Strategic management planing for domestic and global competition 14th john robinson chapter 8

Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage advantage can be found in the business’s cost structure and its ability to differentiate the busine

Strategy

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 a firm can pursue both low-cost and

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?

Evaluating and Choosing Business Strategies: Seeking Sustained

Competitive Advantage

advantage can be found in the business’s cost

structure and its ability to differentiate the

business from competitors

sources/capabilities that let them operate at a

lower cost will consistently outperform their

rivals that don’t

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

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

Ex 8.1 Evaluating a Business’s Cost Leadership Opportunities

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

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

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

• 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.

Ex 8.3 Evaluating a Business’s Differentiation Opportunities

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

Ex 8.6 Evaluating a Business’s Rapid Response

(Speed) Opportunities

Speed can be created by:

• Speed in delivery or distribution

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

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

• Market focus allows some businesses to

compete on the basis of low cost,

differentiation, and rapid response

against much larger businesses with

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

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

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

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”

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

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

Competitive Advantages and Strategic Choices in Growing Industries

• Rapid growth brings new competitors into the

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

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

Competitive Advantages and Strategic Choices in

Mature Industries

• As an industry evolves, its rate of growth

eventually declines

• Firms working with the mature industry

strategies sell increasingly to experienced,

repeat buyers who are now making choices among known alternatives

• Competition becomes more oriented to cost

and service as knowledgeable buyers expect

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

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

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

to foreign countries

Four Generic Global Competitive Strategies

• Broad-line global competition

• Global focus strategy

• National focus strategy

• Protected niche strategy

Ex 8.11 Grand Strategy Selection Matrix

Ex 8.12 Model of Grand Strategy Clusters

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

• Grand strategy clusters

• Grand strategy selection matrix

• Growth industry strategies

Key Terms (contd.)