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Strategic management jeff dyerthird editionchapter 9inter
1. Strategic Management
Jeff Dyer
Third Edition
Chapter 9
International Strategy
Professor’s Goals for this Lecture
There are many types of problems that can be solved for a
company by doing a cost analysis. A cost analysis can be used
to solve problems as diverse as marketing (e.g., how much to
spend to acquire additional customers) or HR (how much labor
costs go down per unit with increases in volume). The principle
tools to be learned in this chapter are designed to help the
student examine the relationship between a company’s size
(measured in volumes produced or market share) and cost per
unit. This is primarily reinforced by teaching students how to
create a scale/experience curve (both done in the same way with
“cost per unit” on the “Y” axis but the scale curve uses volume
for a given year on the “X” axis whereas the experience curve
uses cumulative volume on the “X” axis. The students will have
the opportunity to examine the relationship between
scale/experience in the following assignments:
- the homework assignment involving calculating an experience
curve in semiconductors
- Fry’s Credit Card Mini-case (in lecture); considers the
relationship between total number of subscribers (X axis) and
cost per subscriber (Y axis)
- the Southwest Case (after lecture); considers the relationship
between total passengers flown (or market share) and
performance (profitability) in the industry
5. National Differences
Economies of Scale
Economies of Scope
- Differences in factor costs
- Extend product life cycle
- First mover/only provider advantages
- Cross subsidization
- Diversify macroeconomic
risk
- Diversify operational risk
- Learning from differences
between countries
- Innovation occurring in
more, diverse units
* Economies of
scale
* Cross over
customers
* Increased
movement
down learning
curve
7. - Diversify macroeconomic
risk
- Diversify operational risk
- Learning from differences
between countries
- Innovation occurring in
more, diverse units
Economies of
scale
Cross over
customers
- Increased
24. Acquire local resources, including knowledge?
No
No
Yes
Yes
Viewed as insider or outsider?
Outsider
Insider
Possibly Insider
Possibly Insider
Degree of control
Low
Low
Medium
High
Strategic Analysis 2
The Five Forces of Porter
The Five Forces framework derived by Porter identifies the
factors in a specific market that have a substantial bearing on an
organization’s viability in its industry. These significant factors
include: “the threat of substitute products or services, the
bargaining power of suppliers, the bargaining power of buyers,
the threat of new entrants, and the rivalry among existing
competitors” (The Five Forces, n.d.).
The most prominent substitute product that Barnes & Noble
faces is the expansive digital market. The digital market
represents a high threat to Barnes & Noble as the company has
been unable to capture a sustainable competitive advantage in
this regard. As e-books and tablets began to trend in 2009, the
company was one of the first in the industry to find success
with e-readers and a self-publishing platform (Alter & Hsu,
2019). Unfortunately, overly frequent product releases in the
25. quickly evolving market hurt the company. “The company’s
digital strategy turned out to be a financial disaster. It has lost
more than a billion dollars on its Nook business, and online
sales remain anemic,” (Alter & Hsu, 2019).
In the case of Barnes & Noble, the bargaining power of buyers
(customers) is a high threat to the company’s overall
sustainability. Buyers in a market hold power when “there are
few switching costs to shifting business from one competitor to
another” (The Five Forces, n.d.). When the price of a hardcover
book or special edition from Barnes & Noble typically costs
close to $30, customers can easily switch to the major
competitor, Amazon, and find the same product for less (Tyler,
2018). This increases the power of buyers substantially.
The threat of new entrants in the bookseller industry maintains
a high threat for Barnes & Noble. The company has shifted the
strategy of some locations to illuminate the café setting as the
core business, and the new owner is hoping that more localized
and specific products will bring consumers back (Alter & Hsu,
2019). Despite these changes, independent bookstores are a
viable threat to the bookselling superstore. “Independent
bookstores are thriving again, and print sales are rising while e -
book sales are declining” (Alter & Hsu, 2019).
Concerning any competition within the industry, Amazon is
Barnes & Noble’s biggest rivalry, representing a high threat to
the sustainability and profitability of the company. The online
retailer provides a vast selection of books, as well as a cohesive
and synergized e-book and e-reader marketplace (Alter & Hsu,
2019). If rivalry in an industry is especially intense, product
prices can be driven down and overall profitability is likely to
suffer (The Five Forces, n.d.). These circumstances cultivate a
highly competitive environment wherein firms must endeavor to
lower prices, improve customer service, and match
technological advancements. Barnes & Noble is often beat
through price competition and improvements in technology.
Five Forces Summary
Porter’s Five Forces analysis highlights the problem that Barnes
26. & Noble currently faces. The organization struggles in
increasing product sales and overall profitability. All five
competitive forces indicate that the bookseller is part of a
highly competitive industry of specialty retail. Powerful buyers
and suppliers influence the market and pose threats to the
sustainability of Barnes & Noble. Moreover, the market is flush
with new entrants in the form of independent bookstores, while
Amazon serves as the firm’s biggest rival and most prominent
disruptor (Hyken, 2018). Given this information, several
popular strategies could be employed. Barnes & Noble could:
· shift its focus to services rather than products,
· develop new sustainable differentiation,
· build a more sufficient supply chain, or
· innovate new products to recapture lost interest.
BCG Analysis
BCG matrix is a framework was created by the Boston
Consulting Group and is used to evaluate the strategic position
of the business brand portfolio and its potential. It breaks down
the business portfolio into four categories and is based on
growth rate and market share.
Category 1 is Stars: This section focuses on products or services
that are in high growth markets in which organizations should
invest more. For Barnes & Noble, investment should be
increased in curated home goods that meet the needs
specifically of each community the locations serve (Wiener-
Bronner, 2018). A comparable company, Indigo, has found
success in Canada with this strategy by implementing a
“cultural department store for booklovers”.
Category 2 is Question Marks: Included in this category are
products/services of Barnes & Noble that represent the low
market share and high market growth. Products in this quadrant
typically grow quickly but consume copious amounts of
resources along the way (Kenton, 2019). The current agreement
with Starbucks Coffee falls into this section of the matrix. The
current agreement between the two companies seems to benefit
Starbucks more than Barnes & Noble. Overall sales should be
27. watched closely and analyzed to ensure the partnership is
mutually beneficial. As an alternative, the company could keep
the café service, but with the use of more localized and
independent coffee brands (Wiener-Bronner, 2018).
Category 3 is Dogs: These are those products or services that
are “prime candidates for divestiture,” (Kenton, 2019 para. 4).
In this regard, Nook has proven to be a failure and a cash trap
for the company. With more than a billion dollars in lost
profits, the company should stop attempting to revitalize the
project and move toward revamping its brand in other ways
(Alter & Hsu, 2019).
Category 4 is Cash Cows: This quadrant identifies products or
services that are a significant source of revenue for the
organization and that should be milked for as long as possible.
Despite a decline of store sales by 1.9% between 2018 and
2019, Barnes & Noble’s biggest source of profit remains to be
its retail stores (Barnes & Noble Reports, 2019). Under the
direction of new ownership, the organization is expected to
revamp its locations into brick-and-mortar locations that tailor
to each community it serves (Alter & Hsu, 2019). This
rebranding could be essential in milking the company’s cash
cow for as long as possible.
BCG Analysis Summary
This tool shows the areas of opportunities that the company
should explore and develop further. Though typically presented
in the form of a matrix, the BCG Analysis classifies potential
areas of growth and loss that have a profound influence over
Barnes & Noble’s profitability. Ultimately, Barnes & Noble
needs a more sustainable competitive advantage in the
constantly evolving market. After evaluating the stars, question
marks, dogs, and cash cows, the growth opportunities are
clearer and the stagnate components of the company have been
identified.
Resource-Based Analysis
The resource-based analysis could be argued as one of the most
widely accepted theories in understanding the competitive
28. advantage of a firm (D’Angelo, 2018). When analyzing Barnes
& Noble, the tangible assets, intangible assets, heterogeneous
resources, and immobile resources will be evaluated. Barnes &
Noble has significant tangible assets when considering brick
and mortar locations, distribution centers, products, and capital.
The company currently operates 627 bookstores in 50 states and
approximately 1,745,000 square feet of distribution center
capacity (Barnes & Noble, Inc., 2019b). Each location is
reported to have an average overall title base of 66,000 titles,
with as many as 133,000 in some locations (Barnes & Noble,
Inc., 2019b). As of April 30, 2019, the company had a debt-to-
equity ratio of 0.46, which is a significant decline from the
previous year’s ratio of 0.67 (Barnes & Noble, 2019a). At the
end of the fiscal year, the assets were valued at $1.784 billion
(Barnes & Noble, 2019a).
For the world’s largest brick and mortar bookseller, brand
reputation represents a significant intangible asset.In 2018, the
Reputation Institute recognized Barnes & Noble as the most
reputable retailer in the United States (Barnes & Noble, Inc.,
2019b). Furthermore, the processes within Barnes & Noble are
supported by a proprietary bookstore inventory management
system called Book Master. This technological advancement
assimilates POS features with a data warehouse-based
replacement system (Barnes & Noble, Inc., 2019b). The
company’s publisher, Sterling Publishing, also serves as an
intangible asset that could be further developed.
Barnes & Noble’s heterogeneous resources are a culmination of
publishers, wholesalers and distributors, and physical locations.
The supply chain for the company is comprised of over 500
publishers and over 30 wholesalers or distributors (Barnes &
Noble, Inc., 2019b). As noted, the physical locations carry an
average of 66,000 titles, but the locations also offer something
that the largest competitor does not: personal and face-to-face
interaction. As such, the combination of each of these factors
represents heterogeneous resources for the company.
The intangible assets of the company are difficult to imitate,
29. especially when considering brand equity. The Barnes & Noble
name is well-known and nearly synonymous with book sales.
While the major competitors specialize in other retail markets,
books are the primary product of Barnes & Noble and the sales
thereof are the core activity of the company. These assets could
also be considered immobile resources as they would be
difficult to move to another firm.
Resource-Based Analysis Summary
In a resource-based analysis, assets are evaluated to determine
if they create value, are rare, are hard to imitate, and whether
the organization exploits the resource in its processes. An asset
that creates value, is rare and is hard to imitate and that is used
effectively in an organization is considered a competitive
advantage.
References
Alter, A. & Hsu, T. (2019, June 7). Barnes & Noble is sold to a
hedge fund after a tumultuous year. The New York Times.
Retrieved from
https://www.nytimes.com/2019/06/07/books/barnes-noble-
sale.html
Barnes & Noble, Inc. (2019a, June 19). Barnes & Noble reports
fiscal 2019 year-end financial results [Press release.]. Business
Wire. Retrieved from
https://www.businesswire.com/news/home/20190619005407/en/
Barnes & Noble, Inc. (2019b). Form 10k for the fiscal year
ending April 27, 2019. Retrieved
fromhttps://www.sec.gov/Archives/edgar/data/.htm
D’Angelo, E. (2018, February). A resource-based perspective to
assess firms’ profitability in the food industry: evidence from
the Italian cheese industry. Pegaso Telematic University.
Naples, Italy Doi: 10.19044/esj. 2018.v14n4p1
Hyken, S. (2018, April 8). Barnes & Noble, Amazon,
independents: Who’s disrupting whom? Forbes Magazine.
Retrieved from
https://www.forbes.com/sites/shephyken/2018/04/
08/arming-the-Davids-of-industry-against-
30. disruptive-goliaths/#49dbb61a66c8
Kenton, W. (2019, July 2). McKinsey 7s model. Investopedia.
Retrieved from
https://www.investopedia.com/terms/m/mckinsey-7s-model.asp
The Five Forces (n.d.). Harvard Business School. Retrieved
from https://www.isc.hbs.edu/strategy/business-
strategy/Pages/the-five-forces.aspx
Weiner-Bronner, D. (2018, January 17). 5 things Barnes &
Noble can do right now to save itself. CNN Business. Retrieved
from https://money.cnn.com/2021/02/12/news/companies/save-
barnes--noble/index.html