chapter 8 - business strategy

30
McGraw-Hill/Irwin McGraw-Hill/Irwin Strategic Management, 10/e Strategic Management, 10/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Business Strategy Chapter 8 Chapter 8

Upload: alistercrowe

Post on 01-Nov-2014

3.632 views

Category:

Documents


4 download

DESCRIPTION

 

TRANSCRIPT

Page 1: Chapter 8 - Business Strategy

McGraw-Hill/IrwinMcGraw-Hill/IrwinStrategic Management, 10/eStrategic Management, 10/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Business Strategy

Chapter 8Chapter 8

Page 2: Chapter 8 - Business Strategy

8-2

Key Elements Chapter 8

1. Low-cost, differentiation, and speed-based strategies

2. Characteristics and value of a market focus strategy

3. Requirements for business success at different stages of industry evolution

4. Good business strategies in fragmented and global industries

5. Decide when a business should diversify

Page 3: Chapter 8 - Business Strategy

8-3

Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage

• The two most prominent sources of competitive advantage:

– business’s cost structure– and its ability to differentiate the business from

competitors

• Businesses that have one or more sources/capabilities that let them operate at a lower cost will consistently outperform their

rivals that don’t

Page 4: Chapter 8 - Business Strategy

8-4Evaluating Cost Leadership

Opportunities

• Business success built on cost leadership requires the business to be able to provide its product or service at a cost below what its competitors can achieve

Page 5: Chapter 8 - Business Strategy

8-5

Sustainable Low-Cost Activities

Benefits1. Some low-cost advantages reduce the likelihood

of buyers’ pricing pressure

2. Truly sustained low-cost advantages may push rivals into other areas

3. New entrants competing on price must face an entrenched cost leader

4. Low-cost advantages should lessen the attractiveness of substitute products

5. Higher margins allow low-cost producers to withstand supplier cost increases

Page 6: Chapter 8 - Business Strategy

8-6

Sustainable Low-Cost Activities

Limitations1. Many cost-saving activities are easily duplicated

2. Exclusive cost leadership can be a trap

3. Obsessive cost cutting can shrink other competitive advantages

4. Cost differences often decline over time

Page 7: Chapter 8 - Business Strategy

8-7Evaluating a Business’s Cost and

Leadership Opportunities

Page 8: Chapter 8 - Business Strategy

8-8

Evaluating Differentiation

• Differentiation requires that the business have sustainable advantages that allow it to provide buyers with something uniquely valuable to them

• Arises from one or more activities in the value chain that create a unique value important to buyers

• Strategists use benchmarking and consider the 5 forces in considering differentiation

Page 9: Chapter 8 - Business Strategy

8-9Evaluating a Business’s

Differentiation Opportunities

Page 10: Chapter 8 - Business Strategy

8-10Evaluating Speed as a Competitive

Advantage • Speed-based strategies, or rapid

response to customer requests or market and technological changes, have become a major source of competitive advantage for numerous firms in today’s intensely competitive global economy

Page 11: Chapter 8 - Business Strategy

8-11Evaluating a Business’s Rapid

Response (Speed) Opportunities

Page 12: Chapter 8 - Business Strategy

8-12

Speed can be created by:

• Customer responsiveness

• Product development cycles

• Product or service improvements

• Speed in delivery or distribution

• Information Sharing and Technology

Page 13: Chapter 8 - Business Strategy

8-13

Risks of Speed-based Strategy

• Speeding up activities requires considerable attention to training, reorganization, and/or reengineering

• Some industries may not offer much advantage to the firm that introduces some forms of rapid response

• Customers in such settings may prefer the slower pace or the lower costs currently available, or they may have long time frames in purchasing

Page 14: Chapter 8 - Business Strategy

8-14Evaluating Market Focus as a Way to Competitive Advantage

• Market focus: the extent to which a business concentrates on a narrowly defined market

• Better small companies thrive because they serve narrow market niches

• Market focus allows some businesses to compete on the basis of low cost, differentiation, and rapid response against much larger businesses with greater resources

Page 15: Chapter 8 - Business Strategy

8-15

Risks of Market Focus

• Can attract major competitors who have waited for your business to “prove” the market

• Managers evaluating opportunities to build competitive advantage should link strategies to

• Resources• Capabilities• Value chain activities that exploit low cost,

differentiation, and rapid response

Page 16: Chapter 8 - Business Strategy

8-16Stages of Industry Evolution and

Business Strategy Choices

• The requirements for success in industry segments change over time

• Strategists can use these changing requirements, which are associated with different stages of industry evolution, as a way to isolate key competitive advantages and shape strategic choices around them

Page 17: Chapter 8 - Business Strategy

8-17

Emerging Industries

• Emerging industries are newly formed or re-formed industries that typically are created by technological innovation, newly emerging customer needs, or other economic or sociological changes

• There are no “rules of the game”

Page 18: Chapter 8 - Business Strategy

8-18Conditions in Emerging Industries

• Technologies mostly proprietary to the pioneering firms • Technological uncertainty continuously unfolding • Competitive uncertainty due to inadequate information

about competitors, buyers, and the timing of demand • High initial costs but steep cost declines • Few entry barriers• First-time buyers requiring initial inducement to

purchase• Inability to obtain raw materials and components until

suppliers gear up to meet the industry’s needs • Need for high-risk capital because of the industry’s

uncertain prospects

Page 19: Chapter 8 - Business Strategy

8-19Business Strategies in Emerging Industries

• For success in emerging industries, business strategies require one or more of these features:

– Ability to shape the industry’s structure – Ability to rapidly improve product quality and

performance features – Advantageous relationships with key suppliers

and promising distribution channels – Ability to establish the firm’s technology as the

dominant one– Early acquisition of a core group of loyal

customers and then the expansion of that customer base

– Ability to forecast future competitors

Page 20: Chapter 8 - Business Strategy

8-20

Competitive Advantages and Strategic Choices in Growing Industries

• Rapid growth brings new competitors into the industry

• Growth industry strategies need to emphasize

– brand recognition– product differentiation– financial resources to support both heavy

marketing expenses and the effect of price competition on cash flow

Page 21: Chapter 8 - Business Strategy

8-21Business Strategies in Growth Industries

• For success business strategies in growth industries require one or more of the following features:

– Establishing strong brand recognition– Ability and resources to meet increasing demand– Strong product design skills to adapt products and

services– Ability to differentiate the firm’s product[s] from

competitors entering the market – R&D resources and skills to create product variations– Ability to build repeat buying from established

customers– Strong capabilities in sales and marketing

Page 22: Chapter 8 - Business Strategy

8-22

Competitive Advantages and Strategic Choices in Mature Industries

• As an industry evolves, its rate of growth eventually declines

• Firms in mature industry sell increasingly to experienced, repeat buyers who are now making choices among known alternatives

• Competition becomes more oriented to cost and service as knowledgeable buyers

expect similar price and features

Page 23: Chapter 8 - Business Strategy

8-23Business Strategies in Mature Industries

• Strategies in maturing industries often include the following:

– Product line pricing– Emphasis on process innovation that permits low-cost

product design, manufacturing methods, and distribution synergy

– Emphasis on cost reduction – Careful buyer selection to focus on buyers who are

less aggressive, more closely tied to the firm, and able to buy more from the firm

– Horizontal integration to acquire rival firms whose weaknesses can be used to gain a bargain price

– International expansion to markets where attractive growth and limited competition still exist

Page 24: Chapter 8 - Business Strategy

8-24

Competitive Advantages and Strategic Choices in Declining Industries

• Declining industries characterized by demand growing slower than demand in the economy or actual declines

• Strategies can involve:– Focus on higher growth or a higher return– Emphasize product innovation and quality

improvement – Emphasize production and distribution efficiency – Gradually harvest the business

Page 25: Chapter 8 - Business Strategy

8-25Competitive Advantage in

Fragmented Industries• A fragmented industry is one in which no firm

has a significant market share and can strongly influence industry outcomes

• Strategies can involve:– Tightly managed decentralization – “Formula” facilities– Increased value added – Specialization – Bare bones/no frills

Page 26: Chapter 8 - Business Strategy

8-26Competitive Advantage in

Global Industries• Global industry composed of firms whose

competitive positions in major geographic or national markets are fundamentally affected by their overall global competitive positions

• Strategies can involve: – License foreign firms to produce and distribute the firm’s

products – Maintain a domestic production base and export products

to foreign countries – Establish foreign-based plants and distribution to

compete directly in the markets of one or more foreign countries

Page 27: Chapter 8 - Business Strategy

8-27Four Generic Global

Competitive Strategies • Broad-line global competition

• Global focus strategy

• National focus strategy

• Protected niche strategy

Page 28: Chapter 8 - Business Strategy

8-28

Grand Strategy Selection Matrix

Page 29: Chapter 8 - Business Strategy

8-29

Model of Grand Strategy Clusters

Page 30: Chapter 8 - Business Strategy

8-30

Building Value as a Basis for Choosing Diversification or Integration

• The grand strategy selection matrix and model of grand strategy clusters are useful tools to help dominant product company managers evaluate and narrow their choices among alternative grand strategies

• Dominant product company managers who choose diversification or integration eventually create another management challenge