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Group ExerciseGroup Exercise

For your Case Company:

1. Are there examples of rivals that more closely follow CL, Diff, and Focus?

2. Provide 5 different company examples (hypothetical is ok) of rivals deploying one of the named grand strategies.

1

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Break Out ReportingBreak Out Reporting

Case:

Industry:

Company & Rival Generic Strategy Examples:

Grand Strategy Examples:

2

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Session 12Session 12

Business Strategy:Building Sustainable Competitive

Advantages

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Session Objectives: Three ItemsSession Objectives: Three Items

1.Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage Evaluating Cost

Leadership Opportunities Evaluating Differentiation

Opportunities Evaluating Speed as a

Competitive Advantage Evaluating Market Focus

as a Way to Win Competitive Advantage

2.Selected Industry Environments and Business Strategy Choices Emerging Industries Growth Industries Mature Declining Industries Fragmented Industries Global Industries

3.Dominant Product/Service Businesses: Diversification to Build Value

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Key Issues: Strategic Choice in Single BusinessesKey Issues: Strategic Choice in Single Businesses

1. What strategies are most effective at building sustainable competitive advantages for single business units?

2. When should dominant-product/service businesses diversify to build value and competitive advantage? What grand strategies are most appropriate?

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How should you choose How should you choose among competitive among competitive advantage strategies?advantage strategies?

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Prominent Sources of Competitive AdvantageProminent Sources of Competitive Advantage

Cost leadership

Differentiation

Speed

Market focus

Sources of competitive advantage

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For Each of the Four: CL, Diff, Speed/RR, MFFor Each of the Four: CL, Diff, Speed/RR, MF

Skills and Resource Requirements

Structural/Organizational Requirements

Value Chain Examples

Advantages

Risks

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Evaluating A Business’s Evaluating A Business’s Cost LeadershipCost Leadership Opportunities Opportunities

A. Skills and Resources Fostering Cost Leadership• Sustained capital investment and access to capital• Process engineering skills• Intense supervision of labor or core technical operations• Products or services designed for ease of manufacture or

delivery• Low-cost distribution system

B. Organizational Requirements Supporting Cost Leadership• Tight cost control• Frequent, detailed control reports• Continuous improvement and benchmarking orientation• Structured organization and responsibilities• Incentives based on meeting strict, usually quantitative targets

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Evaluating A Business’s Evaluating A Business’s Cost LeadershipCost Leadership Opportunities -- Opportunities --C. Examples of Ways Businesses Achieve Competitive AdvantageC. Examples of Ways Businesses Achieve Competitive Advantage

Technology development

Process innovations lowering production costs

Product redesign to reduce number of components

Global, online suppliers provide automatic restocking of orders based on sales

Inbound logistics Operations Outbound logistics Marketing & sales

Serv

iceEconomy of

scale in plant reduces equipment costs and depreciation

Computerized routing lowers transportation expense

Cooperative advertising with distributors creates local cost advantage in buying media space and time

Subcontractedservicetechniciansrepairproductcorrectlyfirst timeor bearcosts

Reduced levels of management cuts corporate overhead

Computerized, integrated information system reduces errors and costs

Safety training for all employees reduces absenteeism, downtime, and accidents

Human resource

management

General administration

Favorable long-term contracts; captive suppliers or key customer for supplier Procurement

margin

Profit

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Advantages of a Cost Leadership StrategyAdvantages of a Cost Leadership Strategy

Low-cost advantages reduce likelihood of pricing pressure from buyers

Low-cost advantages reduce likelihood of pricing pressure from buyers

Sustained low-cost advantages may push rivals into other areas, lessening price competition

Sustained low-cost advantages may push rivals into other areas, lessening price competition

New entrants must face an entrenched cost leader without experience to replicate cost advantages

New entrants must face an entrenched cost leader without experience to replicate cost advantages

Low-cost advantages should lessen attractiveness of substitutes

Low-cost advantages should lessen attractiveness of substitutes

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

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

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Key Risks of Cost LeadershipKey Risks of Cost Leadership

Many cost-saving activities are easily duplicated Many cost-saving activities are easily duplicated

Exclusive cost leadership can become a trapExclusive cost leadership can become a trap

Obsessive cost cutting can shrink other competitive advantages involving key product attributes

Obsessive cost cutting can shrink other competitive advantages involving key product attributes

Cost differences often decline over timeCost differences often decline over time

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Industry Environments and Strategy ChoicesIndustry Environments and Strategy Choices

Emerging IndustriesGrowth IndustriesMature IndustriesDeclining IndustriesFragmented IndustriesGlobal Industries

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For each Industry Environment …For each Industry Environment …24

Characteristics

Strategic Options

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Characteristics of Markets in Emerging IndustriesCharacteristics of Markets in Emerging Industries

Proprietary technology and technological uncertainty

Competitor uncertainty regarding inadequate information

High initial cost structureFew entry barriersFirst-time buyers require initial inducement Inability to easily obtain raw materials and

componentsNeed for high-risk capital

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Strategic Options for Emerging IndustriesStrategic Options for Emerging Industries

1. Ability to shape industry’s structure 1. Ability to shape industry’s structure

2. Ability to rapidly improve product quality 2. Ability to rapidly improve product quality

3. Establish favorable relations with key suppliers 3. Establish favorable relations with key suppliers

4. Ability to establish technology as dominant force 4. Ability to establish technology as dominant force

5. Acquire a core group of loyal customers 5. Acquire a core group of loyal customers

6. Ability to forecast future competitors 6. Ability to forecast future competitors

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Grand Strategy Selection MatrixGrand Strategy Selection Matrix

Overcome weaknesses

Maximize strengths

External (acquisition

or merger for resource

capability)

Internal (redirected resources within the

firm)

Turnaround or retrenchmentDivestitureLiquidation

Vertical integrationConglomerate diversification

Concentrated growthMarket developmentProduct developmentInnovation

Horizontal integrationConcentric diversificationJoint venture

IIIIVIII

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Model of Grand Strategy ClustersModel of Grand Strategy Clusters

Rapid market growth

Slow market growth

Weak competitive

position

Strong competitive

position

1. Concentrated growth

2. Vertical integration3. Concentric

diversification

1. Reformulation of concentrated growth

2. Horizontal integration3. Divestiture4. Liquidation

1. Concentric diversification

2. Conglomerate diversification

3. Joint venture

1. Turnaround or retrenchment2. Concentric diversification3. Conglomerate diversification4. Divestiture5. Liquidation

IIIIIIIV

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Conclusion: Selecting a Business Strategy toConclusion: Selecting a Business Strategy toAchieve a Competitive AdvantageAchieve a Competitive Advantage

Focusing on key sources of competitive advantage requiring

total, consistent commitment

Weighing skills, resources, organizational requirements, and

risks of each source of competitive advantage

Considering unique effects of the generic industry environment on a

firm’s value chain activities

Selection of appropriate business strategie(s) involves