BADM 449 - Quiz 2
Business-level strategy
the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market "How should we compete?"
transnational strategy (Integration Responsiveness Framework)
- combo of localization (high responsiveness) with global standardization (lowest cost position possible) - think globally act locally - ex. german multimedia conglomerate Bertelsmann - difficult to implement due to cost of duplicating business units in each host country, organizational complexity of finding managers who can work across cultures - arises out of pressure for local responsiveness and pressure for cost reduction - differentiation at low cost
global standardization strategy (Integration Responsiveness Framework)
- economies of scale and location economies - 3.0 - pursuing a global division of labor based on best of class capabilities at the lowest cost - little to no differentiation pr local responsiveness just cost leadership - ex. lenovo R&D in beijing, shanghai but production in mexico, india
Dimensions of Scope
- horizontal diversification - simultaneous ownership of 2 or more units that utilize a similar set of resources - vertical integration - ownership of 2 or more units wherein the outputs of some units become inputs for other units producer of outputs upstream to users downstream - geographic diversification
International Strategy (Integration Responsiveness Framework)
- leveraging home based competencies in foreign markets - frequently first step companies take - limited local responsiveness - oldest types - selling same products or services in both domestic and foreign markets - ex. harley davidson in china
multidomestic strategy (Integration Responsiveness Framework)
- maximize local responsiveness - globalization 2.0 - consumers will perceive them to be domestic companies - ex. nestles customized product offerings - costly bc it requires duplication of key business functions across multiple countries - hard to reach economies of scale
Types of Corporate Diversification
- single business: derives more than 95% of revenues from one business for Google it obtains more than 95% of its revenues from online advertising - dominant business:70-95% from a single business but it pursues at least one other business activity that accounts for remainder of revenue dominant business shares competencies - related diversification: derives less than 70% of revenue from a single business activity and obtains revenues from other lines of businesses linked to primary benefit from economies of scale and scope the multiple businesses can pool and share resources and leverage competencies across business lines ~ related constrained diversification: derives less than 70% from a single business activity and obtains revenues from other lines related to primary choices of other business opportunities are limited by the fact that they need to be related ~ related-linked diversification: new business activities that share only a limited number of linkages to primary - unrelated diversification: less than 70% of its revenues come from a single business and there are few if any linkages among businesses combines two or more strategic businesses under one overarching corporation = conglomerate
Testing the quality of a strategy
1. Does your strategy exploit your key resources? 2. Fit with current industry conditions? 3. Are differentiators sustainable? 4. Elements of strategy consistent and aligned with strategic position? 5. Can your strategy be implemented?
Why acquire other firms?
1. Gain access to new markets and distribution channels - need to overcome entry barriers 2. Gain access to a new capability or competency: strengthen capabilities in server systems, equipment, internet of things, temp control, etc is why Intel required Altera 3. To preempt rivals:acquiring promising start ups to gain new capabilities/competencies and preempt rivals from acquiring the start ups
alliance management capability
1. Partner selection and alliance formation - benefits > costs - 2. Alliance design and governance - JV, equity, non equity 3. Post-formation alliance management - make relationship specific investments - establish knowledge sharing - build trust
Basic Priniciples of Strategy
1. Value-Based Strategy 2. Four Strategies 3. Strategic Fit 4. Trade-Offs
How to respond to disruptive innovation
1. continue to innovate in order to stay ahead of competition 2. guard against disruptive innovation by protecting low end of market 3. disrupt yourself rather than wait for others - introduce to emerging markets then to developed markets (reverse innovation)
Five logics of diversification
1. economies of scope: occur when BUs can coordinate activities for efficiency or spread cost of some resource over volume of multiple BUs 2. revenue enhancements: increase in WTP for a combined offering improvements in a companys ability to price in a way that extracts WTP - one stop shop - cross promotion - umbrella branding - bundling 3. market power: ability to sell products above competitive level or reduce costs of activities below comp level - multipoint competition - mututal forebearance - working across multiple markets increases familiarity between firms and their ability to deter each other - cross subsidization - charging high prices to one customer to charge lower to another group - vertical integration 4. managerial incentives: maximizing management compensation empire building 5. financial economies: improved allocations of financial resources based on investments inside or outside the firm efficient capital allocation risk reduction - generally not in shareholders best interest purchase & restructure: purchase underperforming companies, restructure, and keep or spin off as cash generators tax advantage
Radical Innovation
An innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge. targets new markets by using new tech ex. the X-ray, airplane give a temporary comp advantage then follow up w a string of incremental innovations to sustain Gilette razors usually firms start w a radical innovation, follow w incremental innovations, and the industry's next radical innovation is often from an entrepreneur
Benefits & Risks of Globalization
Benefits: -gain access to a larger market; economies of scale and scope - also countries w low domestic demand focus on exports - other companies need to be an MNE to grow - gain access to low cost input factors - especially good for companies with low cost leadership strategy - low cost raw materials and low cost labor in China for example - develop new competencies; location economies - benefits from locating value chain activities in optimal geographies for a specific activity good for companies with differentiation strategies - FDIs to be a part of communities of learning Risks: - liability of foreignness - costs of doing business in unfamiliar cultural and economic environment, coordinating geographic distances - loss of reputation - potential negative exposure from global activities - low wages/poor working conditions/foreign governments unable to enforce a minimum safety standard, affects company's CSR - loss of intellectual property - large scale copyright infringement, companies also may find their IP being siphoned and re engineered (foreign countries take your technology and create their own)
Benefits and Risks of Vertical Integration
Benefits: - lower costs - improving quality - facilitating scheduling and planning - facilitating investments in specialized assets - securing critical supplies and distribution channels Risks: - increasing costs - reducing quality - reducing flexibility - increasing the potential for legal repercussions
Differentiation Strategy: Benefits & Risks
Benefits: low threat of entrants due to intangible resources such as a reputation for innovation, quality, or customer service - protection against increase in input prices - power of suppliesr - power of buyers- well differentiated products are not perfect imitations so sales will not decrease - threat of substitutes low - rivalry among competitors is low because of high value Risks: erosion to margins, replacement if faced with innovation, focus of competition shifts to price
Cost-Leadership: Benefits and Risks
Benefits: protection against threat of entry due to economies of scale - power of suppliers - increase in input prices can be absorbed - power of buyers - decrease in sales can be absorbed - threat of substitutes low - rivalry among competitors - protection against price wars Risks: erosion of margins, replacement, focus of competition shifts to non-price attributes, inferior quality, risk of outsourcing, standardization can decrease ability to adapt to technological shifts in market or changing tastes
Strategic Trade-Offs
Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate higher cost. JetBlue experienced a competitive disadvantage bc it was unable to effectively address the strategic trade offs in pursuing a cost leadership strategy and differentiation strategy at the same time
Build-Borrow-Buy Framework
Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy/acquire a firm). must first identify a strategic resource gap - need a resource that cannot be readily bought on open market or else it wouldnt lead to competitive advantage
Trade-Offs
Cost-Quality Frontier: tradeoff between cost and quality
BCG Portfolio Matrix
Definitely Keep Stars - high share in high growth market Keep Cash Cows - low growth market but hold considerable market share Maybe Question Marks - high growth but low earnings - unsure if they will become stars or dogs want to invest to turn them to stars Sell Dogs - low share in low growth industry growth vs relative market position high high - starts low high - cash cows high low - question marks low low - dogs
Porter's Diamond Framework
Explains national competitive advantage, why are some nations outperforming others in specific industries -Factor conditions -Demand conditions -Competitive intensity in focal industry -Related and supporting industries/complementors
External vs Internal Transaction Costs
External: when a company transacts in open market - costs of searching for a firm or individual to contract then enforcing it internal: costs pertaining to organizing an economic change within the firm ex. recruiting employees, paying salaries
Advantages/Disadvantages of Firms/Markets
Firms Advantages: common and control fiat/hierarchical lines of authority coordination transaction specific investments community of knowledge disadvantages: administrative costs low-powered incentives - hourly wages and salaries principal agent problem - when an agent acts on behalf of principal but pursues own self interest Markets Advantages: high powered incentives - starting a new venture instead of being a salaried employee flexibility Disadvantages: search costs opportunism - behavior by self interest - hold up incomplete contracting - specifying and measuring performance - information asymmetries enforcement of contracts
Stages of Globalization
Globalization 1.0 - 1900-1941 - only sales and distribution took place overseas, almost all important functions took place in home country - knowledge flowed one way; home to international Globalization 2.0 - 1945-2000 - duplicating business functions overseas - MNEs began to create smaller, self contained copies of themselves with all business functions in tact in a few key countries - required significant FDI - allowed greater local responsiveness - knowledge flow back to headquarters remained limited Globalization 3.0 - 21st century - MNE reorganizes to a more seamless global enterprise - MNEs become global collaboration networks - companies now freely locate business functions anywhere in the world based on an optimal mix of costs, capabilities, PESTEl factors - GE "in country, for country" - local low cost innovation then roll into western markets as disruptive innovation MNE = multinational enterprises - firms that hold assets or employees in more than one country
Differentiation Strategy - Value Drivers
Goal is to add unique features that will increase the perceived value of goods and services unique features, new product launches, marketing/promotion ex. Cool Carpet cost parity - maintaining the same cost but higher value must also manage costs to not erode margin Value Drivers: 1. product features 2. customer service 3. complements - product features: strong R&D capabilities often needed for this - customer service: Zappos has superior customer service which increases perceived value - Complements: add value when consumed in tandem, AT&T U-Verse - able to lever services that bubdled phone internet and TV
Four types of innovation
Incremental Radical Architectural Disruptive
McKinsey portfolio Matrix
Industry attractiveness vs competitive position
Types of Alliances
Joint venture - results in creation of a legally independent company in which 2 or more firms share equal ownership - creation of new entity - least common - strongest tie, trust and commitment highly likely, may be required by institutional setting - long negotiations and significant investments, long term solution, JV managers have double reporting lines ( 2 bosses) - HULU, JV owned NBC, Fox and ABC Equity strategic alliance - cooperating firms supplement contracts with equity holdings in alliance partners - equity investment - less common than non equity but more common than joint ventures - stronger tie, trust and commitment can emerge, window into new technology - real option value - less flexible, slower, can entail significant investments - ex roches investment in Genetech (used real option priot to fill integration) Non equity strategic alliance - a contract license is given by one partner to another to supply, produce, or distribute a good or service - contract - most common - flexible, fast, easy to initiate and terminate - weak tie and lack of trust/commitment - Microsoft / INM
Entering Foreign Markets
Low investment and low control: contract based exporting Medium investment and control: strategic alliances - long term contracts (licensing and franchising), equity alliances, joing adventures high investment high control: subsidiary - acquisition, greenfield (building new, fully owned plants and facilities from scratch)
Build borrow buy framework questions
Relevancy - are your existing internal resources relevant to solving the gap? if so internal development / build Are the resources needed tradable? How close do you need to be to your external resource partner? - strategic alliance / borrow - contractual alliance (licensing/contracting) if resources are easily tradable - alliance with equity (equity alliance/joint venture) if resources are not very tradable but you do not need to be extremely close to partner - always consider borrowing before integrating due to cost How well could the target firm be integrated? Acquisition/Buy if resources are not very tradable and you need a very close relationship to resource partner and you can integrate target firm you acquire
3 Well Aligned Strategies
TYCO, NEWELL, SHARP Newell is in the middle of TYCO and SHARP TYCO is general, wide scope of business, trasnferring coordinating mechanisms, financia control systems, and small corporate office size SHARP is specialized resources, narrow scope of business, operating coordinating mechanisms, and large corporate office size
Network Effect
The positive effect that one user of a product or service has on the value of that product or service for other users occur when value of a product or service increases with number of users apple with apps - people wanted iphones because of the many apps and as more apps were donwloaded more were created
specialized assets
Unique assets with high opportunity cost: They have significantly more value in their intended use than in their next best use. They come in three types: site specificity, physical asset specificity, and human-asset specificity. has use in only certain situations if an asset has high specificity
Reasons for alliances
Value Creation / strengthen competitive position - help to increase returns by motivating firms to make transaction specific investments walmart and suppliers - economies of scale joint operation of a bauxite mine in the aluminum industry Learning firms can learn important sills and abilities from their competitors GM and Toyota - Risks: can allow a competing firm to develop the skills and abilities it needs to compete more effectively in all segments of its business - can lead to learning race Entry into New Markets can help a firm enter a new industry or market by avoiding high costs of creating skills abilities and products ex. virtually all entry by US firms into China and japan markets has been w alliance partners ex. DuPont's entry into the electronics industry Managing Uncertainty can help a firm manage risks and share costs associated with new business investments ex. industry wise standard setting - under conditions of high uncertainty, firms have an incentive to retain the flexibility to move quickly into a particular market or industry once the full value of that strategy is revealed - strategic alliances as real options: breaking down large investment decisions into a series of smaller ones as more information is revealed - right but not an obligation to continue making investments can invest a small amount into an equity alliance before deciding to invest a larger interest - a wait and see approach access critical complementary resources
portfolio planning
a corporation should have a range of companies to provide cash, sustainability, and future potential Portfolio analysis results in prescriptions for resource allocation - which businesses should we take cash to invest in which businesses and which businesses should be divested
Innovation Ecosystem
a firm's embeddedness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making no longer make independent choices and have to consider all parties
Organizational Inertia
a firm's resistance to changes in the status quo incumbent firms tend to favor incremental innovations than reinforce the existing structure and power distribution while avoiding radical innovation that can disturb
Strategic Position
a firm's strategic profile based on the difference between value creation and cost (V-C) relative to competitors the greater the V-C, the greater the firm's potential for a competitive advantage a firms business level strategy determines their strategic position
integration-responsiveness framework
a framework of MNE management on how to simultaneously deal with the pressures for both global integration and local responsiveness international, multidomestic, global standardization, transnational
core competence-market matrix
a framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets ex. using old competencies to compete in new markets and using new competencies to compete in old markets or existing competencies to better current position
Architectural Innovation
a new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets existing technologies to new markets Canon redesigning the Zerox copier for small and medium sized businesses not just Fortune 100 - razor razor blade business model - charges low prices for copiers and high prices for ink cartridges
incremental innovation
a new product, service, or technology that modifies an existing one
Taper integration
a way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside market firms for some of its supplies, and/or is forwardly integrated but also relies on outside market firms for some of its distribution - allows a firm to fine tune its competencies in upstream and downstream value chain activities - enhances flexibility - combine internal and external knowledge
Administrative & PoliticalDistance
absence of trading bloc, shared currency, money or political association, absence of colonial ties, political hostilities, weak legal and financial institutions affects industries or products that foreign govt views as staples (electricity), as building national reputations (aerospace), or as vital to national security (telecommunications)
Value-Based Strategy - Harnischfeger
amount of value that a firm can claim cannot exceed its added value under restricted bargaining the key to a firms achieving a position added value is the existence of a favorable asymmetry between the firm and its competitors Harnischfeger: ???
disruptive innovation
an innovation that leverages new technologies to attack existing markets from the bottom up invades existing markets with new tech to meet existing customer needs 1. begins as a low cost solution 2. initial performance is inferior to existing tech but rate of tech improvement is faster than needed ex. digital photography replacing film photography laptop computers replacing desk top, not tablets and smart phones disrupting laptops disruptive innovation first captures the low end, the low margin business incumbent firms are often slow to change so disruptive innovation capitalizes on that - they listen only to their existing customers which can hurt them when new tech is released and those customers leave
Competency Trap
any skill or technology that a company sticks with due to comfort with the familiar, in spite of evidence that better alternatives may exist
Better off Test
asks whether a particular set of BUs should be working together does the presence of the corporation in a given market improve the competitive advantage of other BUs over and above what they could achieve on their own focuses on corporate added value and value creation horizontal diversification levers for value creation: shared cost economies across businesses one stop shop/sales/support cross promotion bundling complements superior internal resource markets other superior skills and capabilties Limits: diseconomies of scale costs of compromise/coordination mixed motives/reputation - anti trust laws/political breach
Best alternative test
asks whether the set must be jointly owned to maximize the amount of value created and captured does the ownership of the BU produce a greater competitive advantage than an alternative arrangement would produce? BUs may choose to remain independently owned - value capturing
site specificity
assets required to be co-located, such as the equipment necessary for mining bauxite and aluminum smelting valuable at a specific site and costly to move
physical asset specificity
assets whose physical and engineering properties are designed to satisfy a particular customer ex. bottling machinery for coke and pepsi - unique molds
death-of-distance hypothesis
assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally
Related and supporting industries/complementors - porters diamond framework
availability of complementors - firms that provide goods or services that lead customers to value firms offerings more when combined - firhter strengthens national competitive advantage complementors can be a stimulus for growth, innovation, and improvement
Minimum Efficient Scale
bottom of the upside down U output range needed to bring the cost per unit down as much as possible allowing a firm to stake out the lowest cost position possible
Strategic Fit
business strategy should be designed to match - competitive forces in the industry - firm's resources and capabilities
Alternative on make or buy continuum
buy short term contracts long term contracts - licensing - franchising equity alliances - partner purchases ownership share by buying stock or assets ie making an equity investment joint ventures - create and jointly own a new organization parent subsidiary relationships - parent owns subsidiary and can direct it via command and control make
Generic Strategies
can be used by any organization ex. differentiation and cost leadership
Crossing the chasm - mobile phone industry
can have multiple chasms Motorola satellite phone failed after tech enthusiasts as it had poor signal because of satellite signal - global satellite telephone industry never moved beyond intro stage then the Treo by Handspring fell in chasm between early adopters and early majority due to tech problems and lack of apps and rigid contract then blackberry was a great success and made it to early majority with access to email and data in real time anywhere with wireless service - very popular w corporate executives - it was eroded by the iphone iphone got to late majority because it appealed to the laymen who just wanted to play with a device and surf web not just access data - apps were enticing as well
CAGE Framework
choosing where to compete cultural distance administrative distance geographic distance economic distance want a small cultural distance score
Competitive intensity in a focal indsutry - porters diamond framework
companies that face a highly competitive environment at home tend to outperform global competitors that lack domestic competition
Decline Stage
competency: manufacturing and engineering process, marketing, services process and product innovation ceased negative market growth - demand shrinks small to moderate market size low to high price but few, if any competitors price or non price comp late buyers any of the 3 strategies objective is to exit, harvest, maintain, or consolidate - basically save yourself harvest- firm reduces investments in product support and allocates only a minimum of human and other resources maintain - a lot of marketing consolidate - buying rivals
crossing the chasm framework
conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group business strategy needs to be fine tuned for each customer group a bell curve with "chasm" between early adopters and early or late majority tech enthusiasts - small segment, engineering mindset, how can we make product better, often before officially introduced to market early adopters: growth stage, demand driven by imagination and creativity rather than by technology like the tech enth, what can this product do for me or my business - firm must communicate product's potential applications early majority: shakeout stage, practicality of new technology is concern, aware that many hyped new products fail so they wait and observe early adopters using products, 1/3 of entire market potential, often chasm between early adopters and early majority late majority: maturity stage, 34% of total market potential, similar to early majority, unsure if they can master the new technology, wait till standards have emerged, want to buy from well established firms not unknown ventures Laggards: decline stage, only adopt product if absolutely necessary, dont want new tech and are generally considered not worth pursuing
Best alternative test
consider transaction costs and ownership contractual complexity and incompleteness unclear property rights poor enforcement of contracts and property rights relationship specific or co specialized resources
Maturity Stage
core competency is manufacturing and engineering process process innovation is high none to moderate market growth - industry has reached max size largest market size low price but few & large competitors price competition late majority buyers cost leadership strategy or integration maintain strong strategic position airline industry has been in maturity phase for a long time with massive consolidations
Factor Conditions of Porter's Diamond
country's endowments in terms of natural, human, and other resources natural resources not always needed to generate comp advantage because it is often based on human capital and "know how" capital markets, supportive institutional framework, research universities, public infrastructure (airports, roads, schools, health care)
Relational View of Competitive Alliances
critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries competitive advantage is formed when strategic alliances are VRIO
Cultural distance
cultural disparity between an internationally expanding firm's home country and its targeted host country different language, religions, social norms lack of connective ethnic or social networks lack of trust or mutual respect affects industries or products with high linguistic content (TV), national and or religious identity (food), country specific quality associations (wines)
Cost-Leadership Strategy - Cost Drivers
differentiation parity - creates same value as another firm but offers lower price V-C is what matters Cost Drivers: 1. Cost of inputs 2. Economies of Scale 3. Learning-Curve effects - cost of input factors: lower cost raw materials is an advantage - economies of scale: firms with greater market share might be in a position to reap economies of scale, relationship between unit cost and output spread fixed costs over larger output, employ specialized systems and equipment, and take advantage of certain physical properties (cube square rule) - Learning Curve: the learning curve goes down in production as it takes less time to produce same amount, learning by doing drives down cost, want to be further down a learning curve than competitors, differences in timing (learning effects occur overtime as output accumulates - no diseconomies of scale of learning), differences in complexity (sometimes learning effects are strong and economies of scale can be insignificant and vice versa)
Global Strategy
enables MNE to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world
transaction cost economics
explains and predicts boundaries of the firm help managers decide what activities to do in house versus what services and products to obtain from external market transaction costs: internal and external costs associated with an economic exchange whether it takes place within boundaries of a firm or in markets ** when a firm is more efficient in organizing economic activity than are markets, firms should vertically integrate
Four Actions Framework
for creating new markets Eliminate Which factors that the industry takes for granted should be eliminated? These factors may no longer have value for buyers. Reduce Which factors should be reduced well below the industry's standard? Have products been over designed in a race to beat competition? Raise Which factors should be raised well above the industry's standard? Has the industry forced customers to make compromises? Create/Add Which factors should be created that the industry has never offered? What are the potential new sources of value for buyers?
Types of Vertical Integration
fully vertically integrated: all the activities owned by the firm vertically disintegrated: focus on a few limited stages of the industry value chain - choose to control the ones you have an advantage/competency in backward vertical integration: moving ownership of activities upstream to originating inputs of value chain forward vertical integration: moving ownership of activities closer to the end customer, a firm owning more of the value chain pepsi buying bottlers
Resource Continuum general vs specialized resources
general resources have a wider scope of business, are easier to transfer without sharing, need more financial control, and since they dont need to be shared can have a smaller corporate office specialized resources are all the opposite and value operating controls more than financial
Innovation Process
idea, invention (transformation of idea into new product), innovation (commercialization of an invention), imitation
Innovation Driven Competition
innovation is a big driver in the competitive process typewriters to computers: Wang Labs, a computer company, helped kill typewriter industry then IBM & Compaq killed Wang Labs etc
diseconomies of scale
increases in cost as output increases as firms get too big the complexity of managing and coordination raises the cost negating benefits to scale
Integration Strategy
integrating both differentiation and cost leadership strategies "Stuck in the Middle": trade-offs, the firm has neither a clear differentiation nor a clear cost leadership profile, leads to inferior performance and a resulting competitive disadvantage - JC Penny - implemented both strategies to all stores at once sales dropped 25%
human asset specificity
investments made in human capital to acquire unique knowledge and skills ex. mastering the routines and procedures of specific organization
Geographic Distance
lack of common border, waterway access, transportation, communication links affects industries or products with low value to weight ratio (cement) that are fragile or perishable communications are vital (financial service)
Growth Stage
main competency is R&D for process innovation and manufacturing and marketing a STANDARD emerges - markets agreement on a common set of engineering features and design choices product innovation decreases and process innovation increases high market growth, strong demand - due to this demand both efficient and inefficient firms thrive many competitors price falls as process innovates early adopters are main buyers differentiation is still main strategy seeking a strong strategic position - deep pockets - pie still increasing Spanx example of growth - Blakely youngest self made female billionaire
Shakeout Stage
main competency is manufacturing and process engineering process innovation increasing rapidly moderate and slowing down growth large market size moderate price and fewer competitors - only strongest survive shifting from non-price to price competition - cost leaders are often the ones that survive shakeout early majority are buyers strategy is differentiation or now integration surviving by drawing on own deep pockets - no increasing pie just direct competition
Crossing the Chasm
many innovators do not successfully transition from one stage of the industry life cycle to the next each stage of industry cycle is dominated by a different customer groups with different preferences chasm (or gap) between early and late buyers because they have different preferences
Strategic Outsourcing
moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain reduces vertical integration ex. outsourcing non core activities like HR
Netflix Disruptive Innovation & Long Tail
netflix at forefront of wave of disruption in TV industry as it streamed movies over the internet started as an online rental that sent moves then moved to streaming with no physical DVD when Hulu came around at a lower cost, Netflix started Netflix originals Netflix continued to disrupt innovation and gain comp adv Long Tail: online firms can gain a large share from selling a small # of nearly unlimited choices less is more
corporate advantage
occurs when a firm maximizes its resources to build a competitive advantage across its business units
Industry Life Cycle
pattern of evolution it follows from inception to its current state and possible future states introduction, growth, shakeout, maturity, decline not ALL industries follow this cycle
Open Innovation Absorptive Capacity
practices and processes that encourage the use of external as well as internal ideas as well as internal and external collaboration when conceiving, producing, and marketing new products and services external sources can be customers, suppliers, universities, start ups, competitors commercializing external R&D and letting others commercialize internal R&D that doesnt fit with firms strategy doesnt focus just on being first to market absorptive capacity: ability of a company to understand external tech developments, evaluate them, and integrate them into current or new products
Globalization
process of closer integration and exchange between different countries and peoples worldwide made possible by: - falling trade and investment barriers - advanced telecommunications -reduced transportation costs - importance of MNEs and FDIs MNE = a company that deploys resources and capabilties in the procurement, production, and distribution of goods and services in at least 2 countries FDI = foreign direct investment, investments in value chain activities abroad
Focus Strategy
produce products that serve a aprticular segment - serve needs of a particular market than the entire industry
Differentiation Strategy
seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels, allowing the firm to charge higher prices to its customers
Cost-leadership Strategy
seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers standardization & simplification & continual cost reductions
Corporate Strategy
set of choices that a corporation makes to create value through configuration and coordination of its multimarket activities pertains to corporation as a whole while competitive strategy pertains only to business units decisions and actions senior management takes in the quest for competitive advantage in several industries and markets simultaneously where to compete industry value chain, diversification, and geographic scope
internal capital markets
source of value creation in a diversification strategy if conglomerate's HQ does a more efficient job of allocating capital through budgeting process than what could be achieved in external capital markets shift cash to businesses with most profit potential
Demand Conditions - Porter's diamond framework
specific characteristics of demand in a firm's domestic market sophisticated customers hold companies to a high standard of value creation and cost containment contribute to national comp advantage push firms to move research if they have demanding customers
Horizontal Integration
the process of merging with a competitor at the same stage of the value chain can improve strategic position of a firm in a single industry 3 main benefits: 1. reduction in competitive intensity 2. lowering costs: economies of scale and enhance value creation and performance - can lower production and distribution costs 3. increased differentiation: filling gaps in a firms product offering allowing the combined entity to offer a complete suite of products and services
Four Strategies
there are four routes to enjoying favorable asymmetry between the focal firm and its competitors in terms of buyer WTP and supplier opportunity cost matrix with WTP and Opportunity Cost on left and Firm and Competitors on top WTP & Firm : up arrow, WTP and competitors : down arrow, Firm and OC : down arrow, OC and Competitors : Up arrow ASK ABOUT THIS
corporate strategy triangle
vision, goals, objectives in the middle surrounded by resources, business, and corporate office The Center: provides overarching sense of purpose and mission, shorter term milestones, quantifiable and non quantifiable objectives Resources: critical building blocks of strategy, broadly defined assets and capabilities, core competencies (VRIO), specialized vs general resources businesses: industry choice - attractive? based on resources? competitive strategy - competitive position and generic strategies corporate office: structure (units), systems (coordination and control mechanisms), processes (informal elements of an organization)
strategic alliances
voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services can join complementary parts of a firms value chain (such as R&D and marketing) or join the same value chain activities attractive because they allow firms to do things faster at lower costs qualifies as strategic as long as it has the potential to affect a firm's competitive advantage
Economic Distance
wealth and per capita income of consumers different consumer incomes, different consts and quality of natual, financial, and human resources, different information of knowledge rich tend to trade with rich and poor tend to trade with poor affects industries or products for which demand varies by income (cars) and in which labor and other cost differences matter (textiles)
Introduction Stage
when an inventor or company launches a successful innovation a new industry may occur but grow slowly and small market size produce small quantity for high price main competency is R&D and marketing product innovation over process innovation few if any comp high price because new product so strategy is differentiation not cost leadership strategic position is to achieve market acceptance and seed future growth tech enthusiasts are main buyers
Scope of Competition
whether to pursue a specific, narrow part of the market or go after the broader market ex. auto industry - GM offers low and high cost so broad differentiation and cost leadership chevy - cost leadership cadillac - differentiation
