KNV-IBM(METODA) BY: PRESCIENT GROUP STRATEGIC ANALYSIS AND CHOICE IN SINGLE- OR DOMINANT-PRODUCT BUSINESSES: BUILDING SUSTAINABLE COMPETITIVE ADVANTAGES

Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage Selected Industry Environments and Business Strategy Choices Dominant Product/Service Businesses: Evaluating and Choosing to Diversify to Build Value KNV-IBM(METODA) BY: PRESCIENT GROUP

Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage

Selected Industry Environments and Business Strategy Choices

Dominant Product/Service Businesses: Evaluating and Choosing to Diversify to Build Value

1. What strategies are most effective at building sustainable competitive advantages for single business units? 2. Should dominant-product/service businesses diversify to build value and competitive advantage? What grand strategies are most appropriate? KNV-IBM(METODA) BY: PRESCIENT GROUP

COST LEADERSHIP DIFFERENTIATION SPEED MARKET FOCUS KNV-IBM(METODA) BY: PRESCIENT GROUP

A. Skills and Resources Sustained capital investment and access to capital Process engineering skills Intense supervision of labor or core technical operations Products or services designed for ease of manufacture or delivery Low-cost distribution systems B. Organizational Requirements Tight cost control Frequent, detailed control reports Continuous improvement and benchmarking orientation Structured organization and responsibilities Incentives based on meeting strict, usually quantitative targets KNV-IBM(METODA) BY: PRESCIENT GROUP

A. Skills and Resources

Sustained capital investment and access to capital

Process engineering skills

Intense supervision of labor or core technical operations

Products or services designed for ease of manufacture or delivery

Low-cost distribution systems

B. Organizational Requirements

Tight cost control

Frequent, detailed control reports

Continuous improvement and benchmarking orientation

Structured organization and responsibilities

Incentives based on meeting strict, usually quantitative targets

Low-cost advantages reduce likelihood of pricing pressure from buyers Sustained low-cost advantages may push rivals into other areas, lessening price competition New entrants must face an entrenched cost leader without experience to replicate cost advantages Low-cost advantages should lessen attractiveness of substitutes Higher margins allow low-cost producers to withstand supplier cost increases KNV-IBM(METODA) BY: PRESCIENT GROUP

Low-cost advantages reduce likelihood of pricing pressure from buyers

Sustained low-cost advantages may push rivals into other areas, lessening price competition

New entrants must face an entrenched cost leader without experience to replicate cost advantages

Low-cost advantages should lessen attractiveness of substitutes

Higher margins allow low-cost producers to withstand supplier cost increases

Many cost-saving activities are easily duplicated Exclusive cost leadership can become a trap Obsessive cost cutting can shrink other competitive advantages involving key product attributes Cost differences often decline over time KNV-IBM(METODA) BY: PRESCIENT GROUP

Many cost-saving activities are easily duplicated

Exclusive cost leadership can become a trap

Obsessive cost cutting can shrink other competitive advantages involving key product attributes

Cost differences often decline over time

A. Skills and Resources Strong marketing abilities Product engineering Creative talent and flair Strong capabilities in basic research Corporate reputation for quality or technological leadership Long tradition in an industry or unique combination of skills Strong cooperation from channels/suppliers B. Organizational Requirements Strong coordination among functions in R&D, product development, and marketing Subjective measurement and incentives instead of quantitative measures Amenities to attract highly skilled labor, scientists, and creative people Tradition of closeness to key customers Some personnel skilled in sales and operations – technical and marketing KNV-IBM(METODA) BY: PRESCIENT GROUP

A. Skills and Resources

Strong marketing abilities

Product engineering

Creative talent and flair

Strong capabilities in basic research

Corporate reputation for quality or technological leadership

Long tradition in an industry or unique combination of skills

Strong cooperation from channels/suppliers

B. Organizational Requirements

Strong coordination among functions in R&D, product development, and marketing

Subjective measurement and incentives instead of quantitative measures

Amenities to attract highly skilled labor, scientists, and creative people

Tradition of closeness to key customers

Some personnel skilled in sales and operations – technical and marketing

Rivalry is reduced when a business successfully differentiates itself Buyers are less sensitive to prices for effectively differentiated products Brand loyalty is hard for new entrants to overcome KNV-IBM(METODA) BY: PRESCIENT GROUP

Rivalry is reduced when a business successfully differentiates itself

Buyers are less sensitive to prices for effectively differentiated products

Brand loyalty is hard for new entrants to overcome

K.N.V. INSTITUTE OF BUSINESS MANAGEMENT – METODA (RAJKOT) By – PRESCIENT GROUP

Imitation narrows perceived differentiation, rendering differentiation meaningless Technological changes that nullify past investments or learning Cost difference between low-cost competitors and the differentiated business becomes too great for differentiation to hold brand loyalty KNV-IBM(METODA) BY: PRESCIENT GROUP

Imitation narrows perceived differentiation, rendering differentiation meaningless

Technological changes that nullify past investments or learning

Cost difference between low-cost competitors and the differentiated business becomes too great for differentiation to hold brand loyalty

A. Skills and resources Process engineering skills Excellent inbound and outbound logistics Technical people in sales and customer service High levels of automation Corporate reputation for quality or technical leadership Flexible manufacturing capabilities Strong downstream partners Strong cooperation from suppliers of major components B . Organizational Requirements Strong coordination among functions in R&D, product development, and marketing Major emphasis on customer satisfaction in incentive programs Strong delegation to operating personnel Tradition of closeness to key customers Some personnel skilled in sales and operations – technical and marketing Empowered customer service personnel KNV-IBM(METODA) BY: PRESCIENT GROUP

A. Skills and resources

Process engineering skills

Excellent inbound and outbound logistics

Technical people in sales and customer service

High levels of automation

Corporate reputation for quality or technical leadership

Flexible manufacturing capabilities

Strong downstream partners

Strong cooperation from suppliers of major components

B . Organizational Requirements

Strong coordination among functions in R&D, product development, and marketing

Major emphasis on customer satisfaction in incentive programs

Strong delegation to operating personnel

Tradition of closeness to key customers

Some personnel skilled in sales and operations – technical and marketing

Empowered customer service personnel

Product or service improvements Product development cycles Information sharing and technology Speed in delivery or distribution KNV-IBM(METODA) BY: PRESCIENT GROUP

Creates a way to lessen rivalry because firm has the availability of something a rival may not Allows firm to charge buyers more, engender loyalty, or enhance its position relative to its buyers Generates cooperation and concessions from suppliers since they benefit from increased revenues Substitutes and new entrants are trying to keep up with the rapid changes rather than introducing them KNV-IBM(METODA) BY: PRESCIENT GROUP

Creates a way to lessen rivalry because firm has the availability of something a rival may not

Allows firm to charge buyers more, engender loyalty, or enhance its position relative to its buyers

Generates cooperation and concessions from suppliers since they benefit from increased revenues

Substitutes and new entrants are trying to keep up with the rapid changes rather than introducing them

Speeding up activities that have not been conducted in a fashion prioritizing rapid response should only be done after attention to training, reorganization, and/or reengineering Some industries – stable, mature ones – may not offer much advantage to a firm introducing some forms of rapid response KNV-IBM(METODA) BY: PRESCIENT GROUP

Involves building cost, differentiation, and/or speed competitive advantages targeted to a narrow, market niche Allows a firm to “ Learn” its target customers Build up organizational knowledge of ways to satisfy its target market better than larger rivals Risks of focus strategies Can attract major competitors to the segment Believing a focus, by itself, creates success, rather than a form of low cost, differentiation, or speed KNV-IBM(METODA) BY: PRESCIENT GROUP

Involves building cost, differentiation, and/or speed competitive advantages targeted to a narrow, market niche

Allows a firm to

“ Learn” its target customers

Build up organizational knowledge of ways to satisfy its target market better than larger rivals

Risks of focus strategies

Can attract major competitors to the segment

Believing a focus, by itself, creates success, rather than a form of low cost, differentiation, or speed

KNV-IBM(METODA) BY: PRESCIENT GROUP

Emerging Industries Industries Transitioning to Maturity Mature and Decline Industries Fragmented Industries Global Industries KNV-IBM(METODA) BY: PRESCIENT GROUP

Emerging Industries

Industries Transitioning to Maturity

Mature and Decline Industries

Fragmented Industries

Global Industries

Proprietary technology and technological uncertainty Competitor uncertainty regarding inadequate information High initial cost structure Few entry barriers First-time buyers require initial inducements Inability to easily obtain raw materials and components Need for high-risk capital KNV-IBM(METODA) BY: PRESCIENT GROUP

Proprietary technology and technological uncertainty

Competitor uncertainty regarding inadequate information

High initial cost structure

Few entry barriers

First-time buyers require initial inducements

Inability to easily obtain raw materials and components

Need for high-risk capital

Ability to shape industry’s structure Ability to rapidly improve product quality Establish favorable relations with key suppliers Ability to establish technology as dominant force Acquire a core group of loyal customers Ability to forecast future competitors KNV-IBM(METODA) BY: PRESCIENT GROUP

Ability to shape industry’s structure

Ability to rapidly improve product quality

Establish favorable relations with key suppliers

Ability to establish technology as dominant force

Acquire a core group of loyal customers

Ability to forecast future competitors

Intense competition for market share Increased sales to experienced, repeat buyers Greater emphasis on cost and service Industry capacity “tops” out New products and new applications harder to come by Increase in international competition Declining profitability KNV-IBM(METODA) BY: PRESCIENT GROUP

Intense competition for market share

Increased sales to experienced, repeat buyers

Greater emphasis on cost and service

Industry capacity “tops” out

New products and new applications harder to come by

Increase in international competition

Declining profitability

Prune the product line Emphasize process innovation Emphasize cost reductions Focus on selecting loyal buyers Pursue horizontal integration Expand internationally KNV-IBM(METODA) BY: PRESCIENT GROUP

Prune the product line

Emphasize process innovation

Emphasize cost reductions

Focus on selecting loyal buyers

Pursue horizontal integration

Expand internationally

A middle-ground approach to selecting a generic competitive strategy Sacrificing market share for short-term profits Waiting too long to respond to price reductions Retaining unneeded excess capacity Engaging in sporadic or irrational efforts to boost sales Placing hopes on “new” products KNV-IBM(METODA) BY: PRESCIENT GROUP

A middle-ground approach to selecting a generic competitive strategy

Sacrificing market share for short-term profits

Waiting too long to respond to price reductions

Retaining unneeded excess capacity

Engaging in sporadic or irrational efforts to boost sales

Placing hopes on “new” products

Demand grows more slowly than economy, or even declines Slowing growth is caused by Technological substitution Demographic shifts Shifts in consumer needs KNV-IBM(METODA) BY: PRESCIENT GROUP

Demand grows more slowly than economy, or even declines

Slowing growth is caused by

Technological substitution

Demographic shifts

Shifts in consumer needs

Focus on key market segments offering growth opportunity Emphasize product innovation and quality improvement Emphasize production and distribution efficiency Gradually harvest the business KNV-IBM(METODA) BY: PRESCIENT GROUP

Focus on key market segments offering growth opportunity

Emphasize product innovation and quality improvement

Emphasize production and distribution efficiency

Gradually harvest the business

Being overly optimistic about prospects for an industry revival Getting trapped in a profitless war of attrition Harvesting from a weak position KNV-IBM(METODA) BY: PRESCIENT GROUP

No firm has a significant market share No firm can significantly influence industry outcomes Examples Professional services Retailing Wood and metal fabrication Agricultural products Funeral industry KNV-IBM(METODA) BY: PRESCIENT GROUP

No firm has a significant market share

No firm can significantly influence industry outcomes

Examples

Professional services

Retailing

Wood and metal fabrication

Agricultural products

Funeral industry

Tightly managed decentralization Intense local coordination, high personal service, local autonomy “ Formula” facilities Standardized, efficient, low-cost facilities at multiple locations Increased value added Difficult to differentiate products/services Specialization Product type, customer type, type of order, geographic areas Bare bones/no frills Intense low margin competition (low overhead, minimum wage) KNV-IBM(METODA) BY: PRESCIENT GROUP

Tightly managed decentralization

Intense local coordination, high personal service, local autonomy

“ Formula” facilities

Standardized, efficient, low-cost facilities at multiple locations

Increased value added

Difficult to differentiate products/services

Specialization

Product type, customer type, type of order, geographic areas

Bare bones/no frills

Intense low margin competition (low overhead, minimum wage)

Differences in prices and costs among countries due to Currency exchange fluctuations Differences in wage and inflation rates Other economic factors Differences in buyer needs across countries Differences in competitors and ways of competing among countries Differences in trade rules and governmental regulations across countries KNV-IBM(METODA) BY: PRESCIENT GROUP

Differences in prices and costs among countries due to

Currency exchange fluctuations

Differences in wage and inflation rates

Other economic factors

Differences in buyer needs across countries

Differences in competitors and ways of competing among countries

Differences in trade rules and governmental regulations across countries

Approach to gain global market coverage Generic competitive strategy KNV-IBM(METODA) BY: PRESCIENT GROUP

License foreign firms to produce and distribute a firm’s products Maintain a domestic production base and export products Establish foreign-based plants and distribution in foreign countries KNV-IBM(METODA) BY: PRESCIENT GROUP

License foreign firms to produce and distribute a firm’s products

Maintain a domestic production base and export products

Establish foreign-based plants and distribution in foreign countries

Broad-line global competition Global focus strategy National focus strategy Protected niche strategy KNV-IBM(METODA) BY: PRESCIENT GROUP

Broad-line global competition

Global focus strategy

National focus strategy

Protected niche strategy

I II III IV Overcome weaknesses Maximize strengths Internal (redirected resources within the firm ) External (acquisition or merger for resource capability ) Turnaround or retrenchment Divestiture Liquidation Vertical integration Conglomerate diversification Concentrated growth Mkt. Development Prod. Development Innovation Horizontal integration Concentric diversification Joint venture KNV-IBM(METODA) BY: PRESCIENT GROUP

I II IV III Rapid market growth Slow market growth Strong competitive position Weak competitive position Concentrated growth Vertical Integration Concentric diversification Reformulation of concentrated growth Horizontal integration Divestiture Liquidation Concentric diversification Conglomerate diversification Joint venture Turnaround or retrenchment Concentric diversification Conglomerate diversification Divestiture Liquidation KNV-IBM(METODA) BY: PRESCIENT GROUP

Concentrated growth

Vertical Integration

Concentric diversification

Reformulation of concentrated growth

Horizontal integration

Divestiture

Liquidation

Concentric diversification

Conglomerate diversification

Joint venture

Turnaround or retrenchment

Concentric diversification

Conglomerate diversification

Divestiture

Liquidation

Opportunities to build value via diversification, integration, or joint venture strategies are usually found in market-related, operating-related, and management activities. Such opportunities center around reducing costs, improving margins, or providing access to new revenue sources more cost effectively than traditional internal growth options via concentration, market development, or product development KNV-IBM(METODA) BY: PRESCIENT GROUP