Strategy Concepts
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Strategy Concepts

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Strategy Concepts Strategy Concepts Presentation Transcript

  • Strategy Concepts John A. Hengeveld
  • Agenda for Today
    • Term Project Discussion (0:40)
    • How Functions impact competition
    • Strategy Concepts – Grant Chapter 5 (1:30)
    • HE Butt Case (1:00+)
  • Term Project
    • Emerging Technology Briefing
      • 20 minute powerpoint presentation
      • Written report
    • I am about to provide you with a list of “EMERGING TECHNOLOGIES that will change the world”
    • Each team gets one and provides an analysis (the result of research)
      • Describe the technology and its value proposition application and impact within the context of an actual industry
      • Look at candidate strategies for firms engaged in developing this technology.
      • Potential limitations and contingencies that may affect the innovation’s applicability, now and in the future. Here you will be interested in the maturity of the technology, its long-run practicality, possible limits on its scope of application, and negative side-effects (and who, specifically, may suffer from these).
  • Term Project - cont
    • Presentation. Your class presentation should be supported by a small number of professional quality visuals, rendered in Powerpoint. Visuals might include outlines, diagrams, and/or text; taken together they should summarize the important issues surrounding the topic. Keep in mind the basic factors that make for a good set of visuals:
      • Provide slides that will help the audience to visualize the overall structure of the presentation.
      • You should have "something to show" for each major point you make verbally. That is, you shouldn’t find yourself yakking at length about some concept without a corresponding visual element for the audience to consider.
      • Don’t put too much on any one slide. Minimize clutter, in order to support efficient scanning by the audience during your presentation.
      • Every element should be big enough to see from the back of the room. This is obvious, yes, but commonly overlooked.
      • Think carefully about what kind of written support you want in front of you, as you present.
  • Term Project – written report
    • The written report should present in written form the same information you offered in your class presentation. Strive for a professional looking report.
    • The written report should also provide additional details on the topic that you encountered during your research but did not have time to cover during your brief presentation.
    • Such details might include: additional information on how the technology works; more insight into secondary or unintended consequences; issues and challenges in implementing the technology; more examples of its business use, and definitions for key terms.
    • The written report must include a complete bibliography giving all references used in preparing your report. Include full URLs for Web-based materials.
  • Topics:
    • Universal Translation
    • Nanowires
    • Terrahertz Imaging Systems
    • Piezo Fuel Injection
    • Microfluidic Optical Fibers
    • Synthetic Biology
    • Personal Genomics
  • Value Chain of the Firm Firm Infrastructure Human Resource Management Technology Development Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Materials handling delivery Primary Activities Support Activities Mfg. & assembly Order processing Shipping Product Pricing Promotion Place Customer service Repair
  • The Value System
    • The model can be extended by linking many value chains into a value system .
    • Much of the advantage of supply chain management comes from understanding how information is used within each value chain of the system.
    • This can lead to the formation of entire new businesses designed to change the information component of value-added activities.
  • Supplier’s value chain Firm’s value chain Channel’s value chains Buyer’s value chains The value system: interconnecting Relationships between organizations
  • The Value System and Strategic Alliances
    • Many industries are experiencing the growth of strategic alliances that are directly linked to sharing information resources across existing value systems.
    • An alliance between American Airlines, Marriott and Budget Rent-A-Car called AMRIS provides travelers with a single point of contact.
    • Electronically pooling information services of several companies can create competitive advantage by saving customers time.
  • Generic Strategies Differentiation Overall Cost Leadership Cost Focus Uniqueness Low Cost Position Competitive Scope Competitive Advantage Sought Differentiation Focus Narrow Broad
  • Porter’s Competitive Advantage Strategies
    • Cost leadership : be the cheapest
    • Differentiation : focus on making your product stand out for non-cost reasons
    • Focus : occupy narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation.
  • Variants on Differentiation Strategy
    • Shareholder value model : create advantage through the use of knowledge and timing (Fruhan)
    • Barriers to entry model : firms create barriers to entry to keep competitors out of their markets
    • Unlimited resources model : companies with a large resource can sustain losses more easily than ones with fewer resources
  • Hypercompetition and the New 7-S’s framework (D’Aveni)
    • Sustained competitive advantage is not possible
    • Only temporary advantages exist, created by a company’s speed and aggressiveness.
    • Assumes:
      • Every advantage becomes eroded
      • Sustaining an advantage uses too much time and resources.
      • Instead, companies must seek to stay ahead of its competitors by creating temporary advantages
      • These are done in small steps over short competitive cycles. Focus on creating the next temp. advantage.
  • Co-opetition
    • More about forming alliances to better compete.
    • Companies, competitors, customers and suppliers are participate in (and compete in) “the value net”.
    • Key concept is “complementors”, companies that sell complementary products and services.
    • These can often gain advantage by forming an alliance to provide a more competitive
  • Why are strategic advantage Models essential to planning?
    • Business strategy needs to address:
      • What is the business goal or objective?
      • What is the plan for achieving it?
      • Who are the crucial competitors and cooperators,and what is required of a successful player in this value net?
  • Strategic Process MAP Generate Strategic Alternatives Strategic Options Generator Select Short List v Criteria Strategic Due Diligence Draft Implementation Congruence R/C Review Competitive Response Risk Identification And Reduction Select Strategic Direction Strategic Implementation Organizational Structure Process Change Management Implementation Plan Risk Mitigation Implementation Analyze Strategic Framework External Analysis Internal Analysis KSF R/C Competitive Mapping Customer Value Drivers Sustaining Profitability Global Framework Competency Rent Earning Potential Resource/Capability Map CRITERIA
  • Grant Chapter 5
  • 4. Develop strategy implications: (a) In relation to strengths --How can these be exploited more effectively and fully? (b) In relation to weaknesses --Identify opportunities to outsourcing activities that can be better performed by other organizations. --How can weaknesses be corrected through acquiring and developing resources and capabilities? 3. Appraise the firm’s resources and capabilities in terms of: (a) strategic importance (b) relative strength 2. Explore the linkages between resources and capabilities 1. Identify the firm’s resources and capabilities STRATEGY CAPABILITIES RESOURCES POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE A Framework for Analyzing Resources and Capabilities
  • THE FIRM Goals and Values Resources and Capabilities Structure and Systems
    • THE
    • INDUSTRY
    • ENVIRONMENT
    • Competitors
    • Customers
    • Suppliers
    STRATEGY STRATEGY Shifting the Focus of Strategy Analysis: From the External to the Internal Environment
  • Rationale for the Resource-based Approach to Strategy
    • When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus.
    • Resources and capabilities are the primary sources of profitability
  • The Evolution of Honda Motor Company 1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Founding of Honda motor company 50cc 2-cycle engine 4 cycle engines 405cc motor cycle Related products: ground tillers, marine engines, generators, pumps, chainsaws First product: clip-on engine for bicycles The 50cc super -cub N360 mini car 1000cc Goldwing touring motor cycle Acura Car division
  • Precision Mechanics Fine Optics Micro- Electronics 35mm SLR camera Compact fashion camera EOS autofocus camera Digital camera Video still camera Plain-paper copier Color copier Color laser copier Laser copier Basic fax Laser fax Mask aligners Excimer laser aligners Stepper aligners Inkjet printer Laser printer Color video printer Calculator Notebook computer Canon: Products a nd Core Technical Capabilities
  • STRATEGY INDUSTRY KEY SUCCESS FACTORS COMPETITIVE ADVANTAGE ORGANIZATIONAL CAPABILITIES
    • RESOURCES
    • TANGIBLE INTANGIBLE HUMAN
    • Financial
    • Physical
    • Technology
    • Reputation
    • Culture
    • Skills/know-how
    • Capacity for communication & collaboration
    • Motivation
    The Links between Resources, Capabilities and Competitive Advantage
  • Appraising Resources
    • RESOURCE CHARACTERISTICS INDICATORS
    • Financial Borrowing capacity Debt/ Equity ratio
    • Internal funds/ generation Credit rating
    • Tangible Net cash flow
    • Resources Physical Plant and equipment: Market value of
    • size, location, technology fixed assets.
    • flexibility. Scale of plants
    • Land and buildings. Alternatives for fixed
    • Raw materials. assets
    • Technology Patents, copyrights, know how No. of patents owned.
    • R&D facilities. Royalty income
    • Intangible Technical and scientific R&D expenditure.
    • Resources employees R&D staff
    • Reputation Brands. Customer loyalty. Company Brand equity. Product
    • reputation (with suppliers, customers, price premium.
    • government) Recognition.
    • Human Training, experience, adaptability, Employee qualifications,
    • Resources commitment and loyability of customers pay rates, turnover.
  • Identifying Organizational C apabilities : Functional Approach FUNCTION CAPABILITY EXEMPLARS Corporate Financial management Exxon, Coca Cola Management General Electric, Strategic Control Emerson Electric, GE Coordinating decentralized ABB, Shell business units Managing Acquisitions Nationsbank, ConAgra MIS Speed and responsiveness through American Airlines rapid information transfer LL Bean R&D Research capability Mereck, AT&T Development of innovative new products Sony, 3M Manufacturing Efficient volume manufacturing Briggs & Stratton Continuous Improvement Nucor, Motorola Flexibility Benetton Design Marketing Design Capability Apple, Swatch, Brand Management Proctor & Gamble, PepsiCo Sales & Distribution Promoting reputation American Express Responsiveness to market trends The Gap Sales Responsiveness Microsoft, Glaxo Efficiency and speed of distribution Federal Express Customer Service Walt Disney
  • A Hierarchy of Capabilities: A Telecom Manufacturer CROSS FUNCTIONAL CAPABILITIES BROAD FUNCTIONAL CAPABILITIES ACTIVITY RELATED CAPABILITIES (Operations related only) SPECIALIZED CAPABILITIES (Manufacturing related only) SINGLE-TASK CAPABILITIES (Only those related to PCB assembly) INDIVIDUALS’ SPECIALIZED KNOWLEDGE
  • The Rent-Earning Potential of Resources and Capabilities Scarcity Relevance Durability Mobility Replicability Property rights Relative bargaining power Embeddedness of resources THE EXTENT OF THE COMPETITIVE ADVANTAGE ESTABLISHED SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE APPROPRIABILITY THE PROFIT EARNING POTENTIAL OF A RESOURCE OR CAPABILITY
  • Appraising the Capabilities of a Business School (illustrative only) Relative Strength Superior Parity Deficient Not important Critically important C1 Alumni relations C2 Student placement C3 Teaching C4.Administration C5 Course devlpmnt C6 Student recruitment C7 Research C8 Corporate relations C9 Marketing C10 IT C11 PR C12 HRM Importance Key weaknesses Key strengths Superfluous strengths Inconsequential weaknesses 11 12 5 6 9 3 2 4 8 10 7 1
  • Amoco’s Appraisal of Organizational Capabilities (illustrative only) Performance Superior Parity Deficient Not important Needed to play Needed to win 1. Effective deal making 2. Rapid new product development 3. Relentless cost forms 4. Product quality 5. JV management 6. Superior EH&S management 7. Managing culturally diverse workforce 8. Fast decision making 9. Customer segmentation 10.Capture synergies across divisions 11. Effective procurement Importance Key strengths Key weaknesses Superfluous strengths Inconsequential weaknesses 7 5 6 9 4 2 3 11 10 1 8 1
  • 4. Develop strategy implications: (a) In relation to strengths --How can these be exploited more effectively and fully? (b) In relation to weaknesses --Identify opportunities to outsourcing activities that can be better performed by other organizations. --How can weaknesses be corrected through acquiring and developing resources and capabilities? 3. Appraise the firm’s resources and capabilities in terms of: (a) strategic importance (b) relative strength 2. Explore the linkages between resources and capabilities 1. Identify the firm’s resources and capabilities STRATEGY CAPABILITIES RESOURCES POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE A Framework for Analyzing Resources and Capabilities
  • Value Chain of the Firm Firm Infrastructure Human Resource Management Technology Development Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Materials handling delivery Primary Activities Support Activities Mfg. & assembly Order processing Shipping Product Pricing Promotion Place Customer service Repair
  • The Value System
    • The model can be extended by linking many value chains into a value system .
    • Much of the advantage of supply chain management comes from understanding how information is used within each value chain of the system.
    • This can lead to the formation of entire new businesses designed to change the information component of value-added activities.
  • Supplier’s value chain Firm’s value chain Channel’s value chains Buyer’s value chains The value system: interconnecting Relationships between organizations
  • The Value System and Strategic Alliances
    • Many industries are experiencing the growth of strategic alliances that are directly linked to sharing information resources across existing value systems.
    • An alliance between American Airlines, Marriott and Budget Rent-A-Car called AMRIS provides travelers with a single point of contact.
    • Electronically pooling information services of several companies can create competitive advantage by saving customers time.
  • Strategic option generator Differentiation What is the strategic target? What is the strategic market? What is the mode? What is the direction? Supplier Customer Competitor Cost Innovation Alliance Growth Offensive Defensive Use Provide
  • Example of strategic targets Competitors: Direct Potential Substitute Customers: Channel distributors Consumers Industrial Reseller Government International Suppliers: Raw materials Information Labor Capital Insurance Utilities Transportation
  • Strategic option generator Differentiation What is the strategic target? What is the strategic market? What is the mode? What is the direction? Supplier Customer Competitor Cost Innovation Alliance Growth Offensive Defensive Use Provide
  • Types of Strategic Thrusts
    • Differentiation Thrusts : focus resources on unfilled product or service gaps.
    • Cost Thrusts : focus is on reducing costs or increasing competitor’s costs
    • Innovation Thrusts : focus on creating new products or new ways to sell, create, produce or deliver products.
    • Growth Thrusts : focus on increasing size of the market size or adding more value adding activities in the value chain
    • Alliance Thrusts : combine with other groups to create a more competitive position.
  • What is the Mode?
    • A firm has two choices for the mode of a a strategic thrust:
      • The firm can act offensively to improve its competitive advantage -- or
      • A firm can act defensively to reduce the opportunities available to competitors.
    • For example, a firm can innovate offensively to gain product leadership in a market, while others use innovation defensively to imitate the product leader.
  • Strategic Options Generator
    • Wiseman combined the questions of mode, direction and strategic thrust into a strategic options generator
    • Example: Dell computer’s initial thrust:
      • Strategic Target: (direct market to) the customer
      • Mode: Offensive
      • Direction: Use IS to gain advantage
    • Second thrust: provide customer information to suppliers
    • Third thrust: let customers auto-configure systems directly via the Internet.
  • Time-Based Competitive Advantage
    • The Internet is increasing the pace of technological change by refocusing competitive efforts towards creating time-based competitive advantage.
    • Information resources are the key to creating those advantages.
    • For example, Dell’s direct strategy has been to build and deliver computers in as little as 5 days.
    • Thus, the speed at which an organization adapts its business processes will the true measure of its’ ability to maintain competitive advantage.
  • Setup of the HE Butt case
    • HE Butt was 3 rd largest grocery retailer in the US in 1992 ($3.2B)
    • Mass merchandisers entered the market and represented a serious threat.. Why?
    • Implement ECR system which moved buying logistics to suppliers!
      • Radically increased inventory turns
      • Eliminated “death by price promotion”
      • Levered improvements in scanner technology to automate inventory management
  • Simplified Grocery Value Chain Factory Warehouse Manufacturers Distributors Stores Warehouse $$ $$ Info Info Goods Goods Customers Raw Materials Storage Shelves HE Butt Grocery: A Leader in ECR Impl (Abridged) HBSP
  • HE Butt Discussion Questions
    • (note.. These things need to be in your writeup, but they are only part of what you need to do…..)
    • What is going on in the industry and what are the dynamics of competition? (ie: provide an industry and competitive analysis)
    • What is HE Butts generic strategy?
    • What do you think of the plan in Exhibit 1?