We can evaluate what are the most important segmentations by thinking about which help us make practical decisions, and which are truly distinctive in terms of size, growth, profitability or “ways to win” (i.e., sources of competitive advantage).
Note that segments are profitablewhen the power of the five forces is low. That means that if there is low power for a force it will contribute to a higher score for segment profitability. If the power is high will contribute to a lower score.
A very simple table to get you thinking about what are the sources of positional advantage in your business and (just to check they really are significant sources of advantage) the extent to which they drive differences versus the competition in cost or customer value.
This is a relatively simple way to get a first view of competitive advantage
This approach, showing how various aspects of the business model create advantage, is one that can be helpful if you are trying to sort out how various factors work together to create advantage. For example, people sometimes cannot decide which is more important – market share or lower costs. Market share provides scale which drives lower costs and lower costs allow the organisation to grow market share. So, it is the interaction between the two that matters and a diagram such as this can help sort that out.One issue with this approach is that it requires some time to sort through – so it can be hard to do in a short time in even a small group. So, you may need to leave yourself some time to deal with this.This approach sheds light on a particular aspect of advantage - the linked set of different parts of a strategy that make it hard for competitors to imitate. Complex systems of advantage tend to be more strong that types of advantage based on single sources of advantage e.g., A patent (that runs out) or scale (that might be achieved by competitors merging). This approach makes such linked sources of advantage explicit (at least, after the event!)
You will need to evaluate the options. The issue of “corporate value added” can only be completed after you have analysed the corporate strategy (using the following two templates).Note that we have added a section on “internal pre-requisites”. This encourages you to consider in more detail the “do-ability” of the option. For example - do we have the finance? The right people? The right organisational culture?
Strategy Templates Jo Whitehead, DirectorAshridge Strategic Management Centre
Strategy: Answering a set of questions 2. What is the Internal situation? 4. What is the 6. Which Option primary is best? Issue? 3. How might the 5. What are the situation Evolve? Options? 1. What is the External environment? “EIEIO”Ashridge Strategic Management Centre 2
Introduction• What follows is a set of templates that I find most useful in designing a strategy• There are certainly many others and many variants that could be used• I have limited myself to those I teach and find I most commonly use when doing a strategy• I have added some notes in the notes section – although these are not comprehensive.• The templates are best used in conjunction with attending one of my strategy courses and/or my book: What you need to know about strategy (also see Whatyouneedtoknowaboutstrategy.com)• I hope they help – please send comments and questions to firstname.lastname@example.orgAshridge Strategic Management Centre 3
In general, can segment on “Who, What, How” How? What? Who? Part of the industry Products/ service/ Geographies value chain/ Value proposition customers, customer organisation design needs, channel Wholesale, Coffee, other Franchisees, city versus Cafes beverages, food provincial, mass market “US” versus “?” versus niche, country Source: All the Right Moves; C. MarkidesAshridge Strategic Management Centre 5
Picking a segmentation: Coffee shop examplePotential Helps highlight Large differencessegmentation practical choices in size, growth, about aims and profitability or pathway? “ways to win”?Wholesale versus cafesFranchisees (big andsmall) versusconcessions versuscompany ownedCity versus provisionalversus suburbsProduct mixBrand Positioning(e.g., “US”)Customer NicheCountryAshridge Strategic Management Centre 6
Evaluation of industry/segment profitabilityGroup: ………………………………………….... Market segment: ………….…………………….. Score 1-5 1) Potential entrants • … • … • … Score 1-5 1) Score 1-5 1) Score 1-5 1) Supplier power Industry rivalry Buyer power• … • … • …• … • … • …• … • … • … Score 1-5 1) Substitutes • … • … • … Segment profitability2) Comments on opportunities / threats 1 2 3 4 5 • … • … Low High • …1) 1 = high power 5 = low power (= good for segment profitability)2) Note: Low scores in, for example, supplier power, correspond with high scores in segment profitability 7 Ashridge Strategic Management Centre 7
Customer advantage: Value Curve example High Borders and Barnes & NobleRelativeofferinglevel Chain Bookstores Independent Bookstores Low Key elements Adapted from Blue Ocean Strategy, Kim and Mauborgne, 1999 Ashridge Strategic Management Centre 9
Positional AdvantageSource of advantage Relevant? Drives Lower Cost or Higher Value?• Size: Market share, scale, scope and experience curve• Brand and Differentiation• Value chain design and vertical integration• Input costs• Access to unique resources or relationships e.g., patents, raw materials, technology, suppliers, customers, government relationships• Focus on a particular product line Ashridge Strategic Management Centre 10
Capability AdvantageSource of advantage Relevant? Drives Lower Cost or Higher Value?• IT and logistics e.g., Walmart, Tesco• Processes e.g., Cisco M&A and integration• Skills e.g., credit risk management at a bank• People e.g., Goldman Sachs• Organisational culture, values and behavioural norms e.g., Southwest Airlines Ashridge Strategic Management Centre 11
Competitive Advantage Table TemplateTarget market segment: Product characteristics that drive customer value: % %Sources of Our Compet- Compet- Mgt. Financial Weight Weightadvantage Company itor A itor B Effort resources now 2015*Should be weighted – for simplicity, not shown here Ashridge Strategic Management Centre 12
Evaluation of competitive advantageGroup: …………………….. Competitor: …………………….. Market / segment (s): …………………….. Importance Evaluation of competitors1) Sources of Your competitive advantage2) Your company Competitor 2010 2020 company Competit today one potentially 1 2 3 4 5 Overall 100% 100% Competitive advantage Comments on strengths / weaknesses 1 2 3 4 5 • … • … Worst Best in class in class • …1) 1 = Worst in class, 3 = industry average, 5 = Best in class2) Hint: Think of 3-5 drivers of current advantage and 3-5 drivers of ability to build newsources of advantage 13 Ashridge Strategic Management Centre 13
Economics View of AdvantageCost per customerkilometre Revenue = 100 100 Overheads 15 80 Sales and 12 67 marketing With charges for baggage and food 60 Airport 8 57 Revenue from flight only charges Streamlined organisational structure Cabin staff, 15 8 pilots Web-based, no travel agents used 5 40 Smaller airports 4 Plane 12 Higher utilisation 10 of staff 50% more time in 20% more seats 7 20 the air 30% higher utilization Fuel 28 19 0 Traditional European Airline Low cost airline Lower costs from different business model Ashridge Strategic Management Centre 14
Systems view of Advantage Point to No baggage point routes On time transfers, – no hub departures no seat and spoke reservations Short turnaround Higher time demand Lower prices for price Higher Under- utilised, low sensitive utilisation cost, customers airports Flexible pricing Lower costs No frills – pay only for what you Web based use sales Culture focused on eliminating costsAshridge Strategic Management Centre 15
Evaluation of overall competitive positionGroup: …………………….. Competitor: …………………….. Market / segment (s): …………………….. Attractiveness / advantage matrix Comments Competitive position • … High • … • … Average segment profitability Average Short-term challenges Mid- / long-term challenges 1-2 years > 3 years • … • … • … • … • … • … Low Low Average High Competitive advantage 16 Ashridge Strategic Management Centre 16
Evaluation of position: The Strategy Triangle “Aims” (goals, ambitions, vision, objectives, intent)“Capabilities” “Opportunities “• Assets • Markets• Technology Fit • Products• Skills • New customers• Culture • Competitors/• Market positions Acquisitions• Customer • Etc relationships • Should include even• Brand changes that you think• Etc. are a threat (as every change is, in theory, an opportunity if you have the right capabilities) Ashridge Strategic Management Centre 17
Framework for prioritising uncertainties Likely Example: Changes Example: Resistance in demand for power by grid company to power plant Action: Adapt in Action: MouldProbability real time strategy to manageof variancefrom thebase case Example: Changes in Example: Forced quality of water supply closure of all CO2 to the power plant emitting power plants Action: Ignore Action: Hedge Very downside, retain upside unlikely Low Very significant Potential Impact of variance from the base caseAshridge Strategic Management Centre 19
Definition of issue and generation of optionsGroup: …………………….. Opportunity: …………………….. Market / segment: …………………….. Opportunities/ Threats No. Option description Time-frame 1 2 3 4 5 6 Issue 7 8 9 10 21 Ashridge Strategic Management Centre 21
Different horizons for issues and optionsType of Typical Approach for generating optionsoption time frame“Planning” 1 – 3 years • Look for low hanging fruit • Redouble current initiatives • Incrementally improve positionMedium 3 – 5 years • Address important issues andterm challengesstrategy • Build new sources of advantage • Position in more attractive segmentsLong term 5+ years • Define your ideal outcomeobjective • Analyse megatrends, scenarios –or vision prepare for potential developments • Share the futureAshridge Strategic Management Centre 22