chapter 2

- Dwayne D. Gremler

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Corporate & Business Unit Strategy (Chapter 2)

• What is strategy?

• What is the “classical framework” for strategic management?

• Issues in the “new economy”

• eBay example

- Dwayne D. Gremler

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Classical Framework for Strategic Management

ImplementationImplementation

Internal (Company) Analysis


External Analysis

External Analysis

Control and

Monitoring

Control and

Monitoring

Strategy Formulation


Corporate Business unit Functional Operating

ObjectivesObjectives

MissionMission

Exhibit 2-1

- Dwayne D. Gremler

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Creating Competitive Advantages

Investment to Create and Sustain Advantage

Investment to Create and Sustain Advantage

Distinctive Competencies

Distinctive Competencies

Competitive Advantages

Competitive Advantages

Performance Outcomes

Performance Outcomes

Adapted from: Day, G.S. and R. Wensley. “Assessing Advantage - A Framework for Diagnosing Competitive Superiority.” Journal of Marketing, vol. 52 (1988): 1-20.

e-Marketing Strategye-Marketing Strategy

Positioning and target-market selection Marketing tactics: (4 p’s)

Superior customer value

Low-cost producer

Superior skills Superior

resources

Satisfaction Loyalty Market share Profitability

Exhibit 2-2

- Dwayne D. Gremler

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The Value Chain

Firm Infrastructure(Financing, planning, investor relations)

Human Resources Management(Recruiting, training, compensation system)

Technology Development(Product design, testing, process design, market research, material research)

InboundLogistics

Procurement(Raw materials, advertising space, health services)

M

A

R

GI

N

Primary Activities

SupportActivities

Operations OutboundLogistics

Marketingand Sales

After-SaleService

(Data collection, material storage, customer access)

(Component molding, branch

operations, underwriting)

(Order processing, warehousing, report

preparations)

(Sales, proposal writing,

advertising, trade shows)

(Installation, customer support,

repair)

Exhibit 2-3

- Dwayne D. Gremler

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The Five Forces AnalysisRisk of Entry by

Potential Competitors

Risk of Entry byPotential Competitors

Bargaining Powerof Suppliers


Rivalry AmongEstablished Firms

Bargaining Powerof Buyers


Threat of Substitute ProductsThreat of Substitute Products

Source: Porter, Michael E. “How Competence Forces Shape Strategy.” Harvard Business Review (March-April 1979).Copyright © 1979 by the President and Fellows of Harvard College. All rights reserved.Adapted and reprinted by permission of Harvard Business Review.

Exhibit 2-6

- Dwayne D. Gremler

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Centricity of TechnologyCentricity of Technology

CustomerGains Control

CustomerGains Control


Fast, UnpredictableCompetition

Fast, UnpredictableCompetition

Rapidly ReconfiguredCompany Resources

Rapidly ReconfiguredCompany Resources

The Effects of the Networked Economy on Strategy Formulation

Exhibit 2-7

- Dwayne D. Gremler

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The Networked Economy’s Impact on Porter’s Five Forces

The Internet provides direct connection to customers; however, it minimizes supplier’s bargaining power

Suppliers can access end-users through the Internet, minimizing the need for middlemen

Differentiation becomes more difficult as access to suppliers is equalized via digital markets and Internet purchases

Fewer barriers to entry result in increased buyer competition thus boosting supplier bargaining power

Reduces bargaining power of channels

Consumers have more information and ability to search for better deals

Decreases switching costs

Wherever technology enables a task to be easily undertaken, barriers to entry go down New market entrants can acquire technology applications easily Large capital pool has attracted new entrants to many industries High technology costs and expertise increase barriers to entry

Especially for Internet-related technology or services, substitute products can easily be offered Internet has introduced new business methodologies thus creating additional substitution threats

Internet minimizes ability to product differentiate; less differentiation means more competition over price

Low barriers to entry open markets to heavier competition

Variable costs decrease as a percentage of fixed costs, leaving price discounting as a primary method of competition





Rivalry AmongEstablished Competitors



Threat of Substitute ProductsThreat of Substitute Products

Source: Adaptation of data from a discussion drawn for Michael Porter’s research with David Sutton.

Exhibit 2-8

- Dwayne D. Gremler

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The Offering — Interactivity and Individualization

Low

Game sitesNapsterHotmail

Low High

High

Myteam.comeBay

myCNN.comAmazon.com

First-generation websitesMost content sites

(magazines)

Individualization

Interactivity

Exhibit 2-9

- Dwayne D. Gremler

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LowLow High

High

Sweet Spot:

Amazon.comeBay

Resource Contained:

drkoop.com

Vulture Victim:

Boo.comPointCast in its early days

Quality of Customer Insight

Quality of the Resource System

Low Payoff:

Rx.com, Drugstore.comMarketWatch.com

Yahoo’s auction siteBlackBerry, Visor

Resource Insight Matrix: How to Win — Sources of Competitive Advantage

Exhibit 2-10

- Dwayne D. Gremler

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Extended Classical Framework for Strategic Management

ImplementationImplementation



External Analysis

External Analysis

Control and

Monitoring

Control and

Monitoring



Corporate Business unit Functional Operating

ObjectivesObjectives

MissionMission

Reconfigure Company

Resources

Reconfigure Company

Resources

Centricity of Technology

Centricity of Technology

Customer Control and

Power

Customer Control and

Power

Fast, Unpredictable Competition

Fast, Unpredictable Competition

Exhibit 2-11

- Dwayne D. Gremler

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Chapter Summary Conclusion

Strategy addresses how a firm fulfills its mission and achieves its goals

The field of strategic management has gone through several shifts in thinking in the past four decades: the 60s (The Planning Era), ‘70s (Diversification), ‘80s (Industry Attractiveness) and ‘90s (Core Competencies and Resource-Based Views)

Four principle networked-economy forces significantly affect the strategy formulation process: the increasingly central role of technology, fast and unpredictable competition, reconfigured company resources, and customer control and power

The classical framework for strategic management remains the same; however, networked-economy firms require further considerations in the framework, such as a technology element and input from “Resource-Insight Matrix” and the “Interactivity-Individualization” Matrix

chapter 2

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