chap 6--crafting business strategy for dynamic contexts

a first-mover advantage is valuable only under certain conditions:

-a firm achieves an absolute cost advantage in terms of scale or scope -a firm's image and reputation advantages are hard to imitate at a later date -first-time customers are locked into a firms' products or services because of preferences or design characteristics -the scale of a firm's first move makes imitation unlikely

several firmst competing on the edge of chaos, researchers encountered the following 3 levels of activity,

-activities designed to test today's competitive strategy (defending today's business) -activities designed to lead to tomorrow's competitive strategy (drive growth in emerging businesses) -activities designed to influence the pacing and timing of change (seeding options for future new businesses and growth initiatives)

what are the 3 causes of dynamic contexts

-competitive interaction -industry evolution -technological change

incumbents are not always successful in being the firm to revolutionize an industry and are caught off-guard by other incumbents or new entrants. In such cases, firms can resort to defensive tactics such as:

-containment -neutralization -shaping -absorption, or -annulment

creating options for future competitive advantage and profitability

-horizon 1--defend and extend current business -horizon 2--drives growth in emerging new business -horizon 3--seeds options for future growth business

a first-mover is better off than a fast follower when:

-it achieves absolute cost advantage -its reputation and image advantages are hard to copy -its customers are locked in (i.e. switching costs exist) -scale of the first move makes imitation unlikely

in short, first-mover advantaged diminish--and fast-follower advantages increase--under a variety of conditions, including the following:

-rapid technological advances enable a second mover to leapfrog a first mover's new product or service -the first mover's product or service strikes a positive chord but is flawed -the first mover lacks a key complement, such as channel access, that a fast follower possesses -the first mover's costs outweigh the benefits of its first-mover position

a first-follower is better off than a first-mover when:

-rapid technology advances allow a fast-follower to leapfrog the first-mover -the first-mover's offering strikes a chord but is flawed -the first-mover lacks a key complement (e.g. channel access) that the follower possesses -first-mover costs outweigh the advantages of being the first-move

revolutionary strategies

-reconceiving a product/service -reconfiguring the value chain -redefining the arenas -rescaling the industry -reconsidering the competitive mindset

four actions framework: key to the value curve

-reduce -eliminate -raise -create/add

the key to discovering a new value curve lies in answering 4 basic questions:

-what factors the industry has been taken for granted should be eliminated? -what factors should be reduced well below the industry standard? -what factors should be raised well above the industry standard? -what factors that the industry has never offered should be created or added?

4 phases of competitive interaction

1-discovery and competitive new action 2-customer reaction 3-competitor reaction 4-evaluation of action and reaction effectiveness

real options--5 categories

1-waiting-to-invest options 2-growth options 3-flexibility options 4-exit (or abandonment) options 5-learning options

creating new markets

a new value curve

minimize the risks entailed by being either a first mover or an imitator

absorption

ease with threat can be controlled: -difficult scope of response: -extensive

annulment

improve incumbent products and services to annul an innovation or new entrant's offering

annulment

although all 5 elements of the strategy are important and must be managed in concert, the _____ and ______diamonds are perhaps the most important in dynamic markets

arenas and staging

industry evolution

as industries evolve and competition shifts from differentiation to price/low-cost, advantages shift between rivals

reconsidering the competitive mindset

avoid direct competition

why can fast followers often enter markets more cheaply

because they dont face the initial costs incurred by the first mover

reconceiving a product/service

breaking away from existing industry conceptions of what products and services look like

how can value be created

by redefining the arenas, either through focusing on the total possible market, rather than current customers served, or by spearheading industry convergence

how can incumbents avoid surprise

by taking out options on new businesses and technologies early in their life cycle (such as through investment startups) that will give them the opportunity to acquire the new business at a later time on favorable terms should it prove to be a revolutionary idea

the strategic flexibility demanded of these environments requires that organization structure and systems

can be easily decoupled and recombined as circumstances change

reconfiguring the value chain

changing the elements of the industry value chain

redefining the arenas

changing when and where you compete

OR, _____ if it is LESS attractive for a supplier to provide resources to you when it is also supplying the other firm than when it is supplying you alone

competitor

____ if customers value your product LESS when they have the other firm's product than when they have your product alone

competitor

OR, ___ if it is MORE attractive for a supplier to provide resources to you when it is also supplying the other firm than when it supplying you alone

complementor

____ if customers value your product MORE when they have the other player's product that when they have your product alone

complementor

ease with threat can be controlled: -great scope of response: -limited

containment

limit the extent to which the new entrant's innovation impacts you business

containment

what factors that the industry has never offered should be created or added?

create/add

Head-to-head competition: -emphasizes efficient operation of the model New-Market creation: -emphasizes rethinking of the industry business model

dimension of competition: BUSINESS MODEL

Head-to-head competition: -emphasizes better buyer service New-Market creation: -emphasizes redefinition of the buyer and buyer's preferences

dimension of competition: BUYERS

Head-to-head competition: -emphasizes product or service value and offerings within industry definition New-Market creation: -emphasizes complementary products and services within and across industries and segments

dimension of competition: PRODUCT AND SERVICE OFFERINGS

Head-to-head competition: -emphasizes competitive position within group and segments New-Market creation: -looks across groups and segments

dimension of competition: STRATEGIC GROUP AND INDUSTRY SEGMENTS

Head-to-head competition: -emphasizes adaption and capabilities that support competitive retaliation New-Market creation: --emphasizes strategic intent--seeking to shape the external environment over time

dimension of competition: TIME

Head-to-head competition: -emphasizes rivalry New-Market creation: -emphasizes substitutes across industries

dimensions of competition: INDUSTRY

what can have dramatic effects on the quality of a firm's strategy and it can undermine competitive advantage--sometimes with blinding speed, but more typically over some extended period of time

dynamism

how can firms also reconfigure the value chain

either by developing a new value chain or by compressing the existing value chain

what factors that the industry has taken for granted should be eliminated?

eliminate

the implementation levers must accommodate

environmental turbulence and hypercompetitive environments

the option to walk away from a project in response to new information increases its value

exit (or abandonment) options

effective second movers are sometimes referred to as

fast followers

status of complementary assets: -freely available or unimportant bases of first mover advantages: -strong protection from imitation

first mover can do well depending on the execution of its strategy

what are firms that initiate a strategic action before rivals, such as the introduction of a new product or service or a new process that provides a traditional product or service of dramatically higher quality or at a lower price, or both

first movers

who do not always have an advantage because there are significant risks associated with being the first to introduce new products, services, and business models

first movers

serving markets on two continents by building two plants instead of one gives a firm the option of switching production from one plant to the other as conditions dictate

flexibility options

an entry investment may create opportunities to pursue valuable follow-up projects

growth options

like the 5 elements of strategy, a balance among the _______ _____ is critical

implementation levers

where are opportunities to increase margins found

in rescaling the industry, either by consolidating the industry in search of greater economies of scale, or by downscaling the industry in search of profitable niche markets

as hard as they try, _____are not always successful in being the firm to revolutionize an industry and are caught off-guard by other incumbents or new entrants

incumbents

status of complementary assets: -freely available or unimportant bases of first mover advantages: -weak protection from imitation

it is difficult for anyone to make money: industry incumbent may simply give new product or service away as part of its larger bundle offerings

whose tardiness penalizes then when the market grows

late movers

an initial investment may generate further information about a market opportunity and may help to determine whether the firm should add more capacity

learning options

try to short-circuit the moves of innovators or new entrants BEFORE they make them

neutralization

takeoff period

period during which a new product generates rapid growth and huge sales increases

real-options

process of maximizing the upside or limiting the downside of an investment opportunity by uncovering and quantifying the options and discussion points embedded within it

what factors should be raised WELL ABOVE the industry standard?

raise

-creating a new value curve -separate function from form

reconceiving a product/service

what can result in new offerings with high value-added for customers

reconceiving products and services, either by creating a new value curve or by seperate function and form

-use a new value chain -compress the value chain

reconfiguring the value chain

-look to make competitors complementors -avoid head-to-head competition by moving into areas where there is little competition

reconsidering the competitive mindset

-changing temporal and geographical availability -total imagined market vs. served market

redefining the arenas

what factors should be reduced WELL BELOW the industry standard?

reduce

-increase scale for greater economies of scale -downscale in search of higher prices in niche markets

rescaling the industry

what strategies are ones that do not take the existing rules of competition in the industry for granted but rather attempt to create value by approaching competition by violating some of these taken-for-granted rules

revolutionary

what strategies can be found in reconsidering the competitive mindset, both by focusing on complementors and by shifting the competitive focus away from head-to-head competition and searching for areas where the competition has not ventured

revolutionary

what is generally incompatible with turbulent environments

rigid bureaucracy

who are distinguished from late movers

second movers

who are relatively early movers (because they are still not last-movers), but delayed enough to learn from first movers

second movers

second mover (often fast follower)

second significant company to move into a market, quickly following the first mover

shape the innovation so it becomes something the incumbent can live with or even benefit from

shaping

_____ in an industry itself is a significant factor; it can either complement or compound the effects of industry evolution, technological discontinuities, and globalization

speed of change

what must further support the firm's ability to identify the need for and undertake in strategic change

strategic leadership

low-end disruption

strategy that appears at the low end of industry offerings, targeting the least desirable of incumbents' customers

high-end disruption

strategy that may result in huge new markets in which new players redefine industry rules to unseat the largest incumbents

what can alter the basis of competition and requisite resources and capabilities for competitive advantage

technological discontinuities

first mover

the firm that is first to offer a new product or service in a market

/ Customers/ competitors-company-complementors /suppliers/

the value net

rescaling the industry

using a business model that relies on different economics relative to scale

status of complementary assets: -tightly held and important bases of first mover advantages: -strong protection from imitation

value will go either to first mover or to party with the most bargaining power

status of complementary assets: -tightly held and important bases of first mover advantages: -weak protection from imitation

value-creation opportunities favor the holder of complementary assets, who will probably pursue a fast-follower strategy

what is critical in that it serves as a set of simple rules that describe the business and how it creates value

vision

the value of waiting to build a factory until better market information comes along may exceed the value of immediate expansion

waiting-to-invest options

competitive interaction

when incumbents and, especially, new entrants use a new business model they drive dynamism in market

technological change

when technological change is discontinuous, it does not sustain existing leaders advantages