Chapter 8 - Business Strategy
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Chapter 8 - Business Strategy

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Chapter 8 - Business Strategy Chapter 8 - Business Strategy Presentation Transcript

  • Business Strategy Chapter 8
  • Key Elements Chapter 8
    • Low-cost, differentiation, and speed-based strategies
    • Characteristics and value of a market focus strategy
    • Requirements for business success at different stages of industry evolution
    • Good business strategies in fragmented and global industries
    • Decide when a business should diversify
  • Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage
    • The two most prominent sources of competitive advantage:
      • business’s cost structure
      • and its ability to differentiate the business from competitors
    • Businesses that have one or more sources/capabilities that let them operate at a lower cost will consistently outperform their
    • rivals that don’t
  • Evaluating Cost Leadership Opportunities
    • Business success built on cost leadership requires the business to be able to provide its product or service at a cost below what its competitors can achieve
  • Sustainable Low-Cost Activities
      • Benefits
      • Some low-cost advantages reduce the likelihood of buyers’ pricing pressure
      • Truly sustained low-cost advantages may push rivals into other areas
      • New entrants competing on price must face an entrenched cost leader
      • Low-cost advantages should lessen the attractiveness of substitute products
      • Higher margins allow low-cost producers to withstand supplier cost increases
  • Sustainable Low-Cost Activities
      • Limitations
      • Many cost-saving activities are easily duplicated
      • Exclusive cost leadership can be a trap
      • Obsessive cost cutting can shrink other competitive advantages
      • Cost differences often decline over time
  • Evaluating a Business’s Cost and Leadership Opportunities
  • Evaluating Differentiation
    • Differentiation requires that the business have sustainable advantages that allow it to provide buyers with something uniquely valuable to them
    • Arises from one or more activities in the value chain that create a unique value important to buyers
    • Strategists use benchmarking and consider the 5 forces in considering differentiation
  • Evaluating a Business’s Differentiation Opportunities
  • Evaluating Speed as a Competitive Advantage
    • Speed-based strategies , or rapid response to customer requests or market and technological changes, have become a major source of competitive advantage for numerous firms in today’s intensely competitive global economy
  • Evaluating a Business’s Rapid Response (Speed) Opportunities
  • Speed can be created by:
    • Customer responsiveness
    • Product development cycles
    • Product or service improvements
    • Speed in delivery or distribution
    • Information Sharing and Technology
  • Risks of Speed-based Strategy
    • Speeding up activities requires considerable attention to training, reorganization, and/or reengineering
    • Some industries may not offer much advantage to the firm that introduces some forms of rapid response
    • Customers in such settings may prefer the slower pace or the lower costs currently available, or they may have long time frames in purchasing
  • Evaluating Market Focus as a Way to Competitive Advantage
    • Market focus : the extent to which a business concentrates on a narrowly defined market
    • Better small companies thrive because they serve narrow market niches
    • Market focus allows some businesses to compete on the basis of low cost, differentiation, and rapid response against much larger businesses with greater resources
  • Risks of Market Focus
    • Can attract major competitors who have waited for your business to “prove” the market
    • Managers evaluating opportunities to build competitive advantage should link strategies to
      • Resources
      • Capabilities
      • Value chain activities that exploit low cost, differentiation, and rapid response
  • Stages of Industry Evolution and Business Strategy Choices
    • The requirements for success in industry segments change over time
    • Strategists can use these changing requirements, which are associated with different stages of industry evolution, as a way to isolate key competitive advantages and shape strategic choices around them
  • Emerging Industries
    • Emerging industries are newly formed or re-formed industries that typically are created by technological innovation, newly emerging customer needs, or other economic or sociological changes
    • There are no “rules of the game”
  • Conditions in Emerging Industries
    • Technologies mostly proprietary to the pioneering firms
    • Technological uncertainty continuously unfolding
    • Competitive uncertainty due to inadequate information about competitors, buyers, and the timing of demand
    • High initial costs but steep cost declines
    • Few entry barriers
    • First-time buyers requiring initial inducement to purchase
    • Inability to obtain raw materials and components until suppliers gear up to meet the industry’s needs
    • Need for high-risk capital because of the industry’s uncertain prospects
  • Business Strategies in Emerging Industries
    • For success in emerging industries, business strategies require one or more of these features:
      • Ability to shape the industry’s structure
      • Ability to rapidly improve product quality and performance features
      • Advantageous relationships with key suppliers and promising distribution channels
      • Ability to establish the firm’s technology as the dominant one
      • Early acquisition of a core group of loyal customers and then the expansion of that customer base
      • Ability to forecast future competitors
  • Competitive Advantages and Strategic Choices in Growing Industries
    • Rapid growth brings new competitors into the industry
    • Growth industry strategies need to emphasize
      • brand recognition
      • product differentiation
      • financial resources to support both heavy marketing expenses and the effect of price competition on cash flow
  • Business Strategies in Growth Industries
    • For success business strategies in growth industries require one or more of the following features :
      • Establishing strong brand recognition
      • Ability and resources to meet increasing demand
      • Strong product design skills to adapt products and services
      • Ability to differentiate the firm’s product[s] from competitors entering the market
      • R&D resources and skills to create product variations
      • Ability to build repeat buying from established customers
      • Strong capabilities in sales and marketing
  • Competitive Advantages and Strategic Choices in Mature Industries
    • As an industry evolves, its rate of growth eventually declines
    • Firms in mature industry sell increasingly to experienced, repeat buyers who are now making choices among known alternatives
    • Competition becomes more oriented to cost and service as knowledgeable buyers
    • expect similar price and features
  • Business Strategies in Mature Industries
    • Strategies in maturing industries often include the following:
      • Product line pricing
      • Emphasis on process innovation that permits low-cost product design, manufacturing methods, and distribution synergy
      • Emphasis on cost reduction
      • Careful buyer selection to focus on buyers who are less aggressive, more closely tied to the firm, and able to buy more from the firm
      • Horizontal integration to acquire rival firms whose weaknesses can be used to gain a bargain price
      • International expansion to markets where attractive growth and limited competition still exist
  • Competitive Advantages and Strategic Choices in Declining Industries
    • Declining industries characterized by demand growing slower than demand in the economy or actual declines
    • Strategies can involve:
      • Focus on higher growth or a higher return
      • Emphasize product innovation and quality improvement
      • Emphasize production and distribution efficiency
      • Gradually harvest the business
  • Competitive Advantage in Fragmented Industries
    • A fragmented industry is one in which no firm has a significant market share and can strongly influence industry outcomes
    • Strategies can involve:
      • Tightly managed decentralization
      • “Formula” facilities
      • Increased value added
      • Specialization
      • Bare bones/no frills
  • Competitive Advantage in Global Industries
    • Global industry composed of firms whose competitive positions in major geographic or national markets are fundamentally affected by their overall global competitive positions
    • Strategies can involve:
      • License foreign firms to produce and distribute the firm’s products
      • Maintain a domestic production base and export products to foreign countries
      • Establish foreign-based plants and distribution to compete directly in the markets of one or more foreign countries
  • Four Generic Global Competitive Strategies
    • Broad-line global competition
    • Global focus strategy
    • National focus strategy
    • Protected niche strategy
  • Grand Strategy Selection Matrix
  • Model of Grand Strategy Clusters
  • Building Value as a Basis for Choosing Diversification or Integration
    • The grand strategy selection matrix and model of grand strategy clusters are useful tools to help dominant product company managers evaluate and narrow their choices among alternative grand strategies
    • Dominant product company managers who choose diversification or integration eventually create another management challenge