e-commerce strategic analysis jifeng luo antai college of management, sjtu [email protected]
TRANSCRIPT
Strategic Analysis
What is strategy?
Industry Structure
Dynamic Competitive Advantage
Value Chain and Competitive Model
Strategy and Organization
What is Strategy?
Performance: Profitability is most common
– Total profit vs. Profit rate
– Short term vs. Long term
– Shareholders value
External Context: Industry characteristics plus social, political and regulatory environment
Internal Context: Resources and Organization, Decide your focus
Strategy:
– Understanding of the key relationships among actions, context and performance
– A guide for managers to take actions consistent with this understanding
What is Strategy?Context
External (industry, economy) + Internal
(resources & organization)
Actions Acquire resources, Redesign processes, Organization change
Performance
Market share, profits, brands, innovation,
reputation, employee satisfaction, social
goals
• Tangible resources: facilities, labs, infrastructure and money
• Intangible resources: product designs, brands, relationships
• Human resources: employee skills, managerial competence
Elements of
Strategy
I. Goals: where?
II. Scope: what?
III. Competitive Advantage: how?
IV. Logic: why?
Having a strategy requires a strong focus on profitability (goals), an ability to define a unique value proposition (how and why), and a willingness to make tough trade-offs in choosing what not to do.
Elements of Strategy
• Goals: Dominate market, Technology leader, …
Why important to have goals?
• Scope: Products, Markets, Activities?
What’s NOT included?
• Competitive Advantage: Cost, Differentiation, …
How are you better?
• Logic: Lo cost Lo Price Dominance Scale economy Lo cost
Dot-com’s nemesis
Strategic Analysis
What is strategy?
Industry Structure
Dynamic Competitive Advantage
Value Chain and Competitive Model
Strategy and Organization
What Is an Industry?§ Firms may make multiple lines of products / services
§ We can define an industry in terms of close substitutes.
§ Complementary products belong to different industries if sold separately!
Industry Value Chain
Suppliers Manufacturer Distribution
IndustryCompetitors
Intensityof rivalry
Suppliers Buyers
New entrants
Substitutes
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute
s
Threat of
entrants
Elements of Industry Structure (Porter)
Entry Barriers DeterminantsEconomies of scale
Proprietary product differences
Brand identity
Switching costs
Capital requirements
Access to distribution
Proprietary learning curve
Access to necessary inputs
Government policy
Absolute cost advantages
Expected retaliation
Rivalry DeterminantsIndustry growth
Intermittent overcapacity
Product differences
Brand identity
Switching costs
Concentration and balance
Informational complexity
Diversity of competitors
Corporate stakes
Exit barriers
Game
Relative price performance of
substitutes
Determinants of Substitution
ThreatSwitching costs
Buyer propensity to
substitute
Determinants of Substitution Threat
Determinants of Buyer Power
Bargaining Leverage Price Sensitivity
Buyer concentration versus firm concentration
Price/Total purchases
Buyer volume Product differences
Buyer switching costs relative to firm switching costs
Brand identity
Buyer information Impact on quality/Performance
Ability to backward integrate Buyer profits
Substitute products Decision-makers’ incentives
Differentiation of inputs
Switching costs of suppliers and firms in the industry
Presence of substitute inputs
Supplier concentration
Importance of volume to supplier
Cost relative to total purchases in the industry
Impact of inputs on cost or differentiation
Threat of forward integration relative to threat of backward integration by firms in the industry
Determinants of Suppliers Power
Limitations of the Five Forces Model
Manufacturing rather than service focus
Some support functions (IT) are integral part of primary activities
Adversarial relations, no cooperation
Complementors, outsourcers, partners?
Industry Structure: Before Wal-Mart
Intra-Industry Rivalry
Rivals: Kmart, Sears, Specialty Stores
BargainingPower of Buyers
Bargaining Power
of Suppliers
Threat of Substitutes
Threat of Entrants
• Consumers in Small Town U.S.A. • Consumers in Metropolitans Areas in the U.S.
• Mail Order• Buying Clubs
• U.S. Product Manufacturers• Foreign Manufacturers• I/T Suppliers
• Foreign General Merchandisers or Discounters• Established Retailer Shifting Strategy to Discounting or Megastores
• Telemarketing• Door-to-door Sales
Industry Structure: After Wal-Mart
Intra-Industry Rivalry
Rivals: Kmart, Target, Sears,Toys R Us, Specialty Stores
BargainingPower of
Buyers
Bargaining Power
of Suppliers
Threat of Substitutes
Threat of Entrants
• Consumers in Small Town U.S.A. • Consumers in Metropolitans Areas in the U.S.
• Mail Order• Home Shopping Network• Electronic Shopping
• U.S. Product Manufacturers• Foreign Manufacturers• I/T Suppliers
• Foreign General Merchandisers or Discounters• Established Retailer Shifting Strategy to Discounting or Megastores
• Telemarketing• Buying Clubs• Door-to-door Sales
Competitive Rivalry from
Existing Firms
Technology
Regulatory Environment
Changing Social Values
Substitutes
SuppliersBuyers
New EntrantsEconomic
Changes
Demographic Changes
External Forces Affecting Competition
How does the Internet alter industry structure?
Buyer Power
Supplier Power
Threat of New Entrants
Threat of Substitutes
Rivalry
Intensified Competitive Dynamics Due to IT
Intensified Competitive Dynamics Due to IT
McAfee and Brynjolfsson 2008
Intensified Competitive Dynamics Due to IT
IT-Enabled Processes
IT are accelerating competition, • Not because more products are becoming digital
• But because more processes are
• A company’s unique business processes can now be propagated with much higher fidelity across the organization by embedding it in enterprise information technology
• IT helps the process changes stick• It also allowed for quick and easy propagation of the new
process in all sites
Strategic Analysis
What is strategy?
Industry Structure
Dynamic Competitive Advantage
Value Chain and Competitive Model
Strategy and Organization
Competitive Advantage
– Is there a universal key to competitive advantage?
– Positional advantage (e.g., dominant industry position)
– Capability based advantage (e.g., superior quality)
– Capabilities and position may interact
Positional Advantage
– Brand name (Coke, Mercedes)
– Customer relationships (Nordstrom)
– Government protection (Developing economies)
– Distribution channel (P&G can get shelf space)
– Geographic incumbency (Wal-Mart in small towns)
– Installed base (Windows)
– Infomediaries (AOL, Yahoo!)
Capability Based Advantage
§ Firms differ in capabilities. (Thru organizational learning)
– Manufacturing capability (Miniaturize consumer electronics)
– Time to market (Japanese auto-makers)
– Organizational capability (Resources, processes, values)
§ Distinct capabilities (Are you better than rivals?)
Is my advantage from position or capability?
• Does it matter?
• May affect defense
– How did AT&T defend its monopolistic position until 1984?
– How would Sony defend its manufacturing capability?
• Capabilities may lead to a position that deepens capabilities
• What is Boeing’s advantage for?
– Position in a duopoly market? Or,
– Capability to manage large-scale projects?
Sustainable Advantage?
Sustainable advantage resists competition
Position:
1. Defend your position (Windows in O/S market)
2. Will position change hands? (IBM compatible to Wintel)
Capability:
1. Improve continuously (through learning)
2. Better if it’s hard to understand and imitate (complexity of structures, routines, culture make it hard to codify and capture)
Competitive Advantage is Dynamic!
Exploiters: Deepen present competitive advantage (e.g., reduce costs, improve product performance),
And,
Explorers: Develop new form of competitive advantage (e.g., develop new products and markets)!
– Pure explorers develop new competitive advantage
– Pure exploiters reinforce current advantage
– Many combine these two approaches!
Explorers versus Exploiters
Exploiters Explorers
Less organizational slack Some slack for innovation
Tightly coupled (Risk?) Loosely coupled
Centralized Decentralized
Learning in its domain Learning outside domain
Fit for stable conditions Fit for changing conditions
Application ProblemApple Computer Inc. announced in May 2001 that it was expanding into the retail business, confirming that it had planned to open its first store on May 19, 2001. A computer industry analyst predicted that the company might open as many as 10 stores as part of a strategy to extend the Apple brand. By May 2002, Apple had actually opened 30 stores across 16 states in the U.S.
The retail strategy in general indicates that Apple is undaunted by the recent retrenchment of Gateway Computer, a predominantly mail-order company that has scaled back its retail plans. At the same time, Apple, which traditionally has relied on third-party retailers, has fared well going directly to consumers on its Internet store. Lynn Fox, an Apple spokeswoman, said Internet-based sales represented over 25 percent of the company's revenue in recent quarters.
In the case of Gateway, the company announced plans last month to close 38 under performing stores and to take a charge of $75 million, leaving it with about 300 stores. The company is also removing its sales stands from 1,000 OfficeMax stores.
In general, Apple has been hit by the downturn in the personal computer market. At the time Apple entered the off-line retailing arena, it announced second-quarter earnings that slightly exceeded expectations, but in the first quarter, the company reported its first loss since Steven P. Jobs, the company's co-founder and current chief executive, returned to Apple three years ago.
1. Is Apple’s decision to open retail stores represent a strategic shift? Why or why not?
2. Does this move create / enhance Apple’s competitive advantage? Positional or capability-driven or both?
3. What potential risks does this move entail for Apple?
4. Would you characterize this move as exploratory or exploitative? What would be the critical success factors?
Strategic Analysis
What is strategy?
Industry Structure
Dynamic Competitive Advantage
Value Chain and Competitive Model
Strategy and Organization
The Value Chain
- How do we create value for customers?
- Primary activities directly create value
- Support activities help create value
- Value added = output value – input value
Supportactivities
Primaryactivities
Corporate infrastructure
Human resource management
Technology development
Procurement
Inboundlogistics
Operations Outboundlogistics
Marketingand sales
Service
Margin
Info
rmat
ion
Information
Five Primary Activities
Primary Activity Description Internet Application
Inbound logistics Receive, store, and distribute.
Operations Transform inputs into products.
Outbound logistics Store & distribute products.
Marketing and sales Ad., promotion and sales force.
Service After-sale customer service
Four Support Activities
Support Activities Description Internet Application
Corporate infrastructure
General management, accounting, finance
Human resource management
Hiring, training, & development.
Technology development
Improving product / process
Procurement Function or purchasing input.
The Value Chain for New Social Media
Supportactivities
Primaryactivities
Corporate infrastructure
Human resource management
Technology development
Operations: IT infrastructure
Procurement Marketingand sales
Service
Margin
Info
rmat
ion
Information
- Procurement: attract new users, let users (both new and loyal) generate contents, so
to lure more users
- Operations: create/maintain a platform that can let users to do what they want to do
Value Analysis Questions
Clarifying Value Chain Statements- Can we improve our supply chain and or
distribution system to increase inventory turns? - Can we realize significant margins by
consolidating parts of the value chain to my customers?
Creating New Values- Can we improve customer service?- Can we use our ability to attract customers to
increase revenue thru cross-sales or up-sales?
Seller Seller
Original Intermediary
Original Intermediary
Buyer Buyer
Channel Facilitator:
autobytel.com
Channel Facilitator vs. Channel Competitor
Channel Competitor: Southwest
Strategic Analysis
What is strategy?
Industry Structure
Dynamic Competitive Advantage
Value Chain and Competitive Model
Strategy and Organization
Organization Design
Problems
Incentive Problem
Coordination Problem
1. Incentive Problem: Induce people with divergent private goals to work toward the same goal
Information asymmetry, moral hazard, and monitoring costs
2. Coordination Problem: What are the work flows? Who makes what decisions? How is information shared?
Do we promote specialization or team-based environment?
Architecture
Organization Design
Routines Culture
Organization is a necessary condition of advantage (Organization design is dictated by the strategy; no BEST design)
Organizational elements must be consistent with one another, and align with strategy and industry environment.
Industry environment
Strategy
Elements of Architecture1. Organizational structure deals primarily with coordination
– Divide people into sub-units and define linkages between them
– Functional versus Divisional structure
– Flat versus Tall hierarchy
– Horizontal linkages (personal network, liaisons, task-forces)
2. Compensation and rewards deal with incentive problems
– Indicators related to profitability
– Benchmarking to “net out” external effects
– Multiple indicators may help. Why?
– Cost of monitoring limits number of indicators
Functional Versus Divisional Structure
CEO
Sr. Mgr. Sr. Mgr.
Legal Finance Marketing R&D Mfg.HR
CEO
Div 1 Div 2
Mfg.Mfg. HRHRFin. Fin.
• Single industry firm: Specialization; Career development.
• Multiple product lines or countries: Coordination within division.
Other Structures
Matrix: Dual or triple authority structure. An employee may report
to a country head and a business sector head. In Shell, a
manager would report to Managing Director of Shell France and
Head of Shell Refining sector.
– Typically one command structure dominates.
– Leads to much complexity!
Project: Fixed functional departments plus temporary project
teams in construction, oil exploration, …
Routines & Culture
Routines: Establish common expectations and a protocol for cooperation between parties in the performance of a process (coordination gains)
– What decision making rules (e.g., majority, consensus, seniority) exist?
– What routines exist for resource allocation, information sharing, coordination within and between subunits?
Culture: Commonly held values and beliefs
– How strong? Does it support cooperation?
– Does it improve goal congruence and thus reduce need for financial incentives?
STRATEGY:
Competitive Advantage
Coordination Issues
Incentive Issues
Culture Routines
Architecture
Strategic Alignment
Refine / Deepen: Exploiter
Discover new ways: Explorer
Organization must support strategy!
Strategy & Organization: Southwest Airline
Strategy and Performance
– Selected point-to-point short-haul markets with business traffic
– Deliver customer value thru reliable, low price customer service
– Low cost structure thru high aircraft utilization, no-frill service
– Highly profitable
Coordination
– HQ need information about customer needs and operational problems
– HQ and flight teams need cost info
– Passengers use boarding routines
– Curb-side check in info to flight team
Incentive
– Flight team focus on costs and customer needs
– Conflicts between costs and customer needs need balance
Culture Routines
– Customer focus – Managerial probing
– Teamwork / fun – Direct customer contact
Structure Compensation
– Teams – Team performance measures
– Flat hierarchy – Team performance pay
Southwest Airline
Organization
– Same TEAM for same ROUTES meet same CUSTOMERS
– Recruiting and corporate policies promote fun
– Flat organization with trust in senior management
– SW teams responsible and paid for flight performance
– Competitors copy team idea, but reduce discretion– Hub and spoke system requires complex problem solving at central level