(Note: these notes, intended to supplement your class notes ...

S.Desa, ISM 105/205Lecture Notes for Competitive Strategies in Technology Management

Draft document; October 2008Lecture Notes for Competitive Strategies in Technology Management

(Note: these notes, intended to supplement your class notes, are excerpts from a larger chapter on the same subject, which contains other frameworks and a detailed example. This is a draft document: so please report any “typos”, and other errors; feedback is also welcome.)

1. Introduction

“Successful and unsuccessful strategies shape a company’s destiny” – R.A. Burgelman,

Strategy is Destiny

Technology firms generally perform three important and inter-related activities: strategy,

planning, and operations, each having a different intent and time horizon. The function of

strategy, which has a time horizon of years, is, in general, to set the long-term direction or

position of the firm, for example define the technology, product, or service that the firm

intends to develop, and determine the intended market for the product or service. The

function of planning, which, in general, has a time horizon of several months to years, is

to translate long-term strategy into medium-term activities, e.g., the portfolio of projects

that the firm should execute the time-phased planning of these projects, and resource

allocation. The function of operations, which has the time-horizon of days to months, is,

in general, to translate medium-term planning activities into short-term product design,

development, and delivery activities such as prototyping, manufacturing, product release,

and shipment. In this chapter we address strategy.

There are several different types of strategy, including competitive strategy, technology

strategy, product market strategy, financial strategy, and supply-chain strategy. For a

technology company to be successful all these strategies need to be aligned with each

other, and with the business goals of the firm. Competitive strategy, which is the focus of

1


Draft document; October 2008this chapter, is the highest level of strategy in the firm, and is intimately related to the

mission and vision of the firm and also to setting the direction for all the other strategies

in the firm.

There are several schools of strategy formation: design, planning, positioning (Mintzberg,

1998). In this chapter we focus on two important schools or frameworks for strategy-

creation or “strategy-making” that are particularly important for high-technology

companies. The first framework is the so-called “positioning” approach due to Porter

(Porter, 1980), which views strategy-making as an analytic process performed at the

industry-market structural level. The second framework (not included in these notes),

due to Burgelman (Burgelman 2002), based on evolutionary organization theory, views

strategy-making as an evolutionary process performed at three levels: industry-company

level, company-level, and intra-company level. When these two frameworks are

combined, an integrated approach to competitive strategy emerges: from industry-market

level all the way to intra-company level. A unique aspect of creating competitive strategy

for a technology company, and in particular, a high-technology company, is that the time-

scales for the evolution of markets, industries, and technologies are, in general, much

shorter (“faster”) compared to other industries. Therefore, the strategy frameworks of the

positioning school needs to be augmented with functional maps (Clark and Wheelwright,

1993), which capture the evolution of the market, industry, and technology relevant to the

company, and which can therefore be used to create strategy.

1.1 Objectives of the chapter

The objectives of this chapter are as follows:

2


Draft document; October 20081. describe the positioning framework for the creation of competitive strategy.

2. provide an integrated competitive strategy process which is useful in developing

competitive strategy in a technology company.

3. demonstrate the application of the process using a detailed example of a high

technology company (this is the INTEL problem assigned as homework: HW

#2, Problem 1 ).

1.2 Organization of the chapter

In Section 2, we establish the overall context for analyzing and designing the competitive

strategy in a firm. In this In Section 3 we describe the positioning framework, due to

Porter (Porter, 1980), for developing competitive strategy within a technology company.

The key elements of this framework, structural analysis of industry and development of

competitive strategy, are developed in this section. Section 4 describes the organizational

evolutionary theoretic approach for strategy-making. The creation and use of functional

maps is explained in Section 5. The positioning framework, the evolutionary organization

theoretic framework, and functional maps are combined in Section 6 to develop a process

for competitive strategy-making in a technology company. Section 7 demonstrates the

application of the process to an extended and detailed example, while Section 8

summarizes the chapter and draws conclusions.

2. Overall context and types of Strategy

We study competitive strategy within the overall context of technology firms, which

operate within a so-called industry, e.g., the computer industry, the consumer electronic

3


Draft document; October 2008industry, the cellular phone industry. Each industry, ideally, serves a market, which

denotes the buyers or customers of the products and services offered by the industry.

Figure 1 goes here

A structural representation of the technology company from the viewpoint of strategy is

shown in Figure 1, where four important types of strategy are identified: technology

strategy, marketing strategy, competitive strategy, and financial strategy. All strategies

must be driven by and aligned to vision and mission of the firm, as well as by business

goals such as desired market share, revenue, growth.

The objective of technology strategy (Clark and Wheelwright, 1993) is to guide the

technology company in developing, acquiring, and applying technology for competitive

advantage. An important part of technology strategy is the definition of technical

capabilities (e.g., advanced device design, rapid prototyping, automated assembly) that

provide competitive advantage.

The objective of product/market strategy is to clearly establish the following: define what

differentiates the product from its competitors; identify market segments for the product,

the customer needs of these segments, and the corresponding products (i.e., product lines)

that will be offered to these segments; etc. An important outcome of product/market

strategy is to define the product roadmap, including sales volume and price, necessary to

realize the business goals.

4


Draft document; October 2008Competitive Strategy, the focus of this chapter, is the high-level strategy used by the firm

to realize its business goals, in particular, profitability, in the face of competition.

Competitive strategy conventionally refers to how the firm competes at the industry-

market level (Porter, 1980). However, in the rapidly evolving industry and market

landscape of high-technology, competitive strategy, in turn, depends on three levels of

“strategy-making” as follows (Burgelman, 2002):

1. Industry-company level. At this level the firm must determine its strategic

position, its core competencies, and its strategic action.

2. Company level: At this level strategy-making involves induced strategy and

autonomous strategy.

3. Intra-company level: At this the internal level autonomous strategy is created.

In successful companies, it is the tight coupling of strategy these three levels of strategy-

making with the highest-level (i.e., industry-market level) competitive strategy that,

results in successful strategic action where what the company actually does, e.g., the

product lines it develops and markets, results in the realization of its business goals.

The first strategy framework, described in Section 3, analyzes competitive strategy at the

industry-market level using the five forces approach to examine the structure of the

industry (Porter, 1980) and the resulting dynamics between functional groups of players

(e.g., competitors, suppliers) in the industry. In this positioning approach, strategy is

viewed as taking a generic position in a competitive market. The second strategy

framework, described in Section 4, analyzes strategy-making at the industry-level,

company level, and intra-company level using evolutionary organization theory

(Burgelman 2002). In this evolutionary organizational theory approach, each company is

5


Draft document; October 2008an organizational ecology within which strategy emerges through two basic mechanisms,

external selection and internal selection. When companies start, because they are new and

small¸ the external selection mechanism dominates. As a company grows in size and

becomes more established, internal selection plays an important role.

It is also useful to mention two other strategies that are closely related to competitive

strategy. Financial strategy includes issues such as capital budgeting and portfolio

management, i.e., deciding on which technology and product development projects to

fund in order to maximize the cumulative expected profit. Another important and related

strategy is supply chain strategy (Chopra), which specifies the service, distribution, and

operations functions, performed either in-house or outsourced, that the company should

do well in order to successfully realize its intended competitive strategy.

3. The “Positioning” Framework

We first present a historical overview of the positioning or analytic school of strategy.

Then, we develop the five forces framework (Porter, 1980) and the approach to creation

of competitive strategy that is closely related to the five forces framework. We will use

the personal computer industry to illustrate the approach.

Historical Overview

The analytical approach to strategy started in the 1960s and culminated in the year 1980

when Michael Porter published “Competitive Strategy”. Porter was influenced by the

field of industrial organization, which focused on analyzing industries rather than

individual firms.

6


Draft document; October 2008The positioning school of strategy which emerges from the competitive school is based

on the following assumptions (Mintzberg, 1998): the marketplace is competitive; strategy

is a generic position in the marketplace; strategy formation is the selection of a generic

position based on analysis. The underlying assumption is that industry or market structure

drives position which drives the organizational structure of the firm.

The Boston Consulting Group (BCG) introduced two techniques: the growth-share

matrix, and the experience curve. The growth-share matrix for a firm, developed in the

early 1970s, is a 2x2 matrix with “growth” along one dimension, and “market share”

along the other dimension. Each of these variables can take two values, “high” or “low”

resulting in a 2x2 matrix. Therefore, the product portfolio of a firm can be decomposed

into four combinations of growth and market share, each with a well defined meaning:

(High growth, high market share) or “stars”, (high growth, low share) or “question

marks”, (slow growth, high share) or “cash cows”, and (slow growth, low share) or

“dogs”. The approach to strategy using this matrix would be to have a portfolio balanced

mainly between cash cows (the stable business of the firm, e.g., “MAC” computers in the

case of Apple) and stars (e.g., the iPod, in the case of Apple).

The experience curve, developed in 1965-66, is based on the idea that accumulated

experience by a firm influences costs and prices. The claim “for the experience curve was

that for each cumulative doubling of experience, total costs would decline roughly 20%

to 30% because of economies of scale, organizational learning, and technical innovation”

(Ghemawat, 1999)

7


Draft document; October 2008In 1971, the consulting firm McKinsey came up with the GE/McKinsey nine-block

matrix called the Industry Attractiveness-Business Strength matrix (Ghemawat, 1999),

which plotted business strength [High, Medium, Low] along one axis, and industry

attractiveness [High, Medium, Low] along the other axis. The basic idea was to divide

the company into “strategic business units (SBUs)”, and then make the appropriate

strategic recommendations for each SBU depending on its “location” in the matrix.

These methods of portfolio analysis had the following problems. First, the

recommendations for each SBU were very sensitive to the method of portfolio analysis

employed. Second, the mechanical process of using historic industry and company data to

determine recommendations usually led to adjusting and modifying current initiatives

rather than addressing how to deal with existing and new forms of competition. To

improve this process, Gluck, in 1979, suggested a four-phase strategy process: financial

planning, forecast-based planning, externally-orientated planning, and strategic

management (Ghemawat, 1999). Portfolio analysis also came under attack from Hayes

and Abernathy in 1980, who contended that the methods used tended to focus on

reducing financial risk at the expense of technological innovation.

However, portfolio analysis brought out two important high-level determinants ( or

dimensions) of the profit potential or profitability of firms: industry attractiveness, which

is the profit potential of an industry (e.g., the personal computer industry) relative to

other industries; and the competitive position of the specific company (e.g., Dell, Apple)

within a given industry. These two determinants play an important role in Porter’s

analytical approach to competitive strategy that emerged in 1980, and which will be the

focus of the next section. The structural analysis of industry, a cornerstone of Porter’s

8


Draft document; October 2008approach, can be viewed as an extension of two earlier frameworks: the well-known

supply-demand analysis, and industrial organization (IO), that focused on the relation

between the structure of industries and their profit potential. Porter relaxed the two basic

assumptions of supply-demand analysis, namely, many competitors and homogeneity of

competitors, while expanding the focus of IO to business strategy.

The Five Forces Framework and Competitive Strategy

In this framework there are two high-level stages in the creation of competitive strategy,

each stage corresponding to a high-level determinant of profitability mentioned in the

previous section. The first stage is the assessment of the attractiveness of the industry in

which a given company is embedded based on a structural analysis of the industry. In this

stage, called the five forces framework, five forces that influence industry attractiveness

are identified, as well as the factors (e.g., number of competitors, size of competitors,

capital requirements) that determine the intensity of each force and therefore the

cumulative intensity of the five forces. The purpose of the five forces framework is to

relate the degree (or intensity) of competition in a given industry, as qualitatively

measured by the combined strength (or intensity) of five forces, to the attractiveness of

the industry, defined as its ability to sustain profitability. Based on the structural analysis,

a particular company may be in a very attractive industry (e.g., pharmaceuticals) or in an

unattractive industry (e.g., steel). However, though a firm exists in an unattractive

industry, it can still be highly profitable by choosing the proper competitive position

within the industry, for example, e.g., a mini-mill such as Nucor in the steel industry in

the nineteen-eighties (Ghemawat). The second stage of strategy creation addresses the

competitive strategy available to the firm in order to achieve a strong competitive

9


Draft document; October 2008position. Ideally, a firm would want to be in a very attractive industry (e.g.,

pharmaceuticals) and have a strong competitive position (e.g., large pharmaceutical firms

such as Smith Klein or Glaxo) within the industry.

The five forces framework for the structural analysis of an industry is as follows. First,

we define the following terms used in the structural analysis of the industry: industry,

market, competitors, new entrants, substitutes, buyers, and sellers. The term industry

denotes (1) the manufacturers (or producers) and (2) the suppliers of a primary product or

service, as well as (3) the manufacturers of alternative products and services that could

serve as a substitute. For example, the (conventional) personal computer (PC) industry

would include PC manufacturers like Dell and Apple, suppliers of semiconductor chips

like Intel and Micron, suppliers of disc drives like Seagate, suppliers of software such as

Microsoft, etc. Substitute products could be pen-based tablet PCs or small hand-held

personal digital assistants (PDAs). In the five forces framework described below,

manufacturers and producers will designated as (1) competitors in the industry if they

already have established products, or (2) new-entrants if they are trying to enter the

industry, or (3) substitutes, if they provide alternative (substitute) products. The term

market denotes the buyers (or customers) of the product or service. For example, the

market for PCs would include enterprises and individual consumers.

The analytical process of strategy analysis and creation can be decomposed into the

following five steps.

1. Create a map of the industry in which the technology company is embedded.

10


Draft document; October 2008There are five key sets of players that constitute the business landscape: competitors, new

entrants, substitutes, suppliers, and buyers. Identify key players (companies) for each

industry.

2. Perform a five forces analysis of the industry structure.

The five forces that influence the intensity of competition in a particular industry, and

therefore the profitability of the firms within the industry: Force 1: the degree of rivalry

(or competition) between the competitors; Force 2: the threat of new entrants (or the

inverse of this force, the barrier to entry); Force 3: the threat of substitutes; Force 4:

Buyer Power (to demand lower prices); Force 5: Supplier Power (to increase material

prices).

For each force, determine the key structural determinants which affect the intensity of the

force. Porter and Ghemawat provide a detailed set of the determinants for each force,

some of which are given in the table below. In the last column of this table we indicate

plausible values of each force for the PC industry in the nineteen nineties.

Table 1 goes here

3. In theory, one would, qualitatively determine the strength of each force, as indicated

in the third column of the above table, and then determine the cumulative or

combined intensity of the five forces. The collective intensity or strength of the forces

will determine the structural strength of the industry, as characterized by

11


Draft document; October 2008attractiveness, or the profit potential of the industry. The profit potential is measured

by the long term return on invested capital (ROIC). If the collective strength of the

forces is high, as in the steel industry, then the corresponding profit potential or

attractiveness is low, and vice-versa. At one extreme of this analysis is the perfectly

competitive free market, where there are numerous firms all offering very similar

products that cannot be differentiated (therefore, the force of rivalry is high), entry is

free (therefore, the threat of both new entrants and substitutes is high), and bargaining

power of both suppliers and buyers is low. Using the PC industry of the 1990’s as an

example, the qualitative values of the forces shown in the last column of the above

table would lead one to conclude that the cumulative strength of the five forces was

medium to high, and therefore the attractiveness of the industry, i.e., its profitability,

was medium to low. The PC industry in the nineteen-nineties would therefore not be

attractive to new entrants, and in fact, in the early 2000s, HP’s computer business was

unprofitable, and IBM sold its computer business to Lenovo. (It is important to note

that HP’s unprofitability in computer business in the early 2000s cannot be attributed

solely to industry attractiveness being low, but is also due to issues associated with its

acquisition of the computer company Compaq.)

4. Select a competitive positioning strategy

The basic premise of Porter and Hall was that for a firm to be successful (in a market) it

had to compete based on one of two sources of competitive advantage: cost, i.e., by

providing low cost products, or differentiation, i.e., by differentiating its products from its

competitors with respect to quality and performance. Porter also proposed that a firm

needs to select its strategic target: either offering a product to the entire market (“market-

12


Draft document; October 2008wide”), or offering a product for a particular market segment. Using these two

dimensions (source of competitive advantage, and strategic target), Porter proposed the

following three generic competitive strategies:

1. Cost Leadership: offering the lowest costs products to the entire market

2. Differentiated: offering highly unique products (as perceived by the customer) to

the entire market

3. Focus: offering products which serve the needs of a niche segment of the market

Porter’s claim is that for a company to be successful in the industry in which it operates it

must choose between one of the three generic strategies: cost leadership, differentiated,

and focus. If one uses the personal computer industry in the US during the 1990’s as an

example, then the competitive strategies of the major players was as follows: Dell was

the low-cost leader; HP had a differentiated strategy with high-quality products; Apple

had a focus strategy, targeting a narrow market segment of users who whom the user-

experience (look, feel, and graphical user interfaces) were extremely important; and IBM

had a mixed strategy.

5. Link competitive strategy to strategic planning (Ghemawat 1999)

In order for a company to derive competitive advantage (or position) within its industry,

the company needs to maximize, relative to it competitors, the difference between the

buyer’s willingness to pay and the costs incurred in delivering the product to the buyer.

Therefore, the next step in the competitive analysis is for the company to link competitive

strategy to strategic planning by analyzing all the activities involved in differentiation and

13


Draft document; October 2008cost, and, to this end, a value chain (Porter, 1985) is an extremely important tool.

According to Porter, “the value chain disaggregates a firm into its strategically relevant

activities in order to understand the behavior of costs and the existing and potential

sources of differentiation.” A three step process for using these activities, first to analyze

costs, then to analyze buyer’s willingness to pay, and finally to explore different strategic

planning options to maximize the difference between willingness to pay and cost, is

developed in (Ghemawat, 1999).

Finally, it is important to keep in mind that competitive strategy needs to evolve,

especially in a high-technology company where markets, industries, and technologies, are

changing relatively rapidly. A good example of the evolution of competitive strategy is

IBM’s strategic decisions to evolve from a product-based company in the early nineties

to a services-led company at the present time. In the early nineties, when the company

was in trouble, IBM closely examined its business model and strategic direction, and

decided to “stay whole” by moving its focus from products and hardware to solutions.

One result of this strategic shift was the creation of IBM Global Services in the mid-

nineties. By the late-nineties the company moved into e-business solutions, and extended

this model in the 2000’s to “business-on-demand”. One result of these shifts in strategy

was IBM’s decision to exit the Personal Computer Market by selling its PC business to

Lenovo.

A useful framework for understanding these shifts in competitive strategy within a

company is the Evolutionary Organizational approach, discussed in the following section.

A useful tool to guide the shifts in competitive strategy is the functional map described in

Section 5.

14


Draft document; October 2008

4. Functional Maps

An important feature of our approach to developing competitive strategy in a technology

firm is the integrated approach to strategy for a technology company, which relates

company strategy to the company’s business goals, business strategy, technology

strategy, and product marketing strategy. Since, markets, industries, technologies, and

products for a technology company are continually evolving, an important concept that

plays a vital role in the creation of strategy, and, in particular, competitive strategy, is the

functional map (Clark and Wheelwright, 1993).

A functional map essentially is a time-based evolutionary map of a key metric for an

important organizational function, e.g., a product performance metric map for the

engineering function in a technology firm, e.g., the well-known Moore’s Law in the

semiconductor industry. Since the time-scales for the evolution of markets, industries and

technologies for technology companies, especially “high-tech” companies, is short

compared to other industries, the creation of the appropriate functional maps is critical to

strategy formation in a technology company. As an example, in the relatively short span

of four decades, information technology evolved from mainframes through workstations,

servers and personal computers to internet-based and mobile computing. Here are some

useful “dimensions” along which to create functional maps for strategy creation:

a) Evolution of the industry in which the enterprise operates (changes in technology,

customer needs, competitive landscape, etc.)

b) Evolution of strategy - business, technology, and market - of the enterprise

15


Draft document; October 2008c) Evolution of technology (including manufacturing), product platforms, and

product lines of the enterprise

d) The processes used for technology, product, and process development within the

enterprise

e) Growth (or decline) of the enterprise with respect to of market share, revenues,

costs, profits, etc.

f) Organizational structure of the enterprise

g) Key decisions made at different stages in the life of enterprise, and the drivers for

these decisions

h) The interconnections and relationships between all the above dimensions

A multi-dimensional functional map for Intel is given in the next section. A very

simple example of how functional maps can shape strategy is in the information

technology industry. A functional map of the Information Technology Industry from

the 1990s to the 2000s would reveal a shift from “products” to services”. The

Services business in 2007-08 is approximately $750 billion, with IBM, whose share

of this market is $54 billion, being the leader. HP, whose own share in the market is

$17 billion seeing this shift in the industry and the need to build competitive strength,

acquired EDS, whose share of the market is $21 billion. The combined share of HP

and EDS would then be $38 billion, allowing it to compete more strongly with IBM.

Another simple example of the use of a functional map in creating strategy is in the

software industry. In the 2000s the software market is moving from a “packaged”

16


Draft document; October 2008product to online software, where individuals can get software that is mostly free,

supported by advertising. Google is using its leadership on the Web to provide online

software that competes with Microsoft’s packaged software. Understanding this shift

from packaged to online, and the corresponding change in the revenue model from

direct sales (of product) to advertising, Microsoft is aggressively entering the online

advertising business.

5. Process for developing competitive strategy in a technology firm

If we combine the positioning framework for competitive strategy due to Porter, the

evolutionary organization theoretic framework due to Burgelman, and augment these

with the creation of relevant functional maps, then the resulting process of developing

competitive strategy in a company can be decomposed into four stages, as follows.

Stage 1: Company Analysis

1. Establish the business goals and objectives (ROI, %market share, revenue,

and growth aspirations).

2. Determine the technology strategy and product market strategy for the

company.

3. Define the overall development goals and objectives to align business goals,

technology, and market strategies.

4. Develop the functional evolutionary maps of the markets and industry in

which the company is embedded. Create functional maps (time-based

evolutionary maps) for technology, product market, and manufacturing

17


Draft document; October 2008strategy of the firm. These maps will be useful in the process of assessing and

creating competitive strategy.

Stage 2: Industry Analysis

1. Perform the structural analysis of the industry in which the company is either

an active competitor, or a new entrant, or a substitute. A convenient form for

performing this analysis is the table below. We have indicated a few simple

examples of what the entries in this table might look like from the viewpoint

of a new entrant. (Note that a sixth force, influence of competitors has been

included. For a discussion of this force, see Ghemawat, 1999).

Table 2 goes here

------------------------------------------------------------------------------------------

2. Determine the existing competitive strategy of the company within the

industry.

3. Determine the relationships between the company and the other players in the

industry.

Stage 3: Assessment and Evolution of the company’s strategy within the relevant

markets and industries

18


Draft document; October 20081. Using the functional maps of the overall markets and industry in which the

company is embedded, as well as the company specific functional maps,

assess the evolution of the company’s competitive strategy.

2. Decide on what the company’s future competitive strategy should be, and the

corresponding technology strategy, product market strategy, and

manufacturing strategy.

6. References

Burgelman, R.A., “Strategy is Destiny”, The Free Press, New York, 2002.

Chopra, Sunil, and Peter Meindl, “Supply Chain Management, Strategy, Planning, and

Operations”, Third Edition, Pearson Prentice-Hall, 2007.

Clark, K. B., and S.C. Wheelwright, Managing New Product and Process Development,

Text and Cases, The Free Press, New York, 1993.

Edwards, Cliff, “Intel”, Business Week, March 8, 2004, Pages 56-64.

Ghemawat, Pankaj, Strategy and the Business Landscape, Text and Cases, Addison

Wesley, 1999.

Mintzberg, Henry and Bruce Ahlstrand, and Joseph Lampel, Strategy Safari, The Free

Press, New York, 1998

Porter, Michael, Competitive Strategy, New York, The Free Press, 1980

Porter, Michael, Competitive Advantage, The Free Press, New York, 1985

19


Draft document; October 2008Glossary

Autonomous Strategy (also see induced strategy). Autonomous strategy refers to

actions of individuals or small groups within the company that are outside the scope

of current high-level corporate strategy. While autonomous strategy is constrained by

the company’s distinctive (core) competencies, it usually (1) involves new

competencies that are not the focus of the firm, and (2) results in so-called “disruptive

technologies” that could change the strategic direction of the firm (Burgelman, 2002).

Company Structure (vertical vs. horizontal). A vertical company is one which uses

only its own proprietary technologies. A horizontal company is one which (usually

because of the existence of open-standards) which does not solely rely on its own

proprietary technologies, but usually uses technologies and products from other

suppliers. In the computer industry, traditionally, Apple is an example of a vertical

company, while Dell is an example of a horizontal company. The computer industry,

itself, moved from a vertical structure to a horizontal structure in the 1980s

(Ghemawhat, 1999).

Competitive Strategy. Competitive Strategy is the high-level strategy used by the

firm to realize its business goals, and in particular, profitability, in the face of

competition. Porter identified three generic competitive strategies: differentiated,

cost-leadership, and focus (Porter, 1980).

Corporate Strategy (official corporate strategy). Corporate strategy is top

management’s view of the basis of the company’s success. It includes distinctive

(core) competencies, product-market domains, and core values (Burgelman, 2002)

20


Draft document; October 2008Five Forces. Five forces that influence industry attractiveness are identified, as well

as the factors (e.g., number of competitors, size of competitors, capital requirements)

that determine the intensity of each force and therefore the cumulative intensity of the

five forces. The purpose of the five forces framework is to relate the degree (or

intensity) of competition in a given industry, as qualitatively measured by the

combined strength (or intensity) of five forces, to the attractiveness of the industry,

defined as its ability to sustain profitability (Porter, 1980).

Functional Map. A functional map essentially is a time-based evolutionary map of a

key metric for an important organizational function, e.g., a product performance

metric map for the engineering function in a technology firm, e.g., the well-known

Moore’s Law in the semiconductor industry (Clark and Wheelwright, 1993).

Generic Competitive Strategy (also see substantive strategy). Porter proposed that

for a company to be successful, it must adopt one of three generic competitive

strategies: differentiated, cost leadership, and focus. Generic strategy is derived from

a firm’s distinctive core competencies (Porter, 1980).

Industry. The term industry, e.g., the consumer electronics industry, denotes (1) the

manufacturers (or producers) and (2) the suppliers of a primary product or service, as

well as (3) the manufacturers of alternative products and services that could serve as a

substitute (Porter, 1980).

Induced Strategy (also see autonomous strategy). Induced strategy refers to actions,

e.g., new product development, on the part of operational and middle-managers that

21


Draft document; October 2008are directed at gaining or maintaining leadership in the company’s core business

(Burgelman, 2002).

Market. The term market denotes the buyers (or customers) of the product or service.

Typically markets are segmented, for example, a two-dimensional segmentation

based on the types of product (product segmentation) along one axis, and the types of

customers (customer segmentation) along the other axis. The market, as represented

by “Buyers” is an important part of the industry analysis in Porter’s framework.

Substantive Strategy (also see generic competitive strategy). Substantive strategy is

the implementation of the company’s generic strategy in a particular product-market

domain (Burgelman, 2002).

22



Force Key Determinants Strength of the force Rivalry between competitors Concentration (number)

and size of competitorsMedium to high

Fixed costs/value addedBrand indentity

Barrier to entry Economies of scale Medium to highBrand identityCapital requirements

Threat of substitutes Price/Performance of substitutes

Low to medium

Switching costsBuyer Power Buyer concentration

Buyer size (volume) Medium to highSwitching costs

Supplier Power Supplier concentration Low to mediumSupplier size (volume)Switching costs

Table 1

Force Key Determinants

Analysis Intensity of Force

Actions

Rivalry between competitors

Concentration 4 players (Dell,..) Medium to high

Entry into this market would be difficult

Size 1 dominant playerEtc.

Barriers to entry Brand High brand identity

High Since the PC market is hard to enter, explore a different business model, possibly services

Capital RequirementEtc.

Threat of Substitutes

Switching costs

High

Etc.Supplier Power Concentration 3 major suppliers

SizeEtc.

Buyer Power Concentration Size

Influence of complementors

Table 2

23



VisionMission

Business Goals

TechnologyStrategy

MarketStrategy

CompetitiveStrategy

Financial Strategy

Purpose of the company

Revenue ($),Growth (%),Etc.

Figure 1: A strategic view of the technology firm, showing different types of strategy

24

(Note: these notes, intended to supplement your class notes ...

Documents

Transcript of (Note: these notes, intended to supplement your class notes ...