Organization Strategy Developement - 121212
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Transcript of Organization Strategy Developement - 121212
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GRAND STRATEGIES
STRATEGIC MANAGEMENT
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Chapter Roadmap Five Competitive Strategies
Low-Cost Provider Strategies
Differentiation Strategies
Best-Cost Provider Strategies
Focused (or Market Niche) Strategies
The Contrasting Features of the Five Generic CompetitiveStrategies: A Summary
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Chapter Roadmap Strategic Alliances and Collaborative
Partnerships Merger and Acquisition Strategies Vertical Integration Strategies Outsourcing Strategies Using Offensive Strategies to Secure
Competitive Advantage Using Defensive Strategies to Protect the
Companys Position Strategies for Using the Internet as a Distribution
Channel Choosing Appropriate Functional-Area Strategies First-Mover Advantages and Disadvantages
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Strategy and Competitive Advantage Competitive advantage exists when a firms strategy
gives it an edge in
Attracting customers and
Defending against competitive forces
Convince customers firms product / service offers
superior value
A good productat a low price
A superior productworth paying more for
A best-value product
Key to Gaining a Competitive Advantage
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What Is Competitive Strategy?
Deals exclusively with a companysbusinessplans to compete successfully
Specific efforts toplease customers
Offensive and defensive movesto counter maneuvers of rivals
Responses to prevailing market conditions
Initiatives to strengthen its market position
Narrower in scope than businessstrategy
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Make achievement ofmeaningful lower coststhan rivals the theme of firms strategy
Include features and services in productoffering that buyers consideressential
Find approaches to achieve a cost advantagein ways difficultfor rivals to copy or match
Low-cost leadership means lowoverall costs, not just low
manufacturing or production costs!
Keys to Success
Low-Cost Provider Strategies
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When Does a Low-Cost
Strategy Work Best?
Price competition is vigorous
Product is standardized or readily available
from many suppliers
There are few ways to achieve
differentiation that have value to buyers
Most buyers use product in same ways
Buyers incur low switching costs
Buyers are large and have
significant bargaining power
Industry newcomers use introductory low prices to
attract buyers and build customer base
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Pitfalls of Low-Cost Strategies
Being overly aggressive in cutting price
Low cost methods are easily imitated by rivals
Becoming too fixated on reducing costs
and ignoring
Buyer interest in additional features
Declining buyer sensitivity to price
Changes in how the product is used
Technological breakthroughs open up cost reductionsfor rivals
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Differentiation Strategies
Incorporate differentiating features that cause
buyers topreferfirmsproduct or service over
brands of rivals
Find ways to differentiate that create value for
buyers and are not easily matchedorcheaply
copiedby rivals Not spending more to achieve differentiation
than theprice premium that can be charged
Objective
Keys to Success
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Benefits of Successful
Differentiation
A product / service with unique,
appealing attributes allows a firm to
Command apremium priceand/or
Increase unit salesand/or
Buildbrand loyalty
= Competitive Advantage
Whichhat is
unique?
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Signaling Value as Well
as Delivering Value
Incomplete knowledge of buyers causes them tojudge value based on such signals as Price Attractive packaging Extensive ad campaigns
Ad content and image
Characteristics of seller Facilities Customers Professionalism and personality of employees
Signals of value may be as important as actual valuewhen Nature of differentiation is hard to quantify Buyers are making first-time purchases Repurchase is infrequent Buyers are unsophisticated
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When Does a Differentiation
Strategy Work Best?
There are many ways to differentiate a product
that have value and please customers
Buyer needs and uses are diverse
Few rivals are following a similar
differentiation approach
Technological change and
product innovation are fast-paced
Pitf ll f
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Pitfalls of
Differentiation Strategies Buyers see little value in unique attributes of product
Appealing product features are easily copied byrivals
Differentiating on a feature buyers do not perceive aslowering their cost or enhancing their well-being
Over-differentiating such that productfeatures exceed buyers needs
Charging a price premiumbuyers perceive is too high
Not striving to open up meaningful gaps in quality,service, or performance features vis--vis rivalsproducts
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Best-Cost Provider Strategies Combine a strategic emphasis on low-costwith a
strategic emphasis on differentiation
Make an upscale product at a lower cost
Give customers more value for the money
Deliver superior value by meeting or exceeding buyerexpectations on product attributes and beating their price
expectations
Be the low-cost provider of a product with good-to-excellent
product attributes, then use cost advantage to underprice
comparable brands
Objectives
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A best-cost providers competitive advantage comes
from matchingclose rivals on key product attributesand beatingthem on price
Success depends on having the skills and capabilitiestoprovide attractive performanceandfeatures at alower cost than rivals
A best-cost producer can often out-compete botha low-cost provider and a differentiator when Standardized features/attributes
wont meet diverse needs of buyers
Many buyers are price and value sensitive
Competitive Strength of a
Best-Cost Provider Strategy
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A best-cost providermay get squeezedbetween strategies of firms using low-cost
and differentiation strategies
Low-cost leaders may be able to siphon
customers away with a lower price
High-end differentiators may be able tosteal customers away with better product
attributes
Risk of a Best-Cost
Provider Strategy
Risk of a Best-Cost
Provider Strategy
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Focus / Niche Strategies
Involve concentrated attention on a narrow piece of
the total market
Serve niche buyers better than rivals
Choose a market niche where buyers have distinctivepreferences, special requirements, or unique needs
Develop unique capabilities to serve needs of targetbuyer segment
Objective
Keys to Success
Wh t M k Ni h
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What Makes a Niche
Attractive for Focusing?
Big enough to be profitable and offers good growthpotential
Not crucial to success of industry leaders
Costly or difficult for multi-segment competitorsto meet specialized needs of niche members
Focuser has resources and capabilitiesto effectively serve an attractive niche
Few other rivals are specializing in same niche
Focuser can defend against challengers via superiorability to serve niche members
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Risks of a Focus Strategy
Competitors find effective ways to match
a focusers capabilities in serving niche
Niche buyers preferences shift towards product
attributes desired by majority of buyers niche
becomes part of overall market
Segment becomes so attractive it becomes crowded
with rivals, causing segment profits to be splintered
D idi Whi h G i
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Deciding Which Generic
Competitive Strategy to Use
Each positions a company differently in itsmarket Each establishes a central theme for how a
company will endeavor to outcompete rivals Each creates some boundaries for
maneuvering as market circumstances unfold Each points to different ways of
experimenting with the basics of the strategy Each entails differences in product line,
production emphasis, marketing emphasis,and means to sustain the strategy
The big risk Selecting a stuck in the middlestrategy!This rarely produces asustainable competitive
advantage or a distinctive competitive position.
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A Companys Menu of Strategy Options
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A Company s Menu of Strategy Options
Alli C E h
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Alliances Can Enhance a
Firms Competitiveness
Alliances and partnerships can help companies copewith two demanding competitive challenges
Racing against rivals to build amarket presence in manydifferent national markets
Racing against rivals to seizeopportunities on the frontiersof advancing technology
Collaborative arrangements can help a companylowerits costs and/orgain access to needed
expertise and capabilities
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Why Are Strategic Alliances Formed? To collaborate on technology development or new
product development To fill gaps in technical or manufacturing expertise
To acquire new competencies
To improve supply chain efficiency
To gain economies of scale inproduction and/or marketing
To acquire or improve market access via jointmarketing agreements
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Why Alliances Fail
Ability of an alliance to endure depends on
How well partners work together Success of partners in responding
and adapting to changing conditions
Willingness of partners torenegotiate the bargain
Reasons for alliance failure Diverging objectives and priorities of partners
Inability of partners to work well together
Changing conditions rendering purpose of allianceobsolete
Emergence of more attractive technological paths
Marketplace rivalry between one or more allies
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Merger and Acquisition Strategies Merger Combination and pooling of equals, with
newly created firm often taking on a new name
Acquisition One firm, the acquirer, purchases andabsorbs operations of another, the acquired
Merger-acquisition
Much-used strategic option
Especially suited for situations wherealliances do not provide a firm with neededcapabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations, creatingmore control and autonomy than alliances
Obj ti f M
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Objectives of Mergers
and Acquisitions To pave way for acquiring firm to gain more market
share and create a more efficient operation
To expand a firms geographic coverage
To extend a firms business into new productcategories or international markets
To gain quick access to new technologies To invent a new industry and lead the convergence of
industries whose boundaries are blurred by changingtechnologies and new market opportunities
Pi f ll f M
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Pitfalls of Mergers
and Acquisitions
Combining operations may result in Resistance from rank-and-file employees
Hard-to-resolve conflicts in management styles and
corporate cultures
Tough problems of integration
Greater-than-anticipated difficulties in
Achieving expected cost-savings
Sharing of expertise
Achieving enhanced competitive capabilities
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Vertical Integration Strategies
Extenda firms competitive scope within
same industry
Backwardinto sources of supply
Forwardtoward end-users of final product
Can aim at eitherfullorpartial
integration
Internally
Performed
Activities,
Costs, &Margins
Activities,
Costs, &
Margins of
Suppliers
Buyer/User
Value
Chains
Activities, Costs,
& Margins of
Forward Channel
Allies &
Strategic Partners
St t i Ad t
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Strategic Advantages
of Backward Integration
Generates cost savings only if volume needed isbig enough to capture efficiencies of suppliers
Potential to reduce costs exists when Suppliers have sizable profit margins
Item supplied is a major cost component
Resource requirements are easily met
Can produce a differentiation-based competitiveadvantage when it results in a better quality part
Reduces risk of depending on suppliers of crucialraw materials / parts / components
St t i Ad t
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Strategic Advantages
of Forward Integration
To gain better access to end usersand better market visibility To compensate for undependable distribution
channels which undermine steady operations To offset the lack of a broad product line, a firm
may sell directly to end users To bypass regular distribution channels in favor of
direct sales and Internet retailing which may Lower distribution costs Produce a relative cost advantage over rivals
Enable lower selling prices to end users
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Strategic Disadvantages
of Vertical Integration Boosts resource requirements Locks firm deeper into same industry
Results in fixed sources of supply andless flexibility in accommodating buyer
demands for product variety Poses all types of capacity-matching problems
May require radically different skills / capabilities
Reduces flexibility to make changes in componentparts which may lengthen design time and ability tointroduce new products
Pros and Cons of
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Whethervertical integration is a viablestrategic option depends on its Ability to lower cost, build expertise,
increase differentiation, or enhance
performance of strategy-critical activities Impact on investment cost, flexibility,
and administrative overhead
Contribution to enhancing a firmscompetitiveness
Pros and Cons of
Integration vs. De-Integration
Many companies are finding that
de-integratingvalue chain activities is a
more flexible, economic strategic option!
O t i St t i
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Outsourcing Strategies
Outsourcing involves withdrawingfrom certain value
chain activities and relying on outsiders
to supply needed products, support
services, or functional activities
Concept
Internally
PerformedActivities
Suppliers
Support
Services
Functional
Activities
Distributors
or Retailers
Wh D O t i
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When Does Outsourcing
Make Strategic Sense?
Activity can be performed better or morecheaply by outside specialists
Activity is not crucial to achieve a sustainablecompetitive advantage
Risk exposure to changing technology and/orchanging buyer preferences is reduced
Operations are streamlined to Cut cycle time Speed decision-making Reduce coordination costs
Firm can concentrate on core value chainactivities that best suit its resource strengths
St t i Ad t
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Strategic Advantages
of Outsourcing
Improves firms ability to obtain high quality and/orcheaper components or services Improves firms ability to innovate by interacting
with best-in-world suppliers Enhances firms flexibility should customer needs
and market conditions suddenly shift Increases firms ability to assemble diverse kinds ofexpertise speedily and efficiently
Allows firm to concentrate its resources onperforming those activities internally which it can
perform better than outsiders
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Pitfalls of Outsourcing
Farmingout too manyor the wrongactivities, thus
Hollowing outcapabilities
Losing touch with activities and expertise
that determine overall long-term success
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Types of Offensive Strategies1. Initiatives to match or exceed competitor
strengths2. Initiatives to capitalize on competitor
weaknesses
3. Simultaneous initiatives on many fronts
4. End-run offensives
5. Guerrilla offensives
6. Preemptive strikes
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Using Offensive Strategy to Achieve
Competitive Advantage
Strategic offensives offeringstrongestbasis forcompetitive advantage entail
An important core competence
A unique competitive capability Much-improved performance features
An innovative new product
Technological superiority
A cost advantage in manufacturing or distribution
Some type of differentiation advantage
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Defensive Strategy
Objectives
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at
other rivals
Approaches
Block avenues open to challengers
Signal challengers vigorous
retaliation is likely
St t i f U i th I t t
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Strategies for Using the Internet Strategic Challenge What use of the Internet
should a company make in staking out its
position in the marketplace? Five Approaches
Use company web site solely to disseminate productinformation
Use company web site as a minor distributionchannel for accessing customers and generatingsales
Use company web site as one of several importantdistribution channels for accessing customers
Use company web site as primary distribution
channel for accessing buyers and making sales Use company web site as the exclusive channel
for accessing buyers and conducting salestransactions
B i k d Cli k St t i A
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Brick-and-Click Strategies: An
Appealing Middle Ground Approach Approach
Sell directly to consumers and
Use traditional wholesale/retail channels
Reasons topursue a brick-and-click strategy
Manufacturers profit margin from online sales is bigger
than that from sales through traditional channels Encouraging buyers to visit a firms website educates
them to the ease and convenience of purchasing online
Selling directly to end users allows a manufacturer tomake greater use of build-to-order manufacturing and
assembly
St t i f O li E t i
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Strategies for Online Enterprises
Approach Use Internet as the exclusive
channel for all buyer-seller contact and transactions Success depends on a firms ability
to incorporate following features Capability to deliver unique value to buyers
Deliberate efforts to engineer a value chain that enables
differentiation, lower costs, or better value for the money Innovative, fresh, and entertaining website
Clear focus on a limited number of competencies and a relativelyspecialized number of value chain activities
Innovative marketing techniques
Minimal reliance on ancillary revenues
Choosing Appropriate
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Choosing Appropriate
Functional-Area Strategies
Involves strategic choices about howfunctional areas are managedto support
competitive strategyand other strategic
moves
Functional strategies include Research and development
Production
Human resources
Sales and marketing
Finance
Tailoringfunctional-area strategies to
support key business-level strategies is critical!
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First-Mover Advantages When to make a strategic move is often as
crucial as whatmove to make
First-mover advantages arise when
Pioneering helps build firms image and reputation
Early commitments to new technologies,new-style components, and distributionchannels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
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First-Mover Disadvantages
Moving earlycan be a disadvantage (or fail toproduce an advantage) when
Costs of pioneering are sizable and
loyalty of first time buyers is weak
Innovators products are primitive,
not living up to buyer expectations
Rapid technological change allows
followers to leapfrog pioneers
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Principle 1
Being a fast follower can sometimes yield
as good a result as being a first mover
Principle 2
Being a late-mover may or may not be fatal --
Principle 3
Being a fast follower can sometimes yield
as good a result as being a first mover
Timing and Competitive AdvantageTiming and Competitive Advantage