry newcomers use introductory low prices to attract buyers and build customer base |
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Pitfalls of Low-Cost Strategies
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- Being overly aggressive in cutting price
- Low cost methods are easily imitated by rivals - Becoming too fixated on reducing costs and ignoring buyer interest in additional features - Declining buyer sensitivity to price - Changes in how the product is used - Technological breakthroughs open up cost reductions for rivals |
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Benefits of Successful Differentiation
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A product / service with unique, appealing attributes allows a firm to:
- Command a premium price and/or - Increase unit sales and/or - Build brand loyalty = Competitive Advantage |
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How to Achieve a Differentiation-Based Advantage
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- Incorporate product features/attributes that lower buyer’s overall costs of using product
- Incorporate features/attributes that raise the performance a buyer gets out of the product - Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways - Compete on the basis of superior capabilities |
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When Does a Differentiation Strategy Work Best?
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- There are many ways to differentiate a product that have value and please customers
- Buyer needs and uses are diverse - Few rivals are following a similar differentiation approach - Technological change and product innovation are fast-paced |
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Pitfalls of Differentiation Strategies
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- Appealing product features are easily copied by rivals
- Buyers see little value in unique attributes of product - Overspending on efforts to differentiate the product offering, thus eroding profitability - Over-differentiating such that product features exceed buyers’ needs - Charging a price premium buyers perceive is too high - Not striving to open up meaningful gaps in quality, service, or performance features vis-à-vis rivals’ products |
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Best-Cost Provider Strategies
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- 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 buyer expectations on product attributes and beating their price expectations - Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to under price comparable brands |
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Risk of a Best-Cost Provider Strategy
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A best-cost 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 |
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Focus / Niche Strategies
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Involve concentrated attention on a narrow piece of the total market
Objective: Serve niche buyers 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 |
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Risks of a Focus Strategy
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- Competitors find effective ways to match a focuser’s capabilities in serving niche
- Niche buyers’ preferences shift towards product attributes desired by majority of buyers – niche becomes part of overall market - Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered |
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5 Generic Business Strategy
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1. low-cost provider
2. best-cost provider 3. focused low-cost provider 4. broad differentiation 5. focused differentiation |
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Benefits of strategic alliance
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The best alliances are highly selective, focusing on particular value chain activities and on obtaining a particular competitive benefit. They tend to enable a firm to build on its strengths and to learn.
is an attractive strategic option for achieving operating economies, strengthening the resulting company's competences and competitiveness, and opening up avenues of new market opportunity. |
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Outsourcing pieces of the value chain can enhance a company's competitiveness whenever an activity
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(1) can be performed better or more cheaply by outside specialists;
(2) is not crucial to the firm's ability to achieve sustainable competitive advantage and won't hollow out its core competencies, capabilities, or technical know-how; (3) reduces the company's risk exposure to changing technology or changing buyer preferences; (4) streamlines company operations in ways that improve organizational flexibility, cut cycle time, speed decision making, and reduce coordination costs; or (5) allows a company to concentrate on its core business and do what it does best. |
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Offensive strategy options for improving market positions and trying to secure a competitive advantage:
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Offering an equal or better product at a lower price
Leapfrogging competitors by being first to adopt next generation technologies or the first to introduce next-generation products Pursuing sustained product innovation Attacking competitors weaknesses Going after less contested or unoccupied market territory Using hit-and-run tactics to steal sales away from unsuspecting rivals Launching preemptive strikes |
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blue ocean strategy
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seeks to gain a dramatic and durable competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new industry or distinctive market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand.
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Defensive strategies to protect a company's position usually take the form of
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making moves that put obstacles in the path of would-be challengers and fortify the company's present position while undertaking actions to dissuade rivals from even trying to attack (by signaling that the resulting battle will be more costly to the challenger than it is worth)
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Complementary strategic options include:
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- strategic alliances, collaborative partnerships
- mergers/acquisitions - forward/backward integration - outsourcing - initiate offensive/defensive strategic moves - what web site strategy to employ |
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Potential Benefits of Alliances to Achieve Global and Industry Leadership
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- Get into critical country markets quickly to accelerate process of building a global presence
- Gain inside knowledge about unfamiliar markets and cultures - Access valuable skills and competencies concentrated in particular geographic locations - Establish a beachhead to participate in target industry - Master new technologies and build new expertise faster than would be possible internally - Open up expanded opportunities in target industry by combining firm’s capabilities with resources of partners |
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Ability of an alliance to endure depends on
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- How well partners work together
- Success of partners in responding and adapting to changing conditions - Willingness of partners to renegotiate the bargain |
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Reasons for alliance failure
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- Diverging objectives and priorities of partners
- Inability of partners to work well together - Changing conditions rendering purpose of alliance obsolete - Emergence of more attractive technological paths - Marketplace rivalry between one or more allies |
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Merger-acquisition strategy
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- Much-used strategic option
- Especially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunities - Ownership allows for tightly integrated operations, creating more control and autonomy than alliances |
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Objectives of Mergers and Acquisitions
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- To create a more cost-efficient operation
- To expand a firm’s geographic coverage - To extend a firm’s business into new product categories or international markets - To gain quick access to new technologies or competitive capabilities - To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities |
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Pitfalls of Mergers and Acquisitions
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Resistance from rank-and-file employees
Hard-to-resolve conflicts in management styles and corporate cultures Tough problems of integration Greater-than-anticipated difficulties in - Achieving expected cost-savings - Sharing of expertise - Achieving enhanced competitive capabilities |
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Vertical Integration Strategies
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- Extend a firm’s competitive scope within same industry
- Backward into sources of supply - Forward toward end-users of final product - Can aim at either full or partial integration |
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Strategic Advantages of Backward Integration
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- Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers
- Potential to reduce costs exists when - Suppliers have sizable profit margins - Item supplied is a major cost component - Resource requirements are easily met - Can produce a differentiation-based competitive advantage when it results in a better quality part - Reduces risk of depending on suppliers of crucial raw materials / parts / components |
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Strategic Advantages of Forward Integration
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To gain better access to end users and better market visibility
To compensate for undependable distribution channels which undermine steady operations To offset the lack of a broad product line, a firm may sell directly to end users To bypass regular distribution channels in favor of direct sales and Internet retailing which may - Lower distribution costs - Produce a relative cost advantage over rivals - Enable lower selling prices to end users |
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Strategic Disadvantages of Vertical Integration
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Boosts resource requirements
Locks firm deeper into same industry Results in fixed sources of supply and less flexibility in accommodating buyer demands for product variety Poses all types of capacity-matching problems May require radically different skills / capabilities Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products |
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vertical integration is a viable strategic option when:
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- Ability to lower cost, build expertise, increase differentiation, or enhance performance of strategy-critical activities
- Impact on investment cost, flexibility, and administrative overhead - Contribution to enhancing a firm’s competitiveness |
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When Does Outsourcing Make Strategic Sense?
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- Activity can be performed better or more cheaply by outside specialists
- Activity is not crucial to achieve a sustainable competitive advantage - Risk exposure to changing technology and/or changing buyer preferences is reduced - It improves firm’s ability to innovate - Operations are streamlined to - Improve flexibility - Cut time to get new products into the market - It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently - Firm can concentrate on “core” value chain activities that best suit its resource strengths |
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Risk of an Outsourcing Strategy
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Farming out too many or the wrong activities:
- Hollows out capabilities - Loses touch with activities and expertise that determine overall long-term success |
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Offensive Strategies
Defensive Strategies |
Used to build new or stronger market position and/or create competitive advantage
Used to protect competitive advantage (rarely lead to creating advantage) |
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Principles of Offensive Strategies
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Focus relentlessly on
- Building competitive advantage and - Striving to convert it into decisive advantage Employ the element of surprise as opposed to doing what rivals expect Apply resources where rivals are least able to defend themselves Be impatient with the status quo and display a strong bias for swift, decisive actions to boost a firm’s competitive position vis-à-vis rivals |
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Types of Offensive Strategy Options
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1. Offer an equally good or better product at a lower price
2. Leapfrog competitors by being First adopter of next-generation technologies or First to market with next-generation products 3. Pursue continuous product innovation to draw sales and market share away from less innovative rivals 4. Adopt and improve on the good ideas of other companies 5. Deliberately attack market segments where a key rival makes big profits 6. Attack competitive weaknesses of rivals 7. Maneuver around competitors and concentrate on capturing unoccupied or less contested market territory 8. Use hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent rivals 9. Launch a preemptive strike to secure an advantageous position that rivals are prevented from duplicating |
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Strategic offensives offering strongest basis for competitive advantage entail
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- An important core competence
- A unique competitive capability - A better-known brand name - A cost advantage in manufacturing or distribution - Technological superiority - A superior product |
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Defensive Strategy Objectives
Defensive Strategy Approaches |
- Lessen risk of being attacked
- Blunt impact of any attack that occurs - Influence challengers to aim attacks at other rivals - Block avenues open to challengers - Signal challengers vigorous retaliation is likely |
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Block Avenues Open to Challengers
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Participate in alternative technologies
Introduce new features, add new models, or broaden product line to close gaps rivals may pursue Maintain economy-priced models Increase warranty coverage Offer free training and support services Reduce delivery times for spare parts Make early announcements about new products or price changes Challenge quality or safety of rivals’ products using legal tactics Sign exclusive agreements with distributors |
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Signal Challengers Retaliation Is Likely
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- Publicly announce management’s strong commitment to maintain present market share
- Publicly commit firm to policy of matching rivals’ terms or prices - Maintain war chest of cash reserves - Make occasional counter-response to moves of weaker rivals |
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First-Mover Advantages
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- Pioneering helps build firm’s image and reputation
- Early commitments to new technologies, new-style components, and distribution channels can produce cost advantage - Loyalty of first time buyers is high - Moving first can be a preemptive strike |
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First-Mover Disadvantages
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- When costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leader
- Innovator’s products are primitive, not living up to buyer expectations - Demand side of the market is skeptical about the benefits of new technology/product of a first-mover - Rapid technological change allows followers to leapfrog pioneers |
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Most important drivers shaping a firm’s strategic options fall into two categories
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1. Nature of industry and competitive conditions
2. Firm’s competitive capabilities, market position, best opportunities |
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Features of an Emerging Industry
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- New and unproven market
- Proprietary technology - Lack of consensus regarding which of several competing technologies will win out - Low entry barriers - Experience curve effects may permit cost reductions as volume builds - Buyers are first-time users and marketing involves inducing initial purchase and overcoming customer concerns - First-generation products are expected to be rapidly improved so buyers delay purchase until technology matures - Possible difficulties in securing raw materials - Firms struggle to fund R&D, operations and build resource capabilities for rapid growth |
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Strategy Options for Competing in Emerging Industries
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Win early race for industry leadership by employing a bold, creative strategy
Push hard to perfect technology, improve product quality, and develop attractive performance features Consider merging with or acquiring another firm to - Gain added expertise - Pool resource strengths When technological uncertainty clears and a dominant technology emerges, try to capture any first-mover advantages by moving quickly Form strategic alliances with - Companies having related technological expertise or - Key suppliers Pursue new customers and user applications Enter new geographical areas Make it easy and cheap for first-time buyers to try product Focus advertising emphasis on - Increasing frequency of use - Creating brand loyalty Use price cuts to attract price-sensitive buyers |
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Strategic Hurdles for Companies in Emerging Industries
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Raising capital to finance initial operations until
- Sales and revenues take off - Profits appear - Cash flows turn positive Developing a strategy to ride the wave of industry growth - What market segments to pursue - What competitive advantages to go after Managing the rapid expansion of facilities and sales to position a company to contend for industry leadership Defending against competitors trying to horn in on the company’s success |
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What Is the Key to Success for Competing in Rapidly Growing Markets?
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A company needs a strategy predicated on growing faster than the market average so it
- Can boost its market share and - Improve its competitive standing vis-à-vis rivals |
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Strategy Options for Competing in Rapidly Growing Markets
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Drive down costs per unit to enable price reductions that attract droves of new customers
Pursue rapid product innovation to Set a company’s product offering apart from rivals Incorporate attributes to appeal to growing numbers of customers Gain access to additional distribution channels and sales outlets Expand a company’s geographic coverage Expand product line to add models/styles to appeal to a wider range of buyers |
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Industry Maturity: The Standout Features
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- Slowing demand breeds stiffer competition
- More sophisticated buyers demand bargains - Greater emphasis on cost and service - “Topping out” problem in adding production capacity - Product innovation and new end uses harder to come by - International competition increases - Industry profitability falls - Mergers and acquisitions reduce number of rivals |
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Strategy Options for Competing in a Mature Industry
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- Prune marginal products and models
- Emphasize innovation in the value chain - Strong focus on cost reduction - Increase sales to present customers - Purchase rivals at bargain prices - Expand internationally - Build new, more flexible competitive capabilities |
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Strategic Pitfalls in a Maturing Industry
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- Employing a ho-hum strategy with no distinctive features thus leaving firm “stuck in the middle”
- Being slow to mount a defense against stiffening competitive pressures - Concentrating on short-term profits rather than strengthening long-term competitiveness - Being slow to respond to price-cutting - Having too much excess capacity - Overspending on marketing - Failing to aggressively pursue cost reductions |
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Stagnant or Declining Industries: The Standout Features
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- Demand grows more slowly than economy as whole (or even declines)
- Advancing technology gives rise to better-performing substitute products - Customer group shrinks Changing lifestyles and buyer tastes - Rising costs of complementary products - Competitive battle ensues among industry members for the available business |
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Strategy Options for Competing in a Stagnant or Declining Industry
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Pursue focus strategy aimed at fastest growing market segments
Stress differentiation based on quality improvement or product innovation Work diligently to drive costs down Cut marginal activities from value chain Use outsourcing Redesign internal processes to exploit e-commerce Consolidate under-utilized production facilities Add more distribution channels Close low-volume, high-cost distribution outlets Prune marginal products |
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End-Game Strategies for Declining Industries
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An end-game strategy can take either of two paths
1. Slow-exit strategy involving - Gradual phasing down of operations - Getting the most cash flow from the business 2. Fast-exit strategy involving - Disengaging from an industry during early stages of decline - Quick recovery of as much of a company’s investment as possible |
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Features of High-Velocity Markets
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- Rapid-fire technological change
- Short product life-cycles - Entry of important new rivals - Frequent launches of new competitive moves - Rapidly evolving customer expectations |
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Strategy Options for Competing in High-Velocity Markets
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Invest aggressively in R&D
Initiate fresh actions every few months Develop quick response capabilities - Shift resources - Adapt competencies - Create new competitive capabilities Speed new products to market Use strategic partnerships to develop specialized expertise and capabilities Keep products/services fresh and exciting |
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Keys to Success in Competing in High Velocity Markets
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- Cutting-edge expertise
- Speed in responding to new developments - Collaboration with others - Agility - Innovativeness - Opportunism - Resource flexibility - First-to-market capabilities |
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Competitive Features of a Fragmented Industry
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- Absence of market leaders with large market shares or widespread buyer recognition
- Product/service is delivered to neighborhood locations to be convenient to local residents - Buyer demand is so diverse that many firms are required to satisfy buyer needs - Low entry barriers - Absence of scale economies - Market for industry’s product/service may be globalizing, thus putting many companies across the world in same market arena - Exploding technologies force firms to specialize just to keep up in their area of expertise - Industry is young and crowded with aspiring contenders, with no firm having yet developed recognition to command a large market share |
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The Strategy Options Competing in a Fragmented Industry:
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- Construct and operate “formula” facilities
- Become a low-cost operator - Specialize by product type - Specialize by customer type - Focus on limited geographic area |
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The Defining Characteristics of Industry Leaders
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- Strong to powerful market position
- Well-known reputation - Proven strategy - Key strategic concern: How to sustain dominant leadership position |
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Strategy Options of Industry Leaders: Stay on the Offensive Strategy
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Be a first-mover, leading industry change
Best defense is a good offense Concentrate on achieving a competitive advantage and then widening the advantage over time Relentlessly pursue continuous improvement and innovation, being first to market with - Technological improvements - New or better products - More attractive performance features - Customer service improvements Aggressively seek out ways to - Cut operating costs - Establish competitive capabilities rivals cannot match - Make it easier for potential customers to switch their purchases from other firms to the leader’s own products - Aggressively attack profit sanctuaries of important rivals - Launch fresh initiatives to expand overall industry demand - Spur creation of new families of products - Make product more suitable for consumers in emerging-country markets - Discover new uses for product - Attract new users of product - Promote more frequent use - Grow faster than industry, taking market share from rivals |
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Strategy Options of Industry Leaders: Fortify and Defend Strategy
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Objectives:
- Make it harder for new firms to enter and for challengers to gain ground - Hold onto present market share - Strengthen current market position - Protect competitive advantage Strategic Options: - Increase advertising and R&D - Provide higher levels of customer service - Introduce more brands to match attributes of rivals - Add personalized services to boost buyer loyalty - Keep prices reasonable and quality attractive - Build new capacity ahead of market demand - Invest enough to remain cost competitive - Patent feasible alternative technologies - Sign exclusive contracts with best suppliers and distributors |
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Strategy Options for Industry Leaders: Muscle Flexing Strategy
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Objectives:
- Play competitive hardball with smaller rivals that threaten leader’s position - Signal smaller rivals that moves to cut into leader’s business will be hard fought - Convince rivals they are better off playing “follow-the-leader” or else attacking each other rather the industry leader Strategic Options: - Be quick to meet price cuts of rivals - Counter with large-scale promotional campaigns if rivals boost advertising - Offer better deals to rivals’ major customers - Dissuade distributors from carrying rivals’ products - Provide salespersons with documentation about weaknesses of competing products - Make attractive offers to key executives of rivals - Use arm-twisting tactics to pressure present customers not to use rivals’ products Risks: - Running afoul of antitrust laws - Alienating customers with bullying tactics - Arousing adverse public opinion |
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Types of Runner-up Firms
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Market challengers
- Use offensive strategies to gain market share Focusers - Concentrate on serving a limited portion of market Perennial runners-up - Lack competitive strength to do more than continue in trailing position |
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Obstacles Runner-Up Firms Must Overcome
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When big size is a competitive asset, firms with small market share face obstacles in trying to strengthen their positions
- Less access to economies of scale - Difficulty in gaining customer recognition - Inability to afford mass media advertising - Difficulty in funding capital requirements |
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Strategic Options for Runner-Up Firms
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When big size provides larger rivals with a cost advantage, runner-up firms have two options:
1. Build market share by - Lower costs and prices to grow sales or - Out-differentiate rivals in ways to grow sales 2. Withdraw from market |
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Offensive Strategies for Runner-Up Firms: Building Market Share
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- Acquire smaller rivals to expand company’s market reach and presence
- Find innovative ways to drive down costs to win customers from higher-priced rivals - Craft an attractive differentiation strategy - Pioneer a leapfrog technological breakthrough - Be first-to-market with new or better products and build reputation for product leadership - Outmaneuver slow-to-change market leaders in adapting to evolving market conditions and customer needs - Forge strategic alliances with key distributors, dealers, or marketers of complementary products |
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Strategic Approaches for Runner-Up Firms
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1. Vacant niche strategy
2. Specialist strategy 3. Superior product strategy 4. Distinctive image strategy 5. Content follower strategy |
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Vacant Niche Strategy for Runner-Up Firms
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Focus strategy concentrated on end-use applications market leaders have neglected
Characteristics of an ideal vacant niche - Sufficient size to be profitable - Growth potential - Well-suited to a firm’s capabilities - Hard for leaders to serve |
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Specialist Strategy for Runner-Up Firms
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Strategy concentrated on being a leader based on
- Specific technology - Product uniqueness - Expertise in - Special-purpose products - Specialized know-how - Delivering distinctive customer services |
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Superior Product Strategy for Runner-Up Firms
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Differentiation-based focused strategy based on
- Superior product quality or - Unique product attributes Approaches - Fine craftsmanship - Prestige quality - Frequent product innovations - Close contact with customers to gain input for better quality product |
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Distinctive Image Strategy for Runner-Up Firms
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Strategy concentrated on ways to stand out from rivals
Approaches - Reputation for charging lowest price - Prestige quality at a good price - Superior customer service - Unique product attributes - New product introductions - Unusually creative advertising |
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Content Follower Strategy for Runner-Up Firms
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Strategy involves avoiding
- Trend-setting moves and - Aggressive moves to steal customers from leaders Approaches - Do not provoke competitive retaliation - React and respond - Defense rather than offense - Keep same price as leaders - Attempt to maintain market position |
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Strategic Options of Weak Businesses:
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- Launch an offensive turnaround strategy (if resources permit)
- Employ a fortify-and-defend strategy (to the extent resources permit) - Pursue a fast-exit strategy - Adopt a harvest strategy (a slow-exit type of end-game strategy) |
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Achieving a Turnaround: The Strategic Options
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- Sell off assets to generate cash and/or reduce debt
- Revise existing strategy - Launch efforts to boost revenues - Cut costs - Combination of efforts |
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What Is a Harvest Strategy?
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- Steers middle course between status quo and exiting quickly
- Involves gradually sacrificing market position in return for bigger near-term cash flow/profit Objectives - Short-term - Generate largest feasible cash flow - Long-term - Exit market |
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Types of Harvest Options
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- Reduce operating expenses to rock-bottom
- Hold reinvestment to minimum - Place little priority on new capital investments - Emphasize stringent internal cost controls - Trim advertising and promotion expenses - Do not replace employees who leave - Shave equipment maintenance |
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When Should a Harvest Strategy Be Considered?
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- Industry’s long-term prospects are unattractive
- Building up business would be too costly - Market share is increasingly costly to maintain - Reduced levels of competitive effort will not trigger immediate fall-off in sales - Firm can re-deploy freed-up resources in higher opportunity areas - Business is not a major component of diversified firm’s portfolio of businesses |
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Strategic fit exists when
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the value chains of different businesses present opportunities for cross-business resource transfer, lower costs through combining the performance of related value chain activities, cross-business use of a potent brand name, and cross-business collaboration to build new or stronger competitive capabilities.
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Economies of scope
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are cost reductions that flow from operating in multiple businesses; such economies stem directly from strategic fit efficiencies along the value chains of related businesses.
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Restructuring
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involves divesting some businesses and acquiring others so as to put a whole new face on the company's business lineup.
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Unrelated diversification strategies surrender the competitive advantage potential of strategic fit in return for such advantages as
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(1) spreading business risk over a variety of industries and
(2) providing opportunities for financial gain (if candidate acquisitions have undervalued assets, are bargain priced and have good upside potential given the right management, or need the backing of a financially strong parent to capitalize on attractive opportunities) |
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Analyzing how good a company's diversification strategy is a six-step process:
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1. Evaluate the long-term attractiveness of the industries into which the firm has diversified.
2. Evaluate the relative competitive strength of each of the company's business units. 3. Check for cross-business strategic fits 4. Check whether the firm's resource strengths fit the resource requirements of its present business lineup. 5. Rank the performance prospects of the businesses from best to worst and determine what the corporate parent's priority should be in allocating resources to its various businesses. 6. Crafting new strategic moves to improve overall corporate performance. |
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Four different strategic paths for improving a diversified company's performance
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(1) broadening the firm's business base by diversifying into additional businesses,
(2) retrenching to a narrower diversification base by divesting some of its present businesses, (3) restructuring the company, and (4) diversifying multi-nationally. |
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When Should a Firm Diversify?
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- It is faced with diminishing growth prospects in present business
- It has opportunities to expand into industries whose technologies and products complement its present business - It can leverage existing competencies and capabilities by expanding into businesses where these resource strengths are key success factors - It can reduce costs by diversifying into closely related businesses - It has a powerful brand name it can transfer to products of other businesses to increase sales and profits of these businesses |
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Why Diversify?
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- To build shareholder value!
- Diversification is capable of building shareholder value if it passes three tests - Industry Attractiveness Test — the industry presents good long-term profit opportunities - Cost of Entry Test — the cost of entering is not so high as to spoil the profit opportunities - Better-Off Test — the company’s different businesses should perform better together than as stand-alone enterprises, such that company A’s diversification into business B produces a 1 + 1 = 3 effect for shareholders |
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Strategies for Entering New Businesses: Acquisition
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Most popular approach to diversification
Advantages - Quicker entry into target market - Easier to hurdle certain entry barriers - Acquiring technological know-how - Establishing supplier relationships - Becoming big enough to match rivals’ efficiency and costs - Having to spend large sums on introductory advertising and promotion - Securing adequate distribution access |
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Strategies for Entering New Businesses - Internal start-up
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More attractive when
- Parent firm already has most of needed resources to build a new business - Ample time exists to launch a new business - Internal entry has lower costs than entry via acquisition - New start-up does not have to go head-to-head against powerful rivals - Additional capacity will not adversely impact supply-demand balance in industry - Incumbents are slow in responding to new entry |
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Strategies for Entering New Businesses - joint ventures/strategic partnerships
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Good way to diversify when
- Uneconomical or risky to go it alone - Pooling competencies of two partners provides more competitive strength - Only way to gain entry into a desirable foreign market Foreign partners are needed to - Surmount tariff barriers and import quotas - Offer local knowledge about Market conditions - Customs and cultural factors - Customer buying habits - Access to distribution outlets |
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Drawbacks of Joint Ventures
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Raises questions
- Which partner will do what - Who has effective control Potential conflicts - Conflicting objectives - Disagreements over how to best operate the venture - Culture clashes |
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Related Diversification Advantages
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1. transfer skills, capabilities
2. share resources, facilities 3. leverage use of common brand name 4. combine resources to create new strengths, capabilities |
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Unrelated Diversification Advantages
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1. spreads risks across completely unrelated businesses
2. build shareholder value by choosing good business and managing a strong portfolio 3. Financial resources can be directed to those industries offering best profit prospects 4. If bargain-priced firms with big profit potential are bought, shareholder wealth can be enhanced 5. Stability of profits – Hard times in one industry may be offset by good times in another industry |
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Strategic Appeal of Related Diversification
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- Reap competitive advantage benefits of
- Skills transfer - Lower costs - Common brand name usage - Stronger competitive capabilities - Spread investor risks over a broader base - Preserve strategic unity across businesses - Achieve consolidated performance greater than the sum of what individual businesses can earn operating independently (1 + 1 = 3 outcomes) |
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Acquisition Criteria For Unrelated Diversification Strategies
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- Can business meet corporate targets for profitability and ROI?
- Is business in an industry with growth potential? - Is business big enough to contribute to parent firm’s bottom line? - Will business require substantial infusions of capital? - Is there potential for union difficulties or adverse government regulations? - Is industry vulnerable to recession, inflation, high interest rates, or shifts in government policy? |
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Attractive Acquisition Targets
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- Companies with undervalued assets
- Capital gains may be realized - Companies in financial distress - May be purchased at bargain prices and turned around - Companies with bright growth prospects but short on investment capital - Cash-poor, opportunity-rich companies are coveted acquisition candidates |
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4 Strategies of Combination Related-Unrelated Diversification
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Dominant-business firms
- One major core business accounting for 50 - 80 percent of revenues, with several small related or unrelated businesses accounting for remainder Narrowly diversified firms - Diversification includes a few (2 - 5) related or unrelated businesses Broadly diversified firms - Diversification includes a wide collection of either related or unrelated businesses or a mixture Multibusiness firms - Diversification portfolio includes several unrelated groups of related businesses |
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How to Evaluate a Diversified Company’s Strategy
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Step 1: Assess long-term attractiveness of each industry firm is in
Step 2: Assess competitive strength of firm’s business units Step 3: Check competitive advantage potential of cross-business strategic fits among business units Step 4: Check whether firm’s resources fit requirements of present businesses Step 5: Rank performance prospects of businesses and determine priority for resource allocation Step 6: Craft new strategic moves to improve overall company performance |
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Company’s Four Main Strategic Alternatives After It Diversifies
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1. Broaden diversification base:
- acquire in un/related industries - add bus. that will complement/strengthen position and competitiveness in industries where company already has a stake 2. Divert some businesses and retrench into narrower diversification base 3. Restructure company's business lineup - sell off weak businesses - acquire stronger businesses 4. Pursue multi-national diversification - offers 2 major avenues of sustained growth: entering more businesses or more countries - contains more competitive advantage potential than other diversification strategy |
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ethical universalism
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the same standards of what's ethical and what's unethical resonate with peoples of most societies regardless of local traditions and cultural norms; hence, common ethical standards can be used to judge the conduct of personnel at companies operating in a variety of country markets and cultural circumstances.
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ethical relativism
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different societal cultures and customs have divergent values and standards of right and wrong—thus what is ethical or unethical must be judged in the light of local customs and social mores and can vary from culture or nation to another.
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integrated social contracts theory
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universal ethical principles or norms based on the collective views of multiple cultures and societies combine to form a “social contract” that all individuals in all situations have a duty to observe. Within the boundaries of this social contract, local cultures or groups can specify other impermissible actions; however, universal ethical norms always take precedence over local ethical norms.
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Amoral managers
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believe that businesses ought to be able to do whatever current laws and regulations allow them to do without being shackled by ethical considerations—they think that what is permissible and what is not is governed entirely by prevailing laws and regulations, not by societal concepts of right and wrong.
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social responsibility strategy
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is defined by the specific combination of socially beneficial activities it opts to support with its contributions of time, money, and other resources.
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The menu of actions and behavior for demonstrating social responsibility includes:
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1. Employing an ethical strategy and observing ethical principles in operating the business.
2. Making charitable contributions, donating money and the time of company personnel to community service endeavors, supporting various worthy organizational causes, and making a difference in the lives of the disadvantaged. Corporate commitments are further reinforced by encouraging employees to support charitable and community activities. 3. Protecting or enhancing the environment and, in particular, striving to minimize or eliminate any adverse impact on the environment stemming from the company's own business activities. 4. Creating a work environment that makes the company a great place to work. 5. Employing a workforce that is diverse with respect to gender, race, national origin, and perhaps other aspects that different people bring to the workplace. |
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Characteristics of a Moral Manager
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Dedicated to high standards of ethical behavior in
- Own actions - How the company’s business is to be conducted Considers it important to - Be a steward of ethical behavior - Demonstrate ethical leadership Pursues business success - Within confines of both letter and spirit of laws - With a habit of operating well above what laws require |
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Characteristics of an Immoral Manager
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- Actively opposes ethical behavior in business
- Willfully ignores ethical principles in making decisions - Views legal standards as barriers to overcome - Pursues own self-interests - Is an example of capitalistic greed - Ignores interests of others - Focuses only on bottom line –-- making one’s numbers - Will trample on others to avoid being trampled upon |
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Characteristics of an Intentionally Amoral Manager
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Believes business and ethics should not be mixed since different rules apply to
- Business activities - Other realms of life Does not factor ethical considerations into own actions since business activity lies outside sphere of moral judgment Views ethics as inappropriate for tough, competitive business world Concept of right and wrong is lawyer-driven (what can we get by with without running afoul of the law) |
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Characteristics of an Unintentionally Amoral Manager
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- Is blind to or casual about ethics of decision-making and business actions
- Displays lack of concern regarding whether ethics applies to company actions - Sees self as well-intentioned or personally ethical - Typical beliefs - Do what is necessary to comply with laws and regulations - Government provides legal framework stating what society will put up with—if it is not illegal, it is allowed |
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Eight managerial tasks crop up repeatedly in company efforts to execute strategy:
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1. Building an organization with the competencies, capabilities, and resource strengths to execute strategy successfully.
2. Marshaling sufficient money and people behind the drive for strategy execution. 3. Instituting policies and procedures that facilitate rather than impede strategy execution. 4. Adopting best practices and pushing for continuous improvement in how value chain activities are performed. 5. Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently. 6. Tying rewards directly to the achievement of strategic and financial targets and to good strategy execution. 7. Shaping the work environment and corporate culture to fit the strategy. 8. Exercising strong leadership to drive execution forward, keep improving on the details of execution, and achieve operating excellence as rapidly as feasible. |
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Structuring the organization and organizing the work effort in a strategy supportive fashion has five aspects:
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(1) deciding which value chain activities to perform internally and which ones to outsource;
(2) making internally performed strategy-critical activities the main building blocks in the organization structure; (3) deciding how much authority to centralize at the top and how much to delegate to down-the-line managers and employees; (4) providing for internal cross-unit coordination and collaboration to build and strengthen internal competencies/capabilities; and (5) providing for the necessary collaboration and coordination with suppliers and strategic allies. |
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Crafting the Strategy
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- Primarily a market-driven activity
- Successful strategy making depends on - Business vision - Perceptive analysis of market conditions and company capabilities - Attracting and pleasing customers - Outcompeting rivals - Using company capabilities to forge a competitive advantage |
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Executing the Strategy
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- Primarily an operations-driven activity
- Successful strategy execution depends on - Doing a good job of working through others - Good organization-building - Building competitive capabilities - Creating a strategy-supportive culture - Getting things done and delivering good results |
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What Top Executives Have to Do in Leading the Implementation Process
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- Communicate the case for change
- Build consensus on how to proceed - Arouse enthusiasm for the strategy to turn implementation process into a companywide crusade - Empower subordinates to keep process moving - Establish measures of progress and deadlines - Reward those who achieve implementation milestones - Direct resources to the right places - Personally lead strategic change process and the drive for operating excellence |
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Three Components of Building an Organization Capable of Proficient Strategy Execution
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(1) staffing the organization —assembling a talented, can-do management team, and recruiting and retaining employees with the needed experience, technical skills, and intellectual capital;
(2) building core competencies and competitive capabilities that will enable good strategy execution and updating them as strategy and external conditions change; and (3) structuring the organization and work effort —organizing value chain activities and business processes and deciding how much decision-making authority to push down to lower-level managers and frontline employees. |
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Structuring the Work Effort to Promote Successful Strategy Execution
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(1) deciding which value chain activities to perform internally and which ones to outsource;
(2) making internally performed strategy-critical activities the main building blocks in the organization structure; (3) deciding how much authority to centralize at the top and how much to delegate to down-the-line managers and employees; (4) providing for internal cross-unit coordination and collaboration to build and strengthen internal competencies/capabilities; and (5) providing for the necessary collaboration and coordination with suppliers and strategic allies. |
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For an incentive compensation system to work well
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(1) the monetary payoff should be a major percentage of the compensation package,
(2) the use of incentives should extend to all managers and workers, (3) the system should be administered with care and fairness, (4) the incentives should be linked to performance targets spelled out in the strategic plan, (5) each individual's performance targets should involve outcomes the person can personally affect, (6) rewards should promptly follow the determination of good performance, (7) monetary rewards should be supplemented with liberal use of non-monetary rewards, and (8) skirting the system to reward non-performers or sub par results should be scrupulously avoided. |
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Business Process Reengineering: A Contributor to Operating Excellence
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- Often the performance of strategically relevant activities is scattered across several functional departments
- Creates inefficiencies and often impedes performance - Results in lack of accountability since no one functional manager is responsible for optimum performance of an entire activity Solution: Business process reengineering - Involves pulling strategy-critical processes from functional silos to create process departments or cross-functional work groups - Unifies performance of the activity -- improves how well the activity is performed and often lowers costs - Promotes operating excellence |
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Total Quality Management
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A philosophy of managing a set of business practices that emphasizes
-Continuous improvement in all phases of operations 100% accuracy in performing activities - Involvement and empowerment of employees at all levels - Team-based work design - Benchmarking and - Total customer satisfaction |
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Six Sigma Quality Control — A Tool for Promoting Operating Excellence
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Six Sigma is a disciplined, statistics-based system aimed at having not more than 3.4 defects per million iterations for any business practice – from manufacturing to customer transactions
Two approaches to Six Sigma 1. DMAIC process (Design, Measure, Analyze, Improve, Control) - An improvement system for existing processes falling below specification and needing incremental improvement - A great tool for improving performance when there are wide variations in how well an activity is performed 2. DMADV process (Define, Measure, Analyze, Design, Verify) - An improvement system used to develop new processes or products at Six Sigma quality levels |
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Characteristics of Six Sigma Quality Programs
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- Six Sigma is based on three principles
1. All work is a process 2. All processes have variability 3. All processes create data to explain variability - A company systematically applying Six Sigma to its value chain activities can significantly improve the proficiency of strategy implementation - Three challenges in implementing Six Sigma quality programs 1. Obtain managerial commitment 2. Establish a quality culture 3. Full involvement of employees |
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Approach of the DMAIC Process
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Define
- What constitutes a defect? Measure - Collect data to find out why, how, and how often the defect occurs Analyze – Involves Statistical analysis of the metrics - Identification of a “best practice” Improve - Implementation of the documented “best practice” Control - Employees are trained on the “best practice” - Over time, significant improvement in quality occurs |
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Corporate culture
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refers to the character of a company's internal work climate and personality—as shaped by its core values, beliefs, business principles, traditions, ingrained behaviors, work practices, and styles of operating.
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There are four types of unhealthy cultures:
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(1) those that are highly political and characterized by empire building,
(2) those that are change resistant, (3) those that are insular and inwardly focused, and (4) those that are ethically unprincipled and are driven by greed. |
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A company's core values and ethical standards nurture the corporate culture in three highly positive ways:
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(1) They communicate the company's good intentions and validate the integrity and above-board character of its business principles and operating methods;
(2) they steer company personnel toward both doing the right thing and doing things right; and (3) they establish a corporate conscience that gauges the appropriateness of particular actions, decisions, and policies. |
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Leading the drive for good strategy execution and operating excellence calls for five actions on the part of the manager-in-charge:
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1. Staying on top of what is happening, closely monitoring progress, ferreting out issues, and learning what obstacles lie in the path of good execution.
2. Putting constructive pressure on the organization to achieve good results and operating excellence. 3. Leading the development of stronger core competencies and competitive capabilities. 4. Displaying ethical integrity and leading social responsibility initiatives. 5. Pushing corrective actions to improve strategy execution and achieve the targeted results. |
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Defining Characteristics of Corporate Culture
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Core values, beliefs, and business principles
Ethical standards Operating practices and behaviors defining “how we do things around here” Approach to people management “Chemistry” and “personality” permeating work environment Oft-told stories illustrating - Company’s values - Business practices - Traditions |
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Identifying the Key Features of Corporate Culture
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- Values, business principles, and ethical standards preached and practiced by management
- Approaches to people management and problem solving - Official policies and procedures - Spirit and character permeating work environment - Interactions and relationships among managers and employees - Peer pressures that exist to display core values - Its revered traditions and oft-repeated stories - Its relationships with external stakeholders |
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Where Does Corporate Culture Come From?
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- Founder or early leader
- Influential individual or work group - Policies, vision, or strategies - Operating approaches - Company’s approach to people management - Traditions, supervisory practices, employee attitudes - Organizational politics - Relationships with stakeholders |
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Characteristics of Strong Culture Companies
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- Conduct business according to a clear, widely-understood philosophy
- Considerable time spent by management communicating and reinforcing values - Values are widely shared and deeply rooted - Have a well-defined corporate character,reinforced by a creed or values statement - Careful screening/selection of new employees to be sure they will “fit in” |
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Characteristics of Weak Culture Companies
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- Lack of a widely-shared core set of values
- Few behavioral norms evident in operating practices - Few strong traditions - No strong sense of company identity - Little cohesion among departments - Weak employee allegiance to company’s vision and strategy |
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Characteristics of Unhealthy Cultures
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Highly politicized internal environment
- Issues resolved on basis of political clout Hostility to change - Avoid risks and don’t screw up - Experimentation and efforts to alter status quo discouraged “Not-invented-here” mindset –-- company personnel discount need to look outside for - Best practices - New or better managerial approaches - Innovative ideas Disregard for high ethical standards and overzealous pursuit of wealth by key executives |
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Characteristics of High-Performance Cultures
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Standout cultural traits include
- A can-do spirit - Pride in doing things right - No-excuses accountability - A results-oriented work climate in which people go the extra mile to achieve performance targets Strong sense of involvement by all employees Emphasis on individual initiative and creativity Performance expectations are clearly identified for all organizational members Strong bias for being proactive, not reactive Respect for the contributions of all employees |
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Hallmarks of Adaptive Cultures
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- Willingness to accept change and embrace challenge of introducing new strategies
- Risk-taking, experimentation, and innovation to satisfy stakeholders - Entrepreneurship is encouraged and rewarded - Funds provided for new products - New ideas openly evaluated - Genuine interest in well-being of all key constituencies - Proactive approaches to implement workable solutions |
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Changing a Problem Culture
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1. Identify facets of culture that are conducive or non-conducive to strategy execution and operating excellence
2. Specify what new actions, behaviors, work practices should be prominent in new culture 3. Talk openly about problems with present culture and how new behaviors will improve 4. Follow with visible, forcible actions -- both substantive and and symbolic -- to ingrain new set of behaviors, practices and cultural norms |
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McKinsey 7-S Model
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1. Strategy - coherent set of actions aimed at gaining sustainable advantage
2. Structure - org chart, how tasks are divided up and integrated 3. Systems - process and flow that show how things get done (info systems, capital budgeting, manufacturing, QA, performance measurement) 4. Style - tangible evidence of what mgmt considers important by the way it spends time and attention and symbolic behavior - do what I do 5. Staff - corporate demographics 6. Shared Values - values shared by most people in an organization 7. Skills - capabiities of org as a whole. |
