organization strategy developement - 121212

8/9/2019 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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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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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

organization strategy developement - 121212

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