Strategy Concepts

45
SCHOOL OF BUSINESS ADMINISTRATION SCHOOL OF BUSINESS ADMINISTRATION BA 530 – John A. Hengeveld Winter 2004 BA 530 – John A. Hengeveld Winter 2004 Strategy Concepts John A. Hengeveld

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Transcript of Strategy Concepts

Page 1: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Strategy Concepts

John A. Hengeveld

Page 2: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Agenda for Today

• Term Project Discussion (0:40)• How Functions impact competition• Strategy Concepts – Grant Chapter 5 (1:30)• HE Butt Case (1:00+)

Page 3: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Term Project• Emerging Technology Briefing

– 20 minute powerpoint presentation– Written report

• I am about to provide you with a list of “EMERGING TECHNOLOGIES that will change the world”

• Each team gets one and provides an analysis (the result of research)– Describe the technology and its value proposition application and impact

within the context of an actual industry– Look at candidate strategies for firms engaged in developing this technology.– Potential limitations and contingencies that may affect the innovation’s

applicability, now and in the future. Here you will be interested in the maturity of the technology, its long-run practicality, possible limits on its scope of application, and negative side-effects (and who, specifically, may suffer from these).

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Term Project - cont• Presentation. Your class presentation should be supported by a small

number of professional quality visuals, rendered in Powerpoint. Visuals might include outlines, diagrams, and/or text; taken together they should summarize the important issues surrounding the topic. Keep in mind the basic factors that make for a good set of visuals:

– Provide slides that will help the audience to visualize the overall structure of the presentation.

– You should have "something to show" for each major point you make verbally. That is, you shouldn’t find yourself yakking at length about some concept without a corresponding visual element for the audience to consider.

– Don’t put too much on any one slide. Minimize clutter, in order to support efficient scanning by the audience during your presentation.

– Every element should be big enough to see from the back of the room. This is obvious, yes, but commonly overlooked.

– Think carefully about what kind of written support you want in front of you, as you present.

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Term Project – written report

• The written report should present in written form the same information you offered in your class presentation. Strive for a professional looking report.

• The written report should also provide additional details on the topic that you encountered during your research but did not have time to cover during your brief presentation.

• Such details might include: additional information on how the technology works; more insight into secondary or unintended consequences; issues and challenges in implementing the technology; more examples of its business use, and definitions for key terms.

• The written report must include a complete bibliography giving all references used in preparing your report. Include full URLs for Web-based materials.

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Topics: • Universal Translation

• Nanowires

• Terrahertz Imaging Systems

• Piezo Fuel Injection

• Microfluidic Optical Fibers

• Synthetic Biology

• Personal Genomics

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Value Chain of the Firm

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

InboundLogistics

Operations OutboundLogistics

Marketing& Sales

Service

Materialshandlingdelivery

PrimaryActivities

SupportActivities

Mfg. &assembly

OrderprocessingShipping

ProductPricingPromotionPlace

CustomerserviceRepair

Page 8: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

The Value System• The model can be extended by linking many

value chains into a value system.• Much of the advantage of supply chain

management comes from understanding how information is used within each value chain of the system.

• This can lead to the formation of entire new businesses designed to change the information component of value-added activities.

Page 9: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Supplier’svaluechain

Firm’svaluechain

Channel’svalue chains

Buyer’s valuechains

The value system: interconnecting Relationships between organizations

Page 10: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

The Value System and Strategic Alliances

• Many industries are experiencing the growth of strategic alliances that are directly linked to sharing information resources across existing value systems.

• An alliance between American Airlines, Marriott and Budget Rent-A-Car called AMRIS provides travelers with a single point of contact.

• Electronically pooling information services of several companies can create competitive advantage by saving customers time.

Page 11: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Generic Strategies

DifferentiationOverall CostLeadership

Cost Focus

UniquenessLow Cost Position

Com

pet

itiv

eS

cop

eCompetitive Advantage Sought

Differentiation Focus

Nar

row

B

road

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Porter’s Competitive Advantage Strategies

• Cost leadership: be the cheapest

• Differentiation: focus on making your product stand out for non-cost reasons

• Focus: occupy narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation.

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Variants on Differentiation Strategy

• Shareholder value model: create advantage through the use of knowledge and timing (Fruhan)

• Barriers to entry model: firms create barriers to entry to keep competitors out of their markets

• Unlimited resources model: companies with a large resource can sustain losses more easily than ones with fewer resources

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Hypercompetition and the New 7-S’s framework

(D’Aveni)• Sustained competitive advantage is not possible• Only temporary advantages exist, created by a

company’s speed and aggressiveness.• Assumes:

– Every advantage becomes eroded– Sustaining an advantage uses too much time and

resources.– Instead, companies must seek to stay ahead of its

competitors by creating temporary advantages– These are done in small steps over short competitive

cycles. Focus on creating the next temp. advantage.

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Co-opetition

• More about forming alliances to better compete. • Companies, competitors, customers and suppliers

are participate in (and compete in) “the value net”.• Key concept is “complementors”, companies that

sell complementary products and services. • These can often gain advantage by forming an

alliance to provide a more competitive

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Why are strategic advantage Models essential to planning?

• Business strategy needs to address: – What is the business goal or objective?– What is the plan for achieving it? – Who are the crucial competitors and

cooperators,and what is required of a successful player in this value net?

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Strategic Process MAPGenerate Strategic

Alternatives

StrategicOptions

Generator

Analyze StrategicFramework

ExternalAnalysis

InternalAnalysis

KSF

R/C

Competitive MappingCustomer Value DriversSustaining ProfitabilityGlobal Framework

CompetencyRent Earning PotentialResource/Capability Map

CRITERIA

Sel

ect S

hort

Lis

t v C

rite

ria

StrategicDue Diligence

DraftImplementation

Congruence

R/C Review

CompetitiveResponse

RiskIdentification

And Reduction Sel

ect S

trat

egic

Dir

ecti

on

StrategicImplementation

OrganizationalStructure

Process

ChangeManagement

ImplementationPlan

RiskMitigation

Implementation

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Grant Chapter 5

Page 19: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

4. Develop strategy implications: (a) In relation to strengths--How can these be exploited more effectively and fully? (b) In relation to weaknesses --Identify opportunities to outsourcing activities that can be better performed by other organizations. --How can weaknesses be corrected through acquiring and developing resources and capabilities?

3. Appraise the firm’s resources and capabilities in terms of:

(a) strategic importance(b) relative strength

2. Explore the linkages between resources and capabilities

1. Identify the firm’s resources and capabilities

STRATEGY

CAPABILITIES

RESOURCES

POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE

A Framework for Analyzing Resources and CapabilitiesA Framework for Analyzing Resources and Capabilities

Page 20: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

THE FIRM

Goals and Values

Resources andCapabilities

Structure and Systems

THE INDUSTRYENVIRONMENT

•Competitors•Customers•Suppliers

STRATEGYSTRATEGY

Shifting the Focus of Strategy Analysis:From the External to the Internal Environment

Shifting the Focus of Strategy Analysis:From the External to the Internal Environment

Page 21: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Rationale for the Resource-based Approach to Strategy

Rationale for the Resource-based Approach to Strategy

• When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus.

• Resources and capabilities are the primary sources of profitability

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SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995

Founding ofHonda motor

company

50cc 2-cycle engine

4 cycle engines

405ccmotorcycle

Related products:ground tillers, marineengines, generators,pumps, chainsaws

First product: clip-on engine

for bicycles

The 50ccsuper-cub

N360 minicar

1000ccGoldwing

touringmotor cycle

Acura Cardivision

The Evolution of Honda Motor Company The Evolution of Honda Motor Company

Page 23: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Precision Mechanics

Fine Optics

Micro-Electronics

35mm SLR cameraCompact fashion cameraEOS autofocus camera

Digital cameraVideo still camera

Plain-paper copierColor copier

Color laser copier Laser copierBasic fax

Laser faxMask aligners

Excimer laser alignersStepper aligners

Inkjet printerLaser printer

Color video printerCalculator

Notebook computer

Canon: Products and Core Technical CapabilitiesCanon: Products and Core Technical Capabilities

Page 24: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

STRATEGY

INDUSTRY KEYSUCCESS FACTORSCOMPETITIVE

ADVANTAGE

ORGANIZATIONALCAPABILITIES

RESOURCESTANGIBLE INTANGIBLE HUMAN

•Financial•Physical

•Technology•Reputation•Culture

•Skills/know-how•Capacity for communication & collaboration•Motivation

The Links between Resources, Capabilities and Competitive Advantage

The Links between Resources, Capabilities and Competitive Advantage

Page 25: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Appraising ResourcesAppraising ResourcesRESOURCE CHARACTERISTICS INDICATORS

Financial Borrowing capacity Debt/ Equity ratioInternal funds/ generation Credit rating

Tangible Net cash flowResources Physical Plant and equipment: Market value of

size, location, technology fixed assets.flexibility. Scale of plantsLand and buildings. Alternatives for fixedRaw materials. assets

Technology Patents, copyrights, know how No. of patents owned.R&D facilities. Royalty income

Intangible Technical and scientific R&D expenditure.Resources employees R&D staff

Reputation Brands. Customer loyalty. Company Brand equity. Productreputation (with suppliers, customers, price premium.government) Recognition.

Human Training, experience, adaptability, Employee qualifications,Resources commitment and loyability of customers pay rates, turnover.

Page 26: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Identifying Organizational Capabilities :Functional Approach

Identifying Organizational Capabilities :Functional Approach

FUNCTION CAPABILITY EXEMPLARSCorporate Financial management Exxon, Coca ColaManagement General Electric,

Strategic Control Emerson Electric, GECoordinating decentralized ABB, Shellbusiness unitsManaging Acquisitions Nationsbank, ConAgra

MIS Speed and responsiveness through American Airlinesrapid information transfer LL Bean

R&D Research capability Mereck, AT&TDevelopment of innovative new products Sony, 3M

Manufacturing Efficient volume manufacturing Briggs & StrattonContinuous Improvement Nucor, MotorolaFlexibility Benetton

Design Marketing Design Capability Apple, Swatch,Brand Management Proctor & Gamble,

PepsiCoSales & Distribution Promoting reputation American Express

Responsiveness to market trends The GapSales Responsiveness Microsoft, GlaxoEfficiency and speed of distribution Federal ExpressCustomer Service Walt Disney

Page 27: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

A Hierarchy of Capabilities: A Telecom Manufacturer

A Hierarchy of Capabilities: A Telecom Manufacturer

A u tom atedth rou g h -h o lecom p on en t

in sertion

P rin tedc ircu it-b oard

assem b ly

M an u fac tu rin gcap ab ility

op era tion scap ab ility

N ew p rod u c td eve lop m en t

cap ab ility

C u s tom ersu p p ort

cap ab ility

M an u a lin sertion o f

com p on en ts

Te lse tassem b ly

M ateria lsm an ag em en t

cap ab ility

R & D an dd es ig n

cap ab ility

S u rfacem ou n tin g o fcom p on en ts

W aveso ld erin g

S ys temassem b ly

P rocessen g in eerin g

cap ab ility

M IScap ab ility

P rod u c ten g in eerin g

cap ab ility

M arke tin gan d sa lescap ab ility

Tes ten g in eerin g

cap ab ility

H u m anresou rce m g t.

cap ab ility

Q u a litym an ag em en t

cap ab ility

CROSS FUNCTIONAL CAPABILITIES

BROAD FUNCTIONAL CAPABILITIES

ACTIVITY RELATED CAPABILITIES (Operations related only)

SPECIALIZED CAPABILITIES (Manufacturing related only)

SINGLE-TASK CAPABILITIES (Only those related to PCB assembly)

INDIVIDUALS’ SPECIALIZED KNOWLEDGE

Page 28: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Scarcity

Relevance

Durability

Mobility

Replicability

Property rights

Relative bargainingpower

Embeddedness ofresources

THE EXTENT OF THE COMPETITIVE ADVANTAGE

ESTABLISHED

SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE

APPROPRIABILITY

THE PROFITEARNING POTENTIALOF A RESOURCE OR

CAPABILITY

The Rent-Earning Potential of Resources and Capabilities

The Rent-Earning Potential of Resources and Capabilities

Page 29: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Appraising the Capabilities of a Business School

Appraising the Capabilities of a Business School (illustrative only)

Re

lati

ve

Str

en

gth

Superior

Parity

Deficient

Not important

Critically important

5

6

9

3

2

4 8

10 7

1

C1 Alumni relationsC2 Student

placementC3 TeachingC4.AdministrationC5 Course devlpmntC6 Student

recruitmentC7 ResearchC8 Corporate

relationsC9 MarketingC10 ITC11 PRC12 HRM

Importance

Key weaknessesKey weaknesses

Key strengthsKey strengthsSuperfluousstrengths

Superfluousstrengths

Inconsequentialweaknesses

Inconsequentialweaknesses

11

12

Page 30: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Amoco’s Appraisal of Organizational Capabilities(illustrative only)

Pe

rform

an

ce

Superior

Parity

Deficient

Not important

Needed to play

Needed to win

5

6

9

4

2

3 11

101 8

1

1. Effective deal making

2. Rapid new product development

3. Relentless cost forms

4. Product quality5. JV management 6. Superior EH&S

management7. Managing culturally

diverse workforce8. Fast decision

making9. Customer

segmentation10.Capture synergies

across divisions11. Effective

procurement

ImportanceImportance

Key strengthsKey strengths

Key weaknessesKey weaknessesSuperfluousstrengths

Superfluousstrengths

Inconsequentialweaknesses

Inconsequentialweaknesses

7

Page 31: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

4. Develop strategy implications: (a) In relation to strengths--How can these be exploited more effectively and fully? (b) In relation to weaknesses --Identify opportunities to outsourcing activities that can be better performed by other organizations. --How can weaknesses be corrected through acquiring and developing resources and capabilities?

3. Appraise the firm’s resources and capabilities in terms of:

(a) strategic importance(b) relative strength

2. Explore the linkages between resources and capabilities

1. Identify the firm’s resources and capabilities

STRATEGY

CAPABILITIES

RESOURCES

POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE

A Framework for Analyzing Resources and CapabilitiesA Framework for Analyzing Resources and Capabilities

Page 32: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Value Chain of the Firm

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

InboundLogistics

Operations OutboundLogistics

Marketing& Sales

Service

Materialshandlingdelivery

PrimaryActivities

SupportActivities

Mfg. &assembly

OrderprocessingShipping

ProductPricingPromotionPlace

CustomerserviceRepair

Page 33: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

The Value System• The model can be extended by linking many

value chains into a value system.• Much of the advantage of supply chain

management comes from understanding how information is used within each value chain of the system.

• This can lead to the formation of entire new businesses designed to change the information component of value-added activities.

Page 34: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Supplier’svaluechain

Firm’svaluechain

Channel’svalue chains

Buyer’s valuechains

The value system: interconnecting Relationships between organizations

Page 35: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

The Value System and Strategic Alliances

• Many industries are experiencing the growth of strategic alliances that are directly linked to sharing information resources across existing value systems.

• An alliance between American Airlines, Marriott and Budget Rent-A-Car called AMRIS provides travelers with a single point of contact.

• Electronically pooling information services of several companies can create competitive advantage by saving customers time.

Page 36: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Strategic option generator

Differentiation

What is the strategic target?

What is the strategic market?

What is the mode?

What is the direction?

Supplier Customer Competitor

Cost Innovation AllianceGrowth

Offensive Defensive

Use Provide

Page 37: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Example of strategic targets

Suppliers:

Raw materials

Information

Labor

Capital

Insurance

Utilities

Transportation

Customers:

Channel distributors

Consumers

Industrial

Reseller

Government

International

Competitors:

Direct

Potential

Substitute

Page 38: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Strategic option generator

Differentiation

What is the strategic target?

What is the strategic market?

What is the mode?

What is the direction?

Supplier Customer Competitor

Cost Innovation AllianceGrowth

Offensive Defensive

Use Provide

Page 39: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Types of Strategic Thrusts• Differentiation Thrusts: focus resources on

unfilled product or service gaps.• Cost Thrusts: focus is on reducing costs or

increasing competitor’s costs• Innovation Thrusts: focus on creating new

products or new ways to sell, create, produce or deliver products.

• Growth Thrusts: focus on increasing size of the market size or adding more value adding activities in the value chain

• Alliance Thrusts: combine with other groups to create a more competitive position.

Page 40: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

What is the Mode?• A firm has two choices for the mode of a a

strategic thrust:– The firm can act offensively to improve its

competitive advantage -- or – A firm can act defensively to reduce the

opportunities available to competitors.

• For example, a firm can innovate offensively to gain product leadership in a market, while others use innovation defensively to imitate the product leader.

Page 41: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Strategic Options Generator• Wiseman combined the questions of mode, direction

and strategic thrust into a strategic options generator • Example: Dell computer’s initial thrust:

– Strategic Target: (direct market to) the customer– Mode: Offensive– Direction: Use IS to gain advantage

• Second thrust: provide customer information to suppliers

• Third thrust: let customers auto-configure systems directly via the Internet.

Page 42: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Time-Based Competitive Advantage

• The Internet is increasing the pace of technological change by refocusing competitive efforts towards creating time-based competitive advantage.

• Information resources are the key to creating those advantages.

• For example, Dell’s direct strategy has been to build and deliver computers in as little as 5 days.

• Thus, the speed at which an organization adapts its business processes will the true measure of its’ ability to maintain competitive advantage.

Page 43: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Setup of the HE Butt case• HE Butt was 3rd largest grocery retailer in the US

in 1992 ($3.2B)• Mass merchandisers entered the market and

represented a serious threat.. Why?• Implement ECR system which moved buying

logistics to suppliers! – Radically increased inventory turns– Eliminated “death by price promotion”– Levered improvements in scanner technology to

automate inventory management

Page 44: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

Simplified Grocery Value Chain

Factory

Warehouse

Manufacturers Distributors Stores

Warehouse

$$ $$

Info Info

Goods Goods

Customers

RawMaterials

Storage

Shelves

HE Butt Grocery: A Leader in ECR Impl (Abridged) HBSP

Page 45: Strategy Concepts

SCHOOL OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS ADMINISTRATIONBA 530 – John A. Hengeveld Winter 2004BA 530 – John A. Hengeveld Winter 2004

HE Butt Discussion Questions• (note.. These things need to be in your writeup,

but they are only part of what you need to do…..)• What is going on in the industry and what are the

dynamics of competition? (ie: provide an industry and competitive analysis)

• What is HE Butts generic strategy?• What do you think of the plan in Exhibit 1?