6/30/20151 Foundations of Strategy PSU MGMT #511 Dave Garten [email protected] Week # 4...
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Transcript of 6/30/20151 Foundations of Strategy PSU MGMT #511 Dave Garten [email protected] Week # 4...
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Yet…
InsideOutside
3-5 years out
Building a collective view of
the future…
What new core competencies do we need to build?
What new product concepts should we pioneer?
What alliances do we need to form?
What l/t regulatory initiatives do we need to form?
Source: Derived from Competing for the Future by Gary Hamel and C.K. Prahalad
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Sources of Competitive Advantage
COST ADVANTAGE
DIFFERENTIATIONADVANTAGE
COMPETITIVEADVANTAGE
Similar product
at lower cost
Price premium
from unique product
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Differentiation
“increase in perceived value relative to the perceived value of other firms” - Barney
“If you can’t differentiate yourself in this world, you get commoditized instantaneously. So we are constantly driving for more innovation, more differentiation and more technology.”- Jeffrey R. Immelt, Chairman and CEO, GE
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DifferentiationWhy differentiate?
Ways to differentiate
Better chance to be profitable Preference -> loyalty -> stickiness ->
profitability (basis for monopolistic competition)
X
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Differential (Segmentation)
Segment via benefits, demographics and psychographics
Segmentation is basis for differentiation Determines the value proposition
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The Basis for Segmentation
Opportunities forDifferentiation
Characteristics of the Buyers
Characteristics of the Product
Industrial buyers
Household buyers
Distribution channel
Geographicallocation
*Size*Technical sophistication*OEM/replacement
*Demographics*Lifestyle*Purchase occasion
*Size*Distributor/broker*Exclusive/ nonexclusive*General/special list
*Physical size *Price level*Product features *Technology design*Inputs used (e.g. raw materials)*Performance characteristics*Pre-sales & post-sales services
Source: Jim Goes
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Differentiation - observations
5 forces: differentiation lowers threat of rivalry & substitutes (barriers to entry)VRIO tests differentiation: rare & imitable?Differentiation narrows with life cycleBrand can limit differentiation Patents can enhance differentiationOrganization is a source of differentiation Creativity, risk-taking, complexity, cross group
(link to core competency)
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Segmentation - U.S. Bicycle IndustrySEGMENT
Low price bicycles sold primarily through department and discount stores, mainly under the retailer’sown brand (e.g. Sears’ “Free Spirit”);
KEY SUCCESS FACTORS
* Low-costs through global sourcing of components & low-wage assembly.* Supply contract with major retailer.
Leading competitors: Taiwanese & Chinese assemblers,some U.S manufacturers, e.g. Murray Ohio, Huffy
Medium-priced bicycles sold primarily under manufacturer’s brandname and distributed mainly throughspecialist bicycles stores;
*Cost efficiency through large scale operation and either low wages or automated manufacturing.*Reputation for quality (durability, reliability) through effective marketing to dealers and/or consumers.* International marketing & distribution.
Leading competitors: Raleigh, Giant, Peugeot, Fuji (Japan).
*Quality of components and assembly, Innovation in design (e.g. minimizing weight and wind resistance).*Reputation (e.g. through success in racing, through effective brand management).*Strong dealer relations.Leading competitors: K2, Specialized, Trek
Similar to low-price bicycle segment.
High-priced bicycles for enthusiasts.
Children’s bicycles (and tricycles) soldprimarily through toy retailers (discount toy stores, department stores, and specialist toy stores).
Source: Jim Goes
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Cost Leadership
Manufacturing businesses Conventional: High MSS -> High accumulated
volume low unit cost -> high profitability Experience curve (learning), know-how, IP,
specialization, improvements
Service businesses Know-how; experience curve applies
Diseconomies sometimesCost structure Labor, capital, land, raw materials, geography,
use of technology, government policySource: Derived from Barney, Gaining & Sustaining Competitive Advantage
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Drivers of Cost Advantage
• Organizational slack
• Ratio of fixed to variable costs• Costs of installing and closing capacity
• Location advantages• Ownership of low-cost inputs • Bargaining power• Supplier cooperation
• Design for automation• Designs to economize on materials
• Mechanization and automation• Efficient utilization of materials• Increased precision
• Increased dexterity• Improved coordination/ organization
• Indivisibilities• Specialization and division of labor
PRODUCTION TECHNIQUES
PRODUCT DESIGN
INPUT COSTS
CAPACITY UTILIZATION
MANAGERIAL/ ORGANIZATIONALEFFICIENCY
ECONOMIES OF LEARNING
ECONOMIES OF SCALE
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Cost Leadership Observations
5 Forces: Entrants often try differentiation to attack Threat of substitution check & balance Scale -> more power relative to
suppliers/customers
VRIO test rarity & imitability Social complexity (learning curve), access to
low cost factors, “software”
Price-cost decoupling TTM, penetration and defensive strategies
Pure play cost leadership Generally not…“Lean and mean”
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Airline Cost/Differentiation
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Low Cost Entry
Source: Strategies to Fight Low Cost Rivals, by Nurmalya Kumar, HBR, 2006 (#R0126F)
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Case Study
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Vertical IntegrationDegree of control over the value chainForward -> toward customerBackward -> toward R&DDriven by relationship, threat of opportunism, specificity, uncertainty
R&D Manufacturing Sales & marketing Distribution Service
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Vertical IntegrationMarket
GovernanceVertical
IntegrationAlliances
Control (opportunism)
Flexibility (uncertainty)
Plus of vertical integration
Minus of vertical integration
X
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Time to MarketLearning curve advantagesFirst use stickiness Brand, differentiation, reputation Creation of “standard,” expectations
Networking effect Interoperability, Value = f(n**2)
“Arrows in the back” Incumbent, imitation, mistake
Windows of opportunityAlways learn and adjust
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Mondavi Case
Objective: Evaluation of business strategies used in the wine industryLearnings:
Industries exhibit different structures across geographies.
Use of different strategies is used within an industry to gain competitive advantage.
Consolidation as a strategy is most often driven by economies of scope/scale, but other considerations become factors.
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Mondavi Case
~$650M