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  1. 1. MGT. 5391 Session # 7 Strategic and Global Management Main Types of Strategies (Corporate and Business) http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #1
  2. 2. Two Types of Strategies: 1.Corporate/ Enterprise 2.Business/ GBU/ SBU http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #2
  3. 3. Today’s Discussion will focus on Business Strategies at the GBU/ SBU Division level http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #3
  4. 4. Strategies Strategies represent integrated and coordinated set of actions (deployment/execution) that are taken to exploit core competencies to improve the firm’s four capabilities and gain a competitive advantage. 4-4 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #4
  5. 5. What is a Strategy for Exemplar Performance? Michael E. Porter defines organization strategy as creating a company’s position, making trade-offs, and forging fit among activities: “Strategy is the creation of a unique and valuable position, involving position, involving a different set of activities.” “Strategy is making trade-offs in competing. The essence of strategy is deciding what not to do.” “Strategy is creating fit among a company’s activities.” Source: Michael E. Porter, “What is Strategy”,” Harvard Business Review, November-December, 1996, p. 62 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #5
  6. 6. Internal and External Growth Strategies Market/Customer Insights Increased (from EBE) Commercial, Technological, Organizational, Team Internal Capabilities Value Chain: Business (Internal Core Increased Environment (5) Growth) Competencies Performance Identification Corporate & Business Strategies Outsourcing (Non- Core Competencies) M&A/JV’s (External Growth) ________________ http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming) Slide #6
  7. 7. What is a business-level strategy? Discuss the relationship between customers and business level strategies in terms of who, what, and how. 4-4 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #7
  8. 8. Summary & Review: A Diversified Company Has Two Levels of Strategy 1. Business-Level SBU/GBU Strategies: How to create competitive advantage in each business in which the company competes - Low cost - Focused low cost - Differentiation - Focused differentiation - Integrated low cost/differentiation - Product Leadership - Formal/Strategic Alliances - Mergers/Acquisitions - Customer Intimacy (External Growth) - Others - HPO/HPS/HPWS (Best Place to Work) - Customer Service 2. Corporate/Firm Level (Next Week) http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #8
  9. 9. THE THREE TYPES OF BUSINESS STRATEGIES TO MEET MARKET DEMANDS PRODUCT LEADERSHIP BEST PRODUCT: •OPTIMISED FOR INNOVATION & SPEED •PRODUCT FEATURES THAT DELIVER RESULTS CHOICE OPERATIONAL CUSTOMER INTIMACY: EXCELLENCE: BEST TOTAL SOLUTION: BEST TOTAL COST: •OPTIMIZED FOR SPEED AND RESPONSIVENESS •OPTIMIZED EFFICIENCE •VALUED ADVICE •LOW & LOWEST PRICE •CUSTOM - TAILORED SERVICE •HASSLE-FREE, RELIABLE Source: Adopted from: M. Porter, Competitive Advantage, The Free Press, 1985 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #9
  10. 10. Example: Four Types of Enterprise/Business Level Strategies 1. Monetize Assets (Sell all or parts) 2. Optimize (Cash Cow) 3. Grow/Create more Market Share • Internal Growth (Increased capabilities and core competencies) • External Growth (M&A) 4. Combination of above (be specific as to what businesses and/or product lines) http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #10
  11. 11. Enterprise Level and S.B.U. Actions to Create EVA and Growth - 1 I. Create New Pathways for Increasing Returns • Market Services and Knowledge Products: Create Value-added “Price Tower” or Minimally Secure Share or Price; Extract Royalty/License Human Capital Revenue as Appropriate  Proprietary Data Bases and Data Based Management for Operations, Regulatory Acceptance Compliance, Suppliers Performance to Value Chain, Customers Operations  Disruptive Technologies for Industry Niche: e.g, Nonstick Conveyance, Noninvasive Monitoring & Process Control, On-line Quality Measurement, Applied Fluid Dynamics in Design, Shift Engineering Emphasis & Capital from Reaction to Raw Materials and Logistics to Customer, in particular, Packaging and Storage, Remote Process Control, I-Situ Quality Control, Quality Bridges from Manufacturing to Customer Use  Adaptation of Product Chemistry in Customers’ Operations  Recoup Sunk R&D Costs in Negotiated Transactions  Transfer and Maintain Technical Competencies, Information / Communication / Learning http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #11
  12. 12. Enterprise Level and S.B.U. Actions to Create EVA and Growth - 2 I. Create New Pathways for Increasing Returns o Infrastructure for Channel Partners, and Financial Solutions in Credit Analysis and Credit o Create Training & Brokering Venture o Leverage Internet Protocols for Industry Niche: e.g., Go Direct for Small Customers with Improved Service Level and Credit Facility, Portal for Industry Niche, Virtual Value Web for o R&D, Logistics Optimization, Regulatory Compliance & Monitoring, E- Commerce & E-Credit o Customer Intimacy Strategy: R&D/Technology Innovation, Precision & Accuracy in Support of Data Mining & Harvesting for Customer and Their Consumers, Shared Growth, Shared o Planning, Co-location, Co-Facility Use, Mirrored Enterprise Units o Reaction Innovation: i.e., Formulation, Bio-based Solutions, in particular in Human & Animal Care o E-Commerce Ventures o Creation of “Virtual Organization” to handle your key customers Value- Chain transitions. o Creation of dot.coms (both inside and outside) http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #12
  13. 13. Enterprise Level and S.B.U. Actions to Create EVA and Growth - 3 II. Optimize Against Diminishing Returns • Rationalize Current Operations (Seamless Internal Value Chain for Marketing to R&D to Manufacturing to Technology to Sales & Customer Services to Logistics) • Introduce Best Practices/High Performance Across Value Web (i.e., Internal Structure, Organization & Cultural Flexibility/Responsiveness/Creativity, Commercial & Financial Architecture, Partnering Solutions, Customer Intimacy - Enterprise Teams) • Supply and Demand Logistics Renovation: e.g., Automation, Robotics, Gravity-based Conveyance, Packaging, Toll Manufacturing, Integrated Manufacturing & Logistics, SAP Adapted to Operations & Customer Needs. • Spread All Costs Over Larger Sales Volume http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #13
  14. 14. Enterprise Level and S.B.U. Actions to Create EVA and Growth - 3 II. Optimize Against Diminishing Returns •Share Channel / Value Pipelines: e.g, Consortia, Industry Lobby, Value-added Services Delivery through Channel Partners, i.e., Technical Training to Users,Life Cycle Management of Product & Packaging, Credit & Credit Networks to Capture Other Volume/High Value Purchases, Shared Channel Capital Projects Investment, Cross-Selling of Technology with Like Customer Bases) •Consolidate Among Strategic Players (Must Emerge as Critical Mass and Be “More” than Combination) •Roll-up Privately-held Firms (Must Emerge as Critical Mass and Be “More” than Combination) •New user friendly, low cost software emerging in Fall, 2000 will possibly eliminate the use of SAP and other Value-chain systems. http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #14
  15. 15. Enterprise Level and S.B.U. Actions to Create EVA and Growth - 3 III. Monetize Current & Acquired Assets: Re-channel Capital to Priority Projects or Reduce Risk • Sell Utilities and Waste Operations for Old and New Manufacturing Sites • Sell Under Performing Businesses • Sell Nonaligned Businesses • LBO or ESOP LBO Any of the Aforementioned • Create JV’s (in US, LLC’s, LLP’s) to Retain Equity Participation (Or Control) while Not Duplicating Levy Exposure yet Providing Risk Transfer to a Corporate Entity with “Off the Books” Financing of Assets - Leverage Good Credit with Entrepreneurial Partners • Establish Toll Manufacturing Network • Create Equipment and Talent Leasing • Trade Assets & Human Capital Talent for More Liquid Position http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #15
  16. 16. S.B.U. Competitive Strategies • Competitive Strategies • Definitions of Competitors • Competitive Strategies – Miles and Snow – Porter • First Mover Strategy http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #16
  17. 17. Strategy and Competitive Advantage • Competitive Advantage exists when a firm’s strategy gives it an edge in – Defending against competitive forces and – Securing customers Key to Gaining a Competitive Advantage • Convince customers firm’s product/service offers superior value – Offer buyers a good product at a lower price – Use differentiation to provide a better product buyers think is worth a premium price http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #17
  18. 18. Core Competition • When organizations battle for some desired object/outcome • Who are our core competitors – Industry perspective – Market perspective – Strategic group perspective http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #18
  19. 19. Industry and Market Approaches to Defining Competitors Industry Market Same Customer Product-Service Needs http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #19
  20. 20. Strategic Group Approach to Defining Core Competitors • Possible strategic dimensions for identifying strategic groups – Price – Quality – Geographic scope – Product line breadth-depth – R&D expenditures – Product characteristics http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #20
  21. 21. Different Types of Competitive Strategies • Miles and Snow typology – Prospector • Seeks innovation • Survey dynamic environment and develops new products • Competitors are uncertain about prospector’s future decisions and actions http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #21
  22. 22. Different Types of Competitive Strategies (cont.) • Miles and Snow typology – Defender • Searches for market stability • Limited product line • Seeks to defend position • Prevents others from entering its turf • Can create and maintain niches http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #22
  23. 23. Different Types of Competitive Strategies (cont.) • Miles and Snow typology – Analyzer • Strategy of analysis and imitation • Copies promising new activities – Reactor • Lacks a strategic plan • Reacts to environmental changes • Makes adjustments when forced to • Unable to respond quickly to changes http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #23
  24. 24. Porter’s Generic Strategies • Market Scope – Broad or Narrow • Competitive Advantage – Low cost or differentiated • Integrated differentiated/low cost http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #24
  25. 25. Generic Business Level Strategies Source of Competitive Advantage Cost Uniqueness Broad 1. Cost 2. Differen- Target Market Leadership tiation Breadth of Competitive Scope Narrow 3. Focused 4. Focused Target Differen- Market Low Cost tiation http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #25
  26. 26. Generic Business Level Strategies Source of Competitive Advantage Cost Uniqueness Broad 1. Cost Target Market Leadership Breadth of Competitive Scope Narrow Target Market http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #26
  27. 27. How to Obtain a Cost Advantage 1. Determine and Control Cost Drivers 2. Reconfigure the Value Chain (Supply and/or Demand Chains) as needed • Determine Core • New Raw Material Competencies • Forward Integration • Possible Outsource Non- • Backward Integration Core Competencies • Change Location (i.e., Co- • Alter Production Process Location) Relative to • Change in Automation Suppliers and Buyers • New Distribution Channel • Direct Sales in Place of • New Advertising Media Indirect Sales http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #27
  28. 28. Three Key Questions 1. How can an activity be performed differently or even eliminated? 2. How can a group of linked value activities be regrouped or reordered? 3. How might coalitions with other firms lower or eliminate costs? Gallo sold wine through grocery stores rather than liquor stores because they were more efficient distributors http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #28
  29. 29. Cost Leadership Business Level Strategy Key Criteria: Relatively standardized products Features acceptable to many customers Lowest competitive price http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #29
  30. 30. Cost Leadership Strategy Unifi, Inc., one of the world’s largest texturizers of filament polyester and nylon fiber, makes significant investments in its manufacturing technologies to drive its costs lower even though prices for raw materials and packaging supplies are rising. 4-9 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #30
  31. 31. Cost Leadership Business Level Strategy Requirements: Constant effort to reduce costs through: Building efficient scale facilities Tight control of production costs and overhead Minimizing costs of sales, R&D and service State of the art manufacturing facilities Monitoring costs of activities provided by outsiders Simplification of processes http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #31
  32. 32. Major Risks of Cost Leadership Business Level Strategy Dramatic technological change could take away your cost advantage (e.g., 3-M: Duct Tape) Competitors may learn how to imitate Value Chain (elimination of distribution centers—ship direct) Focus on efficiency could cause Cost Leader to overlook changes in customer/consumer preferences http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #32
  33. 33. Low-Cost Leadership • Make achievement of low-cost relative to rivals the theme of firm’s business strategy • Finds ways to drive costs out of business year-after-year Low-cost leadership means low overall costs, not just low manufacturing or productions costs! http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #33
  34. 34. When does Low-Cost Leadership Work? • It works when: – Price competition is vigorous – Product is standardized – Buyer incur low switching costs – Industry newcomers use introductory low prices to attract and buyers and build customer base • Pitfalls with this strategy – Being overly aggressive in cutting prices – Low-cost methods are easily imitated by rivals – Differentiation matters http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #34
  35. 35. Cost Leadership Strategy Consolidated Stores, Inc. seeks to earn above-average profits in its Closeout Division by retailing brand-name merchandise below discount price found by traveling the country in search of manufacturer overruns and discontinued styles and buying leftovers at below wholesale prices. http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #35
  36. 36. Cost Leadership Strategy Through cost-leadership strategy, low cost steel producer, Nucor Corporation, relies on investments in efficient-scale facilities to achieve strategic competitiveness (operating profitably ever since 1966). http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #36
  37. 37. Generic Business Level Strategies Source of Competitive Advantage Cost Uniqueness Broad 1. Cost 2. Differen- Target Market Leadership tiation Breadth of Competitive Scope Narrow Target Market http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #37
  38. 38. Differentiation Strategies • Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals • Keys to success – Find ways to differentiate that create value for buyers that are not easily matched or cheaply copied by rivals – Not spending more to achieve differentiation than the price premium that can be easily changed http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #38
  39. 39. Differentiation Business Level Strategy Key Criteria: Value provided by unique features and value characteristics Command premium price High customer service Superior quality Prestige or exclusivity Rapid innovation http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #39
  40. 40. Differentiation Business Level Strategy Requirements: Constant effort to differentiate products/services through: Developing new systems and processes Shaping (Consumer) perceptions through advertising Product/Service/Quality focus Capability in R&D Maximize Human Resource contributions through low turnover and high motivation http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #40
  41. 41. Differentiation Business Level Strategy Effectiveness with Differentiation grows out of Value Chain activities Examples: Heineken beer Raw materials Steinway pianos Raw materials & Workmanship Mercedes Benz autos Technology and Workmanship Intel microprocessors Technological superiority Caterpillar tractors Service buyers’ needs quickly anywhere in the world http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #41
  42. 42. Create Value with Differentiation by: Lowering Buyers’ Costs Raising Buyers’ Performance Creating Sustainability through: • Creating barriers by perceptions of uniqueness • Creating switching costs through differentiation http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #42
  43. 43. Types of Differentiation • Unique Taste – Dr. Pepper • Wide Selection and One-stop Shopping – Home Depot and Amazon.com • Superior Service – FedEx and Ritz-Carlton • Spare Parts Availability – Caterpillar • More for your Money – McDonald’s and Wal-Mart • Prestige – Rolex • Quality Manufacture – Honda and Toyota • Top-of-the-Line Image – Ralph Lauren and Chanel http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #43
  44. 44. Major Risks Involved With a Focused Differentiation Business Level Strategy - 4 Firm may be ―outfocused‖ by competitors Large competitor may set its sights on your niche market Preferences of niche market may change to match those of broad market http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #44
  45. 45. Differentiation Strategy Examples Some examples include:  Ralph Lauren and Tommy Hilfiger differentiate their clothing line through image  Rolex watches are differentiated by prestige and image  Starbucks Coffee differentiates itself by listening to customers Intel uses speed, innovation, and manufacturing techniques as bases if uniqueness 4-9 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #45
  46. 46. Signaling Value as well as Delivering Value • Buyers seldom pay for value that is not perceived!!! • Signals of Value may be as important as actual value when – Nature of differentiation is hard to quantify – Buyers are making first-time purchases – Repurchase is infrequent – Buyers are unsophisticated http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #46
  47. 47. When does Differentiation Work? • It works when: – There are many ways to differentiate a product/service that has added-value and pleases customers – Buyer needs and uses are diverse – Technological change and product innovation are fast-paced http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #47
  48. 48. When does Differentiation Work? (cont.) • Pitfalls: – Charging to high a price or over differentiating – Failing to signal value – Not understanding what buyers want or prefer and differentiating on the “wrong” things http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #48
  49. 49. Competitive Strategy Principle A low-cost provider strategy can defeat a differentiated strategy when buyers are satisfied with a standard product and do not see extra differentiating attributes worth paying for! http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #49
  50. 50. Generic Business Level Strategies Source of Competitive Advantage Cost Uniqueness Broad 1. Cost 2. Differen- Target Market Leadership tiation Breadth of Competitive Scope Narrow 3. Focused 4. Focused Target Differen- Market Low Cost tiation http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #50
  51. 51. Integrated Low-Cost / Differentiated • 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 buyers expectations on product attributes and beating their price expectations http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #51
  52. 52. Basis for Customer Segmentation Industrial Markets 1. End use segments (identified by SIC code) 2. Product segments (based on technological differences or production economics) 3. Geographic segments (defined by boundaries between countries or by regional differences within them) 4. Common buying factor segments (cut across product/market and geographic segments) 5. Customer size segments http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #52
  53. 53. Basis for Customer Segmentation Consumer Markets 1. Demographic factors (age, income, sex, etc.) 2. Socioeconomic factors (social class, stage in the family life cycle) 3. Geographic factors (culture, region or country differences) 4. Psychological factors (lifestyle, personality traits) 5. Consumption patterns (heavy, moderate, and light users) 6. Perceptual factors (benefit segmentation, perceptual mapping) 7. Brand loyalty patterns http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #53
  54. 54. Integrated Low-Cost / Differentiation Strategy: Southwest Airlines Low-Cost Differentiation Use a single aircraft Focus on customer model (Boeing 737) satisfaction Use secondary airports High level of employee No meals dedication 15 minute turnaround Unique Culture time A “HPWS” No reserved seats http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #54
  55. 55. Risk of and Integrated Provider Strategy • Risk – An integrated 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 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #55
  56. 56. Focused Business Level Strategies - 1 Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: Large firms may overlook small niches Firm may lack resources to compete industry-wide May be able to serve a narrow market segment more effectively than industrywide competitors Focus can allow you to direct resources to certain value chain activities to build competitive advantage http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #56
  57. 57. Focused Business Level Strategies - 2 Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: May be able to retrofit old factories to keep costs down Minimize R&D costs by copying innovators Examples: Bang & Olufsen Upscale electronic components Snap-on tools High quality mechanics’ tools Iams Company Premium pet foods http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #57
  58. 58. Focused Business Level Strategies - 3 Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: Focused Differentiators may thrive by selecting a small market that is underserved by large players Example: Custom manufacturers of parts for Harley-Davidson motorcycles http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #58
  59. 59. Integrated Low Cost/Differentiation Strategy Southwest Airlines Low Cost Differentiation Use a single aircraft model Focus on customer (Boeing 737) satisfaction Use secondary airports High level of employee Fly short routes dedication No meals New flight services for 15 minute turnaround time business travelers No reserved seats (phones and faxes) No travel agent reservations S.W.A.’s Culture, Values, Philosophies & Principles http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #59
  60. 60. Integrated Low Cost/Differentiation Strategy Firms using an Integrated Strategy may: Adapt more quickly Learn new skills and technologies Utilize Flexible Manufacturing Systems to create differentiated products at low costs Leverage core competencies through Information Networks across multiple business units Utilize Total Quality Leadership (TQL) to create high quality differentiated products which simultaneously driving down costs (Six Sigma) http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #60
  61. 61. Create Value with Differentiation by: Lowering Buyers’ Costs Raising Buyers’ (Retail Store) Performance (their Market Share) Creating Sustainability through: • Creating barriers by perceptions of uniqueness/ customization • Creating (higher) switching costs through product/service differentiation http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #61
  62. 62. Differentiation Business Level Strategy Effectiveness with Differentiation grows out of Value Chain activities Examples: Heineken beer Raw materials Steinway pianos Raw materials & Workmanship Mercedes Benz autos Technology and Workmanship Intel microprocessors Technological superiority Caterpillar tractors Service buyers’ needs quickly anywhere in the world http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #62
  63. 63. Focus / Niche Strategies • Involve concentrated attention on a narrow piece of the total market • Objective – Serve niche buyer 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 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #63
  64. 64. What Makes a Niche Attractive for Focusing? • Big enough to be profitable and offers good growth potential • Not crucial to success of industry leaders • Costly or difficult for multi-segment competitors to meet specialized needs of niche members http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #64
  65. 65. What Makes a Niche Attractive for Focusing? (cont.) • Focuser has resources and capabilities to effectively serve an attractive niche • Few other rivals are specializing in same niche • Focuser can defend against challengers via superior ability to serve niche members http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #65
  66. 66. Risks of a Focus Strategy • Competitors find effective ways to match a focuser’s capabilities in serving niche • Niche buyers’ preferences shift towards product attributes desired by the majority of buyers – niche becomes part of overall market • Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #66
  67. 67. Value Chain Analysis http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #67
  68. 68. Three Parts of Value-Chain Design 3 2 1 SUPPLIERS/ CUSTOMERS YOUR VENDORS COMPANY COMMUNITY Supply Demand Chain Chain http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #68
  69. 69. Value Chain Back Front Core Market Technologies Conceive Design Develop Procedure Market Sales Distribute Support (Customer) http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #69
  70. 70. Six Common Factor as to Why U.S. Organizations are Successful Global Competitors 1. Close ties/direct and formalized partnerships with customers (internal and external). 2. Close ties/direct and formalized partnerships with vendors/suppliers (reduction in number and certification). 3. Integrated and simultaneous efforts to improve quality, cost, delivery and speed (product development) to the marketplace. 4. Greater functional (staff and support units) integration (decentralization) and less stratification (centralization). 5. Integration of technology into manufacturing and marketing strategies linked to continuous organizational improvements that promotes teamwork (teams), training and continuous learning. 6. Create a broad “learning environment” that emphasis's training and re-training, coaching and development (job, team, pass-offs, internal customer and supply- chain linkages) -- an “Organizational University.” Summary: However, it is not surprising that it is very unclear to U.S. Key stakeholders how you design and implement these six design features and their accompanying strategies. Although organizations feel these (global) pressures (to change), particularly as one moves toward the top, the kind of change that is needed to accomplish these goals is organization wide. Traditional change strategies that begin at the top and organizations need to more responsive. http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #70
  71. 71. Six Questions of the Value Chain: 1. What is the Value Chain? 2. What are the component parts of the Value Chain? 3. How does a firm’s core competencies relate to the Value Chain? 4. How can a firm create value via Value Chain maximization?  Demand Chain?  Supply Chain?  Both? 5. What gets ―outsourced‖? 6. How to improve the four capabilities? http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #71
  72. 72. Financial Saving through Value Chain Improvement 15 - 25% of Total World-Wide Sales Revenue ________________ Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming) http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #72
  73. 73. Critical Design Elements for Horizontal Organization Alliances with Competitors Suppliers The Firm’s Customers Consumers Value Chain Supply Chain Demand Other Chain Alliances and Partnerships http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #73
  74. 74. Creating Financial Wealth: The Value Chain Design ss Ch s ine PRODUCT • Cu stom MARKET a Wa nging g Bu ent SUPPLY erv ic e Intim er FOCUS Nee nts/ gin ronm ALIGNMENT m er S •P acy ALIGNMENT Des ds/ an i sto Ch Env • Cu C’ s r R odu ires e /D & ct o us D eh g ar turin •W • S nance Fi ale ufac s Man y l og castin • • Mar rch Suppliers Customers hno Resea • Mark g & & Tec ket Vendors ion Consumers eting • Partnering • Fore ppl s • A stic icat • Alliances/JV •C R&D ogi ons ed ce • Organizational •L Cr nan it um Effectiveness i •F er g • Training er in g rd ry as r i n ch e • IS/IT • O nt ur gine •C •S E • P En E Be omp al • SAP/EDI es • SH nc et • • E-Commerce hm iti ing ing ar ve nn ul ki Pla hed • c ng S HIGH PERFORMANCE ORGANIZATIONS LEFT SIDE - RIGHT SIDE - ―BACK OF SHOP‖ ―FRONT OF SHOP‖ http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #74 Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
  75. 75. Source: Digital Capital, D.Tapscott et.al., Harvard Business School Press, 2000 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #75
  76. 76. 1 3 4 Vision Direction “Front of the Shop” “Back of the 2 Shop” Strategies 1st 2nd 3rd Align Create Optimize Strategy Demand Supply Improved Capabilities via Core Competencies Horizontal Design’s Core Processes _____ http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Source: Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. (forthcoming) Slide #76
  77. 77. Three Potential Sources of Leverage in Leveraged Business Groups Back Middle Front (Offering) Infrastructure (Market/Customer) •Creation of •Means used to •The customers products/offerings produce and deliver interface products and •“Platforms for services to manufacturing customers •How the Business products goes to market •How the •Technologies organization underlying products responds to the customer Each component is a potential source of leverage http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #77
  78. 78. ILLUSTRATIVE SUPPLY CHAIN: FORTUNE 100 COMPANY DISTRIBUTION, ENGINEERING AND MANUFACTURING SUPPLY CHAIN CONCEPT EQUIPMENT SUPPLY CHAIN CONCEPT CUSTOMER PLANT RAW MATERIALS PACKAGING DIRECT PEOPLE DISTRIBUTION EXTRENAL DISTRIBUTION http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #78
  79. 79. Product Supply Example: Teams to Manage Order Fulfillment Product Customer Assembly Order Outbound Order logistics team entry team Materials Leadership team Inbound logistics team Vendor orders http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #79
  80. 80. How Do You Create a $18 Billion Company in only 13 Years? ____________________________ Source: B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming) http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #80
  81. 81. Direct Business Model: (Dell Computers) • Sell directly to consumers • Build products to consumer (customer) order • Eliminate retail mark-ups and costs • Reduce risks associated with large inventories of finished goods • Relationship with consumers • Leverage relationship with suppliers and consumers • Use information to enhance the Value Chain ____________________________ Source: B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming) http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #81
  82. 82. The Value Chain: The Dell Example Product Various Centers of Suppliers Mfg. Competency Business Customers Consumer Supply Segment Corporate Expertise Services Centers ______________________ Source: Dr. Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, Sanhttp://macy.ba.ttu.edu/5491/week7/Strategies.ppt Francisco, CA (forthcoming) Slide #82
  83. 83. Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Support Activities Primary Activities http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #83
  84. 84. Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Firm Infrastructure Support Human Resource Management Activities Technological Development Procurement Service Operations Outbound Marketing Logistics Inbound & Sales Logistics Primary Activities http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #84
  85. 85. Inbound Logistics Superior handling of incoming raw materials to minimize damage and improve the quality of the final product http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #85
  86. 86. Operations Consistent manufacturing of attractive products Rapid responses to customers unique manufacturing specifications http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #86
  87. 87. Outbound Logistics Accurate and responsive order processing procedures Rapid and timely product deliveries to customers http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #87
  88. 88. Marketing & Sales Strong Coordination among functions in R&D, Marketing and Product Development Extensive personal relationships with buyers Premium Pricing Customer Intimacy (formalized – CAT’s and Supplier Enterprise Teams) http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #88
  89. 89. Service Complete field stocking of replacement parts http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #89
  90. 90. Procurement Systems and procedures Purchase of used to find highest quality Located in the highest replacement Close quality raw parts Proximity materials with Suppliers http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #90
  91. 91. R&D Technological Development Coordination among R&D, Investments in marketing and technologies to Strong product produce highly capability development differentiated in basic products research http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #91
  92. 92. Human Resource Management Compensation programs and Extensive use of subjective Superior other HR Systems performance personnel and Processes measures training/ which encourage development worker creativity & coaching and performance http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #92
  93. 93. Firm Infrastructure/Macro Structure (Corporate; GBU/SBU; Supply Chain; Demand Chain, and Enterprise Team(s) Alignment) Highly developed A company-wide Information Systems emphasis on producing to better understand high quality products customers’ purchasing preferences http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #93
  94. 94. Value Chains are part of a Total Value System Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain Upstream Value Each firm must eventually find a way to become a part of some buyer’s value chain Perform valuable activities that complement the firm’s activities Ultimate basis for differentiation is the ability to play a role in a buyer’s value chain This creates VALUE!! Value chains vary for firms in an industry, reflecting each firm’s unique qualities: • History • Strategy • Success at Implementation http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #94
  95. 95. Outsourcing Strategic Choice to Purchase Some Activities From Outside Suppliers Firm Infrastructure Support Human Resource Management Activities Technological Development Procurement Service Operations Outbound Marketing Logistics Inbound & Sales Logistics Primary Activities http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #95
  96. 96. Outsourcing Strategic Choice to Purchase Some Activities From Outside Suppliers Firm Infrastructure Human Resource Management Support Human Resource Management purchase a portion Firms often Technological Development Activities of their value-creating activities Technological Development specialty external suppliers from Procurement who can perform these functions Procurement more efficiently Service Operations Outbound Marketing Service Logistics Inbound & Sales Logistics Outbound Inbound Operations Logistics Marketing Logistics & Sales Primary Activities http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #96
  97. 97. Strategic Rationales for Outsourcing Improve Business Focus Lets company focus on broader business issues by having outside experts handle various operational details Provide Access to World-Class Capabilities The specialized resources of outsourcing providers makes world- class capabilities available to firms in a wide range of applications Accelerate Business Re-Engineering Benefits Achieves re-engineering benefits more quickly by having outsiders-- who have already achieved world-class standards--take over process Share Risks Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities Free Resources for Other Purposes Permits firm to redirect efforts from non-core activities toward those that serve customers more effectivelyhttp://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #97
  98. 98. How does it fit together? Vision Direction and Strategies: Vision 1st Direction Strategies (Corporate and Business) Business Imperatives: 2nd Year 2009+ Globalization KPI Goals (External Growth) (Internal) Capabilities: Strategic Alliances/ Increased Capabilities Partnerships 3rd via identified Core (Ext. & Int. Growth) Competencies Future Work Trends http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. (forthcoming) Slide #98

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