Strategy A view from the top
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Transcript of Strategy A view from the top
STRATEGY A VIEW FROM THE TOP
Chapter 6 : Formulating Business Unit Strategy
Team 6
Business Unit Strategy Involves creating a profitable competitive
position for a business within a specific industry or market segment
Often referred to as a competitive strategy
Optimal strategies depend on many factors, including the nature of the industry; the company’s mission, goals, and objectives; its current position and core competencies; and major competitors’ strategic choices.
Strategic Logic at the Business Unit Level
Success is explained by two factors Attractiveness of the industry
Industry characteristics are an important determinant of profit potential
Good to Great argues that “a company does not need to be in a great industry to become a great company. Each good-to-great company built a fabulous economic engine, regardless of the industry.”
Relative Position Two forms of sustainable competitive positioning
are competitive advantage based on lower delivered cost and the ability to differentiate products or services.
The Profit Impact of Market Strategy Project
A study by the Harvard Business school to research relative profitability of different market strategies found the following:
Market share is strongly related with ROI Product quality is key to market leadership Vertical integration can be beneficial later in the
product life cycle ROI is positively correlated with market growth High investment and inventory levels tend to
depress ROI Capacity use is critical for businesses with a high
level of capital intensity
Four Challenges to Formulating a Competitive Strategy
1) Analyzing the competitive environment With whom will we compete? What relative strengths do we have as a basis for
creating a sustainable competitive advantage? 2) Anticipating key competitors’ actions
Understanding how competitors will react to our competitive strategy
3) Generating strategic options Balancing opportunities and constraints to create
options 4) Choosing among the alternatives
Analysis of the long-term impact of different strategy options
Competitive Advantage Competitive advantage is sustainable
when current or new competitors are not able to imitate or supplant the advantage
Often created by combining strengths
Building competitive advantage is rooted in identifying, practicing, strengthening, and instilling leadership traits throughout the organization
Value Chain Analysis Value- perceived benefit that a buyer is willing to pay a
firm for what the firm provides
Value Chain- A model of the business process Divides the firm’s business process into component activities
that add value
Once a firm’s primary, support, and activity types are defined, Value Chain analysis assigns assets and operating costs to all value-creating activities
Analyzing the value chains of competitors, customers, and suppliers can help a firm add value
The Value Chain
Firm Infrastructure
Human Resource Management
Technology DevelopmentProcurement
SupportActivities
Operations Outbound Logistics
Marketing and Sales
Service
MarginInbound
Logistics
Primary Activities
Margin
Value Chain It is important to identify the value that individual
primary and support activities contribute beyond their costs
The value chain can be used to shape responses to changing upstream and downstream market conditions through collaboration
Physical value chain- represents the use of raw materials and labor to deliver a tangible product
Virtual value chain- information flows underlying the physical activities evident within a firm
Differentiation or Low Cost Generic competitive strategic postures that apply to
any business in any industry according to Porter
Cost leaders charge less for goods and services and aim for a substantial share of the market Cost focus- only activities directly relevant to serving the
well-defined market niche are undertaken
A differentiation strategy is aimed at a broad, mass market and seeks to create uniqueness on an industry-wide basis Achieved through product design, brand image, technology,
distribution, service, or a combination of these elements
Generic Strategy Choices
Focus
Industry-wide Overall Cost LeadershipDifferentiation
Particularsegment only
Stra
tegi
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Uniqueness perceivedby the customer Low-cost position
Strategic Advantage
Generic Strategies Cost Leadership
Ruthless devotion to minimizing costs through continuous improvement in manufacturing, process engineering, and other cost-reducing strategies
Tight control of the organizational structure is essential
Differentiation The company offers something unique that is valuable
Offers a value other than low price Most successful differentiation strategies involve
multiple sources of differentiation
Risks Cost leaders
Technological change that can nullify past investments in scale economies
New entrants from other parts of the world can take advantage of even lower factor costs
Differentiation The biggest challenge is imitators Imitation narrows actual and perceived value
Dell Created a sustainable competitive advantage by
committing to its low-cost, speed based business model combined with new principles
Stuck to its business model of making PCs cheap and never countered the innovative and aggressive moves of its competitors
The cost-leadership strategy produced great sales when market demand was high, but it kept Dell from maintaining its growth path when sufficient sales could only be found in new product market segments where differentiation was demanded
Critique of Porter’s Generic Strategies
Generic strategies aren’t always viable, but strategies that combine the elements of cost leadership, differentiation, and flexibility are better able to meet customer needs
It is argued that differentiation and low-cost are not mutually exclusive; they can exist within the total quality management As discussed in Blue Ocean Strategy, “Value innovation is
created in the region where a company’s actions favorably affect its cost structure and its value proposition to buyers.”
The pursuit of a pure generic strategy will not sustain a competitive advantage in hypercompetitive environments
Value Disciplines Different ways companies can create
value for customers. Specifically three generic strategies:
Product Leadership
Operational Excellence
Customer Intimacy
Product Leadership Produce a continuous stream of state-of-the-art
products and services
Encourage innovation
Have a risk-oriented management style
Recognition that the company’s success lies in its talented design people and those who support them
Recognition of the need to educate and lead the market regarding the use and benefits of new products
Operational Excellence Approach aimed at better production and
delivery mechanisms
Example: Starwood Hotel and Resorts Decided to stylishly renovate its underperforming
hotels and focus on doing and presenting everything it already did much better
Restored a reputation for reliability, value, and consistency
With a focus on operational excellence, Starwood led Marriott and Hilton in North American revenue per available room.
Customer Intimacy Concentrates on building customer loyalty
Example: Home Depot Changed daily operations to provide a more
shopper-friendly store atmosphere Allows employees to focus on customer service
and sales The second initiative involves home improvement
classes taught at its stores Customer intimacy is enhanced when professionals
teach customers how to buy and install the proper material and construction equipment
Different Value Disciplines Call for Different Competencies
Strategic Focus Work Environment Employee Competencies
Customer intimacy Values-driven, dynamic, challenging, informal, service-oriented, qualitative, employee as customer, “whatever it takes”
Relationship-building, listening, rapid problem-solving, independent action, initiative, collaboration, quality-focused
Operational excellence Predictable, measurable, hierarchical, cost-conscious, team-based, formal
Process control, continuous improvement, teamwork, analysis, financial/operational understanding
Product leadership Experimental, learning-focused, technical, informal, fast-paced, resource-rich
Information sharing, creativity, group problem solving, breakthrough thinking, artistic, visionary
Designing a Profitable Business Model
Adrian Slywotzky and David Morrison have identified business models/designs that generate profits in a unique way:
Customer development/Customer solutions profit model Finds ways to improve their customers’ economics
and ways to improve customers’ processes Product pyramid profit model
Company offers a number of variations including low-priced, high-volume products and high-priced, low volume products
Designing a Profitable Business Model (continued)
Multicomponent System profit model Businesses that are characterized by a system
that consists of component that generate substantially different levels of profitability
Switchboard profit model Creates a high-value intermediary that
concentrates the multiple connection pathways through one point, reducing costs
Time profit model Speed is the key to profitability and constant
innovation is essential
Designing a Profitable Business Model (continued)
Blockbuster profit model Profitability is driven by a few great product
successes Invest in a few projects rather than in a variety
Profit multiplier profit model For businesses with strong consumer brands
Entrepreneurial profit model Stresses that diseconomies of scale can exist Small can be beautiful
Designing a Profitable Business Model (continued)
Specialization profit model Stresses growth through sequenced
specialization Installed base profit model
Established user base subsequently buys the company’s brand of consumables or follow-on products
De Facto standard profit model When the instilled base model becomes the
de facto standard that governs competitive behavior in the industry