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5-1 5-1 Welcome to Class Five!
 

5-1 5-1 Welcome to Class Five!

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    5-1 5-1 Welcome to Class Five! 5-1 5-1 Welcome to Class Five! Presentation Transcript

    • Business-level Strategy and Pro Bowl Debate: Team 1 vs. Team 6 Welcome to Class Five!
    • The Primary Focus of Business-Level Strategy is: Creating and Sustaining Competitive Advantages
    • How does Business-level Strategy differ from Corporate-level strategy?
      • Less concerned with buying and selling products and/or providing services
      • More concerned with managing a portfolio of businesses.
      • More concerned with strategic acquisitions and divestitures.
      • Should consider the needs of multiple stakeholders
      • Should include providing a satisfactory return to stockholders
      Corporate-Level Strategy
    • Business-Level Strategy
      • Focus is on establishing and sustaining a competitive advantage with products or services (different from corporate-level strategy).
      • Should consider the needs of multiple stakeholders (similar to corporate-level strategy).
      • Should include providing a satisfactory return to stockholders (similar to corporate-level strategy).
    • The following are 3 Generic Strategies for achieving and sustaining Competitive Advantages
    • 1) OVERALL COST LEADERSHIP
      • Continually pinpointing ways to reduce cost in order to be able to sell low.
    • 2) DIFFERENTIATION Creating a product or service that is considered as unique, valuable and something for which customers will be willing to pay a premium .
    • 3) FOCUS or Niche Finding a little corner in a particular industry and becoming an expert at catering to the needs within that niche.
    • Industry Life-Cycle States: Strategic Implications
      • Life cycle of an industry
        • Introduction
        • Growth
        • Maturity
        • Decline
      • Emphasis on strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle
    • Introduction Stage
      • Products are unfamiliar to consumers
      • Market segments not well defined
      • Product features not clearly specified
      • Competition tends to be limited
      Strategies
        • Develop product and get users to try it
        • Generate exposure so product becomes “standard”
    • Growth Stage
      • Characterized by strong increases in sales
      • Attractive to potential competitors
      • Primary key to success is to build consumer preferences for specific brands
      Strategies
        • Strive for Brand recognition
        • Emphasize Differentiated products & premium pricing
        • Target Financial resources to support value-chain activities
    • Maturity Stage
      • Aggregate industry demand slows
      • Market becomes saturated, few new adopters
      • Direct competition becomes predominant
      • Marginal competitors begin to exit
      Strategies
        • Focus is on efficient manufacturing operations and process engineering
        • Attempt to keep costs low (customers become price sensitive)
        • Frequently key technology no longer has patent protection and experience is not an advantage consequently competition based on price is often a forced reality.
        • Important to attempt to compete on the basis of differentiation
    • Decline Stage
      • Industry sales and profits begin to fall
      • Strategic options become dependent on the actions of rivals
      Strategies
        • Maintaining the status quo
        • Exiting the market (dropping the product or service)
        • Harvesting (squeezing as much profit as possible from the business)
        • Consolidation (buy the competition)
    • Turnaround Strategies in the Life Cycle
      • Asset and cost surgery
      • Selective product and market pruning
      • Piecemeal productivity improvements
    • Please review Slides 18 through 33 for homework. Very important !
    • Introducing Debate 1: The Pro Bowl Presenting Teams 1 and 6 !
    • The following is part of your out of class assignment. Please study the slides carefully.
    • Three Generic Strategies (cont) McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Three generic strategies to overcome the five forces and achieve competitive advantage
        • Overall cost leadership
          • Low-cost-position relative to a firm’s peers
          • Manage relationships throughout the entire value chain
        • Differentiation
          • Create products and/or services that are unique and valued
          • Non-price attributes for which customers will pay a premium
        • Focus strategy
          • Narrow product lines, buyer segments, or targeted geographic markets
          • Attain advantages either through differentiation or cost leadership
    • Overall Cost Leadership McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Integrated tactics
        • Aggressive construction of efficient-scale facilities
        • Vigorous pursuit of cost reductions from experience
        • Tight cost and overhead control
        • Avoidance of marginal customer accounts
        • Cost minimization in all activities in the firm’s value chain, such as R&D, service, sales force, and advertising
    • Overall Cost Leadership (Cont.) McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • A firm following an overall cost leadership position
        • Must attain parity on the basis of differentiation relative to competitors
        • Parity on the basis of differentiation
          • Permits a cost leader to translate cost advantages directly into higher profits than competitors
          • Allows firm to earn above-average profits
    • Overall Cost Leadership: Improving Competitive Position vis-à-vis the Five Forces McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • An overall low-cost position
        • Protects a firm against rivalry from competitors
        • Protects a firm against powerful buyers
        • Provides more flexibility to cope with demands from powerful suppliers for input cost increases
        • Provides substantial entry barriers from economies of scale and cost advantages
        • Puts the firm in a favorable position with respect to substitute products
    • Pitfalls of Overall Cost Leadership Strategies McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Too much focus on one or a few value-chain activities
      • All rivals share a common input or raw material
      • The strategy is imitated too easily
      • A lack of parity on differentiation
      • Erosion of cost advantages when the pricing information available to customers increases
    • Differentiation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Differentiation can take many forms
        • Prestige or brand image
        • Technology
        • Innovation
        • Features
        • Customer service
        • Dealer network
    • Differentiation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Firms may differentiate along several dimensions at once
      • Firms achieve and sustain differentiation and above-average profits when price premiums exceed extra costs of being unique
      • Successful differentiation requires integration with all parts of a firm’s value chain
      • An important aspect of differentiation is speed or quick response
    • McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Uniqueness that is not valuable
      • Too much differentiation
      • Too high a price premium
      • Differentiation that is easily imitated
      • Dilution of brand identification through product-line extensions
      • Perceptions of differentiation may vary between buyers and sellers
      Potential Pitfalls of Differentiation Strategies
    • Focus McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Focus is based on the choice of a narrow competitive scope within an industry
        • Firm selects a segment or group of segments (niche) and tailors its strategy to serve them
        • Firm achieves competitive advantages by dedicating itself to these segments exclusively
      • Two variants
        • Cost focus
        • Differentiation focus
    • Pitfalls of Focus Strategies McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Erosion of cost advantages within the narrow segment
      • Focused products and services still subject to competition from new entrants and from imitation
      • Focusers can become too focused to satisfy buyer needs
    • Combination Strategies: Integrating Overall Low Cost and Differentiation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Primary benefit of successful integration of low-cost and differentiation strategies is difficulty it poses for competitors to duplicate or imitate strategy
      • Goal of combination strategy is to provide unique value in an efficient manner
    • Three Combination Approaches McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Automated and flexible manufacturing systems
      • Exploiting the profit pool concept for competitive advantage
      • Coordinating the “extended” value chain by way of information technology
      • Firms that successfully integrate differentiation and cost strategies obtain advantages of competition from both approaches
    • Pitfalls of Combination Strategies McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
      • Firms that fail to attain both strategies may end up with neither and become “stuck in the middle”
      • Underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain
      • Miscalculating sources of revenue and profit pools in the firm’s industry
    • Stages of the Industry Life Cycle McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Generic strategies Differentiation Differentiation Differentiation Overall cost Overall cost leadership leadership Focus Market growth rate Low Very large Low to Negative moderate Number of segments Very few Some Many Few Intensity of competition Low Increasing Very intense Changing Emphasis on product design Very high High Low to Low moderate Stage Introduction Growth Maturity Decline Factor
    • Stages of the Industry Life Cycle McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Emphasis on process design Low Low to High Low moderate Major functional area(s) of concern Research and Sales and Production General Development marketing management and finance Overall objective Increase Create Defend Consolidate, market share consumer market share maintain, awareness demand and extend harvest, or product life exit cycles Stage Factor Introduction Growth Maturity Decline