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A Strategy is the pattern or plan that integrates an organization’s major goals , policies, and actions into a cohesive whole. A well-formulated strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings , anticipated changes in the environment , and contingent moves by intelligent competitors .
Suppliers can exert bargaining power by threatening to raise prices or reduce quality.
Suppliers can move upstream to create a more complete solution
Suppliers are powerful if:
Only 1 or a couple of suppliers for industry
Bargaining Power of Customers Customers can force prices down, playing competitors against each other Customers can easily move downstream to create a more complete solution Threat of Substitution All firms in an industry are competing with industries producing substitute products Substitutes limit potential returns Threat of Entry - Depends on barriers: Economies of scale – need to come in large Product differentiation – established firms have brand identification and customer loyalties Capital requirements Switching costs – one time switching costs facing the buyer – retraining, new equipment… Access to distribution channels Intellectual Property and patents
The intensity of rivalry between competitors in an industry will depend on:
The structure of competition - rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader
The structure of industry costs - industries with high fixed costs encourage competitors to fill unused capacity by price cutting
Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry
Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier
Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less
Exit barriers -when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry.
These companies are “Rule Breakers” and “Rule Makers”
Three Phases of Competing for the Future Intellectual Leadership Deep Understanding of Industry Drivers Creative View of Core Competencies and Customer Interfaces Strategic Architecture Management of Migration Paths Preemptively building core competencies and new product concepts and technologies Assemble a coalition of industry participants Force competitors onto longer more expensive migration paths Compete for Market Share Build a worldwide supplier network Preempt competitors in critical markets Maximize efficiency and productivity Manage the competition
"Strategy is the direction and scope of an organization over the long-term which achieves advantage for the organization through its configuration of resources within a challenging environment , to meet the needs of markets and to fulfill stakeholder expectations".
Strategy is about:
Where is the business trying to get to in the long-term ( direction)
Which markets should a business compete in and what kind of activities are involved in such markets? ( markets ; scope )
How can the business perform better than the competition in those markets? ( advantage )?
What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? ( resources )?
What external, environmental factors affect the businesses' ability to compete? ( environment )?
What are the values and expectations of those who have power in and around the business? ( stakeholders)
Are revenue sources different with the Internet? What is new? Who pays for what value and when? What are the margins in each market? Revenue Source/Revenue Model What is the scope of customers that the Internet enables your firm to reach? Does the Internet alter the product or service mix? To which customers (geographic and demographic) is the firm offering value? What is the range of products and services offered? Scope What is it about the Internet that allows your firm to offer its customers something distinctive? Can you solve new problems for customers? Is the firm offering something distinctive or at a lower cost than its competitors ? What is your differentiation?
What’s the value proposition?
Q’s Internet Business Models Q’s for all Business Models Business Model Component
Elements of a Business Model Does the Internet Make the sustainability easier or more difficult? What is it about the firm that makes it difficult for other firms to imitate it? How does the firm sustain its competitive advantage? Sustainability What new capabilities do you need? What is the impact of the Internet on those capabilities? What are your firm’s capabilities and capability gaps that need to be filled? How does the firm fill these capabilities? Capabilities What does the Internet do to the strategy, structure, systems, people and environment? What organizational structure, systems, people, and environment does the firm need to carry out these activities? Implementation How many new activities must be performed because of the Internet? How much better can the Internet help you to perform existing activities? What set of activities does the firm have to perform to offer this value and when? Connected Activities How does the Internet make pricing different? How does the firm price the value? Pricing
Classification of e-business Models Ambitious business Bold businesses Revolutionary model “ re-invent themselves by adopting a new entrepreneurial identity” Diversified Businesses Balanced businesses Traditional model “ brick and mortar” companies that convert to e-business – business model is mixed (click and mortar) Degree of Innovation Broad Expand if the company, relying on e-bus. Pursues a strategy of diversification Narrow Limit activities to a single product or market segment Strategic Scope Refers to the company’s potential (resources, leadership, know-how, product strength, etc.) and growth prospects in a given market
Focuses on diversification and growth of company’s activities.
Invest heavily in technological infrastructures
Focus on setting up technological standards to create high switching costs
“ New Economy” – driven by complex applications and technology solutions (eg. search engines, cyber auctions, collaborative portals)
Revolutionary model “ re-invent themselves by adopting a new entrepreneurial identity”
Focus on external positioning – driven by operational diversification and growth
Specific to businesses whose markets are already structured
Capitalize on core competencies
Does not conflict with the traditional business model Eg. Dell
Use as a lever to strengthen strategic position
Traditional model “ brick and mortar” companies that convert to e-business – business model is mixed (click and mortar) Degree of Innovation Broad Expand if the company, relying on e-bus. Pursues a strategy of diversification Narrow Limit activities to a single product or market segment Strategic Scope Refers to the company’s potential (resources, leadership, know-how, product strength, etc.) and growth prospects in a given market
Classification of e-business Models Virtual Store e-mall e-procurement Auctions Virtual community Information brokers Ambitious business Bold businesses Revolutionary model “ re-invent themselves by adopting a new entrepreneurial identity” Diversified Businesses Balanced businesses Traditional model “ brick and mortar” companies that convert to e-business – business model is mixed (click and mortar) Degree of Innovation Broad Expand if the company, relying on e-bus. Pursues a strategy of diversification Narrow Limit activities to a single product or market segment Strategic Scope Refers to the company’s potential (resources, leadership, know-how, product strength, etc.) and growth prospects in a given market
Business Models on the Web Virtual Merchant or e-tailer – Pure Play- Amazon.com Click and Mortar – traditional brick and mortar retail establishment with web storefront – Chapters.ca Catalog Merchant – catalog+web – Land’s End Wholesalers and Retailers of goods and Services. Merchant Model Portal – About.com Personalized Portal - MyYahoo Registered Users – NYTimes Digital Extension of the traditional media broadcast model. The broadcaster provides content & services mixed with advertising messages. The advertising model works only when the volume of viewer traffic is large or highly specialized Advertising Model Auction broker conducts auctions for sellers –– eBay Transaction Broker – provide a third party payment mechanism – PayPal Virtual Mall – hosts online merchants – ChoiceMall Bring buyers and sellers together and facilitate transactions: B2B, B2C Brokerage
Business Models on the Web Content Services – newspapers, music, video Person-to-Person Networking Services – conduits for distribution of user submitted information [Classmates] Internet Service Providers Users are charged a fee to subscribe to a service. Not uncommon to combine free+fee content. Subscription Model Amazon.com Tucows.com Esellerate.com Provides purchase opportunities. Offers financial incentives to affiliated partner sites. Pay per performance model. Includes: banner exchange, pay per click, revenue sharing programs. Affiliate Model Dell Computer Using the power of the web to allow manufacturer to reach buyers directly and thereby compressing the distribution channel. The manufacturer model can be based on efficiency, improved customer service, and a better understanding of customer preferences Manufacturer (Direct)