MAN 6635
techniques for analyzing product attributes and positioning
- multidimensional scaling -conjunct analysis -hedonic price analysis -value curve analysis
factors of spectrum of industry structure
-(C)concentration -(EE)entry and exit barriers -(PD)product differentiation -(I)information
evolution of strategic management
-1950: financial budgeting -1960-70: corporate planning -1970-80: emergence of strategic management -1980-2000: quest for competitive advantage -2000-12: adapting to turbulence
oligopoly factors
-C=a few firms -EE=significant barriers -PD=potential for product differentiation -I=imperfect availability of information
perfect competition factors
-C=many firms -EE=no barriers -PD=homogeneous product -I=perfect information flow
monopoly factors
-C=one firm -EE=high barriers -PD=potential for product differentiation -I=imperfect availability of information
duopoly factors
-C=two firms -EE=significant barriers -PD=potential for product differentiation -I=imperfect availability of information
Strategy as Positioning
-Where are we competing? How are we competing? =competing for the present
resource and organizational requirements of cost leadership strategy
-access to capital -process engineering skills -frequent reports -tight cost control -specializations of jobs and functions -incentives linked to quantitative target accounts
Identifying Key Success Factors
-analysis of demand -analysis of competition
production markets source of imperfection on competition
-barriers to imitation -barriers to innovation
indicators of intangible reputation resources
-brand equity -costumer retention -supplier loyalty
supplier power factors
-buyers price sensitivity -relative bargaining power
external sources of change
-changing costumer demand -changing prices -technological change
the industry environment attributes
-competitors -customers -supplier
types of competitive advantage
-cost -differentiation
innovatory strategies
-creating whole new markets/industries (myspace and Facebook in social networking) -creating new costumer segments (Nintendos wii games console) -new sources of competitive advantage (reconfiguring value chain, reconceptualizing the product, new performance combinations)
indicators of tangible financial resource
-debt/equity ratio -credit rating -net cash flow
isolating mechanism for incentives for imitation
-deterrence: signal aggressive intentions to imitators -preemption: exploit all available investment opportunities
drivers of cost advantage
-economies of scale -economies of learning -production techniques -product design -input costs -capacity utilization -residual efficiency
indicators of Human Resources
-employee qualifications -pay rates -turnover
how does competitive advantage emerge?
-external sources of change -internal sources of change
Mintzberg's Critique of Formal Strategic Planning
-fallacy of prediction (the future is unknown) -fallacy of detachment (impossible to divorce formulation from implementation) -fallacy of formalization (inhibits flexibility, spontaneity, intuition and learning)
tangible resource
-financial (cash, securities, borrowing capacity) -physical (plant, equipment, land and buildings, mineral reserves, raw materials)
corporate functions
-financial control -management development -strategic innovation -multidivisional coordination -acquisition management -corporate social responsibility
support activities
-firm infrastructure -human resource management -technology development -procurement
strategy analysis analyzes?
-goals and performance -competitive environment -resources and capabilities
the firm attributes
-goals and values -resources and capabilities -structure and systems
the firm factors
-goals and values -resources and capabilities -structure and systems
factors of how will we get there
-guidelines for development -priorities for capital expenditure, R & D -growth modes: organic growth, M & A, alliances
production markets opportunity for competitive advantage
-identify potential barriers to imitation (ex: deterrence, preemption, causal ambiguity, resource immobility, etc) and base strategy upon them -difficult to influence or exploit
Characteristics of strategic decisions
-important -involve a significant commitment of resources -not easily reversible
role of strategy analysis in strategy making
-improves decision processes, but doesn't give answers -assists us to identify and understand the main issue -helps us to manage complexity -can enhance flexibility and innovation by supporting learning
primary activities
-inbound logistics -operations -outbound logistics -marketing and sales -service
Sources of Superior Profitability
-industry attractiveness (which business should we be in?)=corporate strategy -competitive advantage (how should we compete?)=business strategy
defining industry boundaries
-key criterion: substitution -they need to analyze market competition at different levels of aggregation (depending on the issues being considered)
indicators of tangible physical resource
-market value of fixed assets -scale of plants -alternative uses for fixed assets
resource and organizational requirements of differentiation strategy
-marketing abilities -product engineering skills -cross functional coordination -creativity -research capability -incentives linked to qualitative performance targets
factors of what do we want to achieve
-mission statement -perfomance goals
macro environment (environment analysis)
-national and international economy -technology -government and political forces -natural environment -demographics -social forces
trading markets opportunity for competitive advantage
-none -inside trading -cost minimization -superior diagnosis -contrarianism
trading markets source of imperfection of competition
-none(efficient markets) -imperfect information -transaction costs -systematic behavioral trends -overshooting
indicators of intangible technology resource
-number of patents owned -royalty income -R&D expenditure -R&D staff
tangible differentiation
-observable product -characteristics (size, color, materials, performance, packaging, complimentary services)
forecasting industry profitability
-past profitability is a poor indicator of future profitability -if we can forecast changes in industry structure we can predict likely impact on competition and profitability
spectrum of industry structure
-perfect competition -oligopoly -duopoly -monopoly
the porter value chain is made of
-primary activities -support activities
sources of uniqueness on supply side
-product features and performance -complementary services -intensity of marketing activities -technology embodied in design and manufacture -quality of purchased inputs -procedures that impact customer experience -skill and experience of employees -location -degree of vertical integration
factors of where to compete
-product market scope -geographical scope -vertical scope
identifying key factors by analyzing profit drivers
-return on sales -sales/capital employed
analyzing resources and capabilities
-role of resources and capabilities in strategy formulation -identifying resources and capabilities -appraising resources and capabilities -developing strategy implications
key strategy elements of cost leadership strategy
-scale efficient plants -design for manufacture -control of overheads and R&D -process innovation -outsourcing -avoidance of marginal customer
Human Resources
-skills/know-how -capacity for communication and collaboration -motivation
3 types of resources
-tangible -intangible -human
intangible resources
-technology (patents, copyrights, trade secrets, R&D facilities, technical and scientific employees) -reputation (brands costumer loyalty, relationships) -culture
Porter's Five Forces competition framework
-threat of entry -threat of substitute -supplier power -buyer power -competitive rivalry
objectives of industry analysis
-understand how industry structure drives competition, which determines the level of industry profitability -assess industry attractiveness -use evidence on changes in industry to forecast future profitability -formulate strategies to change industry structure to improve industry profitability -identify key successful factors
strategy as direction
-what do we want to become? -what do we want to achieve? -how will we get there?
analysis of competition
-what drives competition? -what are the main dimensions of competition? -how intense is competition? -how can we obtain a superior competitive position?
factor of how to compete
-what is the basis of our competitive advantage?
strategies to improve industry profitability
-what structural variables are depressing profitability? -which can be changed by individual or collective strategies?
analysis of demand
-who are our costumers? -what do they want?
framework for apprising resources and capabilities
-zone of irrelevance=low relative strength, low strategic importance -superfluous strength=high relative strength, low strategic importance -key weaknesses=low relative strength, high strategic importance -key strengths=high relative strength, high strategic importance **rectangle divided into 4. -superfluous is upper left, key strengths is upper right, zone of irrelevance is bottom left, key weaknesses is bottom right -horizontal scale is relative strength -vertical scale is strategic importance
profitability of US products (2000-2010): LOW
1) airlines (-11.3%) 2) motor and vehicle parts (4.4%) 3) food production (5.2%) 4) telecommunications (5.8%)
worlds most valuable brands (2011)
1) coca-cola 2) IBM 3) microsoft 4) google 5) general electric
sources of competitive advantage
1) cost advantage -similar product at a lower cost 2) differentiation advantage -price premium from unique product
Hierarchy of Capabilities
1) cross functional 2) broad functional 3) activity related (operations related only) 4) specialized (manufacturing related only) 5) single task
the framework for analyzing resources and capabilities
1) identify the firms resources and capabilities (resources --> capabilities) 2) appraise the firms resources and capabilities in terms of strategic importance and relative strength (potential for sustainable competitive advantage) 3) develop strategy implications (strategy) -how can strengths be exploited most effectively -in relation to weaknesses (what can be outsources, different strategy to minimize impact of weakness?, strengthening resources/capability by investment)
stages of analysis in using the value chain for cost analysis
1) identify the main value chain activities 2) allocate total costs between value chain activities 3) identify the cost drivers at each stage of the value chain 4) identify linkage between activities 5) identify opportunities for cost reduction
strategic importance of resources and capabilities
1) potential to establish competitive advantage (scarcity, relevance) 2) sustainability of the competitive advantage (durability, transferability, replicability) 3) appropriabili (property rights, relative bargaining power, embeddedness)
two approaches to identifying and organizations resources and capabilities
1) starting from the inside 2) starting from the outside
three key influences determining industry profitability
1) the value of the product to costumers 2) the intensity of competition 3) relative bargaining power at different stages of the value chain
profitability of US industries (2000-2010): HIGH
1) tobacco (33.5%) 2) household and personal products (27.8%) 3) pharmaceuticals (20.5%) 4) food consumer products (20.0%)
basic frame work for analyzing resources and capabilities
1)resources --> 1)capabilities --> 2)potential for sustainable competitive advantage --> 3)strategy
threat of entry factors
=entrants threat to industry profitability depends on height of barriers to entry principal sources of barriers to entry: -capital requirement -economies of scale -absolute cost advantages -product differentiation -access to distribution -legal barriers -retaliation
threat of substitute factors
=extent of competitive pressure from producers of substitutes depends on: -buyers propensity to substitute -relative prices and performance of substitutes
rate of profit above the cost of capital
=how do we make money?
competitive advantage from internally generated change
=strategic innovation
the industry environment (industry analysis)
=suppliers, competitors, customer -lies at the core of macro environment -macro environment impacts the firm through its effect on the industry environment
intended(design) strategy + emergent(process) strategy
?=realized strategy
buyer power factors
The threat to which buyers are ablate depress profitability depends on: =price sensitivity -cost of production relative to total cost -product differentiation -competition between buyers =bargaining power -size and concentration of buyers relative to producers/suppliers -buyers switching costs -buyers information -buyers ability to backward integrate *analysis of supplier power is symmetric
product integrity
The total balance of product features
focuses differentiation
appealing to what distinguishes different costumer groups (MTV, Harley-Davidson, Armani)
broad scope differentiation
appealing to what is common between different customer (McDonalds, hones, Gillette)
isolating mechanism for resource acquisition
base competitive advantage upon resources and capabilities that are immobile and difficult to replicate
internal product integrity
consistency between the function and structure
key to differentiation of product integrity
consistency of all aspects of the firms relationship with its customers
key to successful differentiation strategy
consistency of internal and external integrity
strategy as coordination and communication
creates consistency and unity
strategic innovation
creating customer call from new products, experiences or modes of product delivery
differentiation key issue
creating value for the costumer
differentiation vs segmentation
differentiation= concerns choices of how a firm distinguishes its offerings from those of its competitors (how the firm competes) Segmentation= concerns choices of which customers, needs, localities a firm targets (where the firm competes)
what makes a successful strategy?
effective implementation of: clear and consistent long term goals, understating of competitive environment, objective appraisal of resources
key strategy elements of differentiation strategy
emphasis on: -branding -advertising -design -service -quality -new product development
hedonic price analysis
estimates the price that consumers will pay fro particular product attributes
external product integrity
fit between the product and consumers objectives, values and lifestyle
importance of market share
if all firms in an industry have the same experience curve then: change in relative costs over time = f(market share) this implies that market share is like to profitability BUT -association does not imply causation -costs of acquiring market share offset the returns to market share
strategy as target
improves performance by setting high aspirations
strategy as decision support
improves the quality of decision making
internal vs external environment
internal= the firm external= the industry
starting from the outside
key success factors: -how do costumers choose? -what do we need to survive competition? ==what resources and capabilities do we need to deliver these key success factors
value curve analysis
maps competing products according to bundles of attributers in order to identify opportunities for new products with a different combination of attributes
multidimensional scaling
maps consumer perceptions of competing products along key differentiating variables
is strategy the same as tactic?
no. tactic is a scheme for a specific maneuver
does differentiation imply segmentation?
not necessarily, depends upon the differentiation strategy -broad scope or focused differentiation
isolation mechanism for identification
obscure superior performance
identifying key success factors through modelling profitability
profitability=yield x (load factor - unit cost) or income=revenue x (RSPMs - expenses)
Differentiation
providing something unique that is valuable to the buyer beyond simply offering low price not just about the product, it embraces the whole relationship between supplier and costumer
isolating mechanism for diagnosis
rely upon multiple sources of competitive advantages to create "casual ambiguity"
sustaining competitive advantage against imitation
requirement for imitation: -identification -incentives for imitation -diagnosis -resource acquisition
primary sources of profitability to a firm
resources and capabilities
links between resources, capabilities and competitive advantage
resources and organizational capabilities along with industry key success factors form a strategy and that forms competitive advantage
internal sources of change
some firms have greater creative and innovative capability
key success factors
starting point for the analysis of competitive advantage
basic framework of strategy
strategy as a link between the firm and its environment
what is strategy?
strategy is the overall plan for deploying resources to establish a favorable position
starting from the inside
supportive and primary activities
competitive rivalry factors
the extent to which industry profitability is depressed by aggressive price competition depends on: -concentration (number and size distribution of firms) -diversity of competitors (difference in goals, cost strategies, etc.) -product differentiation -excess capacity and exit barriers -cost conditions
the experience curve "the law of experience"
the unit cost of value added for a standard product declines by a constant proportion (typically 20-30%) each time cumulative output doubles
Intangible Differentiation
unobservable and subjective characteristics that appeal to the costumers image, status, identity and desire for exclusivity
conjunct analysis
uses estimates of consumer preferences for particular product attributes to forecast demand for new products that comprise different bundles of product attributes
how are resources integrated to create organizational capabilities?
via: -process -organizational structure -motivation -organizational alignment
factor of what do we want to become
vision statement