Strategic management planning for domestic and global competition 14th ed pearce robinson chapter 8

Learning Objectives• Determine why a business would choose a low-cost, differentiation, or speed-based strategy • Explain the nature and value of a market focus strategy • Illustrate how

Strategy

Chapter 8

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Learning Objectives

• Determine why a business would choose a low-cost, differentiation, or speed-based strategy

• Explain the nature and value of a market focus strategy

• Illustrate how a firm can pursue both low-cost and differentiation strategies

• Identify requirements for business success at different stages of industry evolution

• Determine good business strategies in fragmented and global industries

• Decide when a business should diversify

2

Basic Issues in Business Strategy

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

• Should dominant-product/service businesses diversify to build value and competitive

advantage?

3

Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage

• The two most prominent sources of competitive

advantage can be found in the 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

4

Evaluating 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

5

Low-cost Strategies

• Business strategies that seek to establish term competitive advantages by emphasizing and perfecting value chain activities that can

long-be achieved at costs substantially long-below what competitors are able to match on a sustained basis This allows the firm, in turn, to

compete primarily by charging a price lower than competitors can match and still stay in business.

6

Ex 8.1 Evaluating a Business’s Cost Leadership Opportunities

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Sustainable Low-Cost Activities

1 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

8

Risks of a Cost Leadership Strategy

1 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

9

Evaluating Differentiation

• Differentiation requires that the business have

sustainable advantages that allow it to provide buyers with something uniquely valuable to them

• Differentiation usually 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

10

• A business strategy that seeks to build competitive advantage with its product or service by having it be “different” from other available competitive products based on

features, performance, or other factors not directly related to cost and price The

difference would be one that would be hard

to create and/or difficult to copy or imitate.

11

Ex 8.3 Evaluating a Business’s Differentiation Opportunities

12

Evaluating 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

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Ex 8.6 Evaluating a Business’s Rapid Response

(Speed) Opportunities

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Speed can be created by:

• Speed in delivery or distribution

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Risks of Speed-based Strategy

• Speeding up activities that haven’t been conducted in a fashion that prioritizes rapid response should only be done after 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

16

Evaluating Market Focus as a Way to Competitive Advantage

• Market focus: the extent to which a

business concentrates on a narrowly defined market

• Small companies, at least the better

ones, usually thrive because they serve narrow market niches

compete on the basis of low cost, differentiation, and rapid response against much larger businesses with greater resources

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Market Focus

• This is a generic strategy that applies a differentiation strategy approach, or a low- cost strategy approach, or a combination – and does so solely in a narrow (or “focused”) market niche rather than trying to do so

across the broader market The narrow focus may be geographically defined by product

type features, or target customer type, or some combination of these.

18

Risks of Market Focus

• The risk of focus is that you attract major competitors

who have waited for your business to “prove” the market

• Publicly traded companies built around focus

strategies become takeover targets for large firms seeking to fill out a product portfolio

• Slipping into the illusion that it is focus itself, and not

low cost, etc that is creating the business’s success.

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Stages 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

20

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”

21

Business Strategies in Emerging Industries

• Technologies that are most proprietary to the pioneering firms and technological uncertainty will unfold

• Competitor uncertainty because of 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

22

Emerging Industries

For success in this industry setting, business strategies require one or more of these features:

• The ability to shape the industry’s structure

• The ability to rapidly improve product quality and

performance features

• Advantageous relationships with key suppliers and

promising distribution channels

• The ability to establish the firm’s technology as the

dominant one

• The early acquisition of a core group of loyal customers

and then the expansion of that customer base

• The ability to forecast future competitors

23

Competitive Advantages and Strategic Choices in Growing Industries

industry

• At this stage, growth industry strategies that

emphasize brand recognition, product differentiation, and the financial resources to support both heavy marketing expenses and the effect of price competition on cash flow can be key strengths

24

Growth Industries

• For success in this industry setting, business strategies require one or more of the following features:

• The ability to establish strong brand recognition

• The ability and resources to scale up to meet increasing demand

 Strong product design skills to be able to adapt products and services

 The ability to differentiate the firm’s product[s] from competitors entering

the market

 R&D resources and skills to create product variations

 The ability to build repeat buying from established customers

 Strong capabilities in sales and marketing

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Competitive Advantages and Strategic Choices in

Mature Industries

• As an industry evolves, its rate of growth

eventually declines

strategies sell increasingly to experienced,

repeat buyers who are now making choices among known alternatives

and service as knowledgeable buyers expect similar price and features

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Mature Industries

Strategy elements of successful firms 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

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Competitive Advantages and Strategic Choices in Declining Industries

• Declining industries are those that make products

or services for which demand is growing slower than demand in the economy as a whole or is actually declining

• Focus on higher growth or a higher return

• Emphasize product innovation and quality

improvement

• Emphasize production and distribution efficiency

• Gradually harvest the business

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Competitive Advantage in Fragmented Industries

• A fragmented industry is one in which no firm

has a significant market share and can strongly influence industry outcomes

• Tightly managed decentralization

Competitive Advantage in Global Industries

• A global industry is one that comprises firms

whose competitive positions in major geographic

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

products

foreign countries

directly in the markets of one or more foreign countries

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Four Generic Global Competitive Strategies

• Broad-line global competition

• Global focus strategy

• National focus strategy

• Protected niche strategy

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Ex 8.11 Grand Strategy Selection Matrix

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Ex 8.12 Model of Grand Strategy Clusters

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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

choose diversification or integration eventually create another management challenge

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Key Terms

• Concentrated growth

• Concentric diversification

• Conglomerate diversification

• Grand strategy clusters

• Grand strategy selection matrix

• Growth industry strategies

• Horizontal acquisition

35

Key Terms (contd.)