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Strategic Management/ Business Policy

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Title: Strategic Management/ Business Policy


1
Strategic Management/ Business Policy
  • Joe Mahoney

2
Business Strategy and Competitive Advantage
  • To achieve competitive advantage, we need to
    match a firms resources and capabilities to the
    industry and competitive environment.
  • Position the firm so that we use our resources
    and capabilities in such a way that we provide
    value to our customers and make it difficult for
    others to imitate us.

3
Business Strategy and Competitive Advantage
  • A business-level strategy is an integrated and
    coordinated set of commitments and actions
    designed to provide value to customers and gain a
    competitive advantage by utilizing core
    competencies in specific individual product
    markets.

4
Business Strategy and Competitive Advantage
  • Two fundamental questions
  • How do you generate advantage?
  • How do you sustain advantage?
  • Key idea for sustainability is barriers to
    imitation.
  • How long will it be before the first rival
    imitates the first mover?
  • How fast does new imitation occur once it starts?
  • These two factors determine appropriability.

5
Business Strategy and Competitive Advantage
  • Consider three strategies in terms of two
    fundamental principles (that is, generating
    advantage and sustaining advantage)
  • Market Share
  • Learning curves
  • Corporate Culture

6
Business Strategy and Competitive Advantage
  • Does market share generate competitive advantage?
  • The computer industry is an excellent example of
    the lack of correspondence between market share
    and profit rates. IBM was a clear market
    leader in terms of market share but had only
    mediocre profit performance relative to its
    rivals. Market share is no guarantee of success.

7
Business Strategy and Competitive Advantage
  • Does market share generate competitive advantage?
  • Perhaps high market share causes high profit
    rates.
  • But it could equally well be that there is a
    third factor (e.g., good service capabilities at
    Caterpillar), unobserved by us, that causes both
    high profitability and high market share.
  • In this case, we would see a correlation between
    profitability and market share but no causal
    explanation.

8
Business Strategy and Competitive Advantage
  • Does market share generate competitive advantage?
  • Market share can generate advantage when there
    are significant economies of scale.
  • How can we sustain competitive advantage?
  • Invest in large and specialized assets
    (commitments) that make exit difficult. These
    exit barriers are entry barriers.

9
Business Strategy and Competitive Advantage
  • When can market share work to generate and
    sustain an advantage?
  • Scale economies combined with high exit costs may
    make market share a defensible advantage.

10
Business Strategy and Competitive Advantage
  • How does a learning curve effect generate an
    advantage?
  • To the extent that the firm is first in the
    market, it may, through the operation of the
    learning curve, have lower costs than new rivals.
    Thus, learning curve effects may meet our first
    criterion of giving initial relative advantage.

11
Business Strategy and Competitive Advantage
  • What about the imitation issues for sustaining
    advantage?
  • Learning curve effects can lead to sustained
    competitive advantage
  • If the learning curve effects remain within the
    firm and
  • If the learning curve effects persist in the face
    of technological change.

12
Business Strategy and Competitive Advantage
  • Corporate Culture
  • An organizations culture is a complex set of
    beliefs and ways of doing things that influence
    the organizations perspective on itself and the
    world around it.
  • Set of formal rules and structures that govern
    the way in which people relate to one another at
    the workplace.
  • The set of myths and traditions that help define
    the ideology of the organization.
  • The style of the organizations leader.

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14
Business Strategy and Competitive Advantage
  • How can corporate culture generate advantage?
  • An organizations culture creates value because
    it allows that organization to strike deals with
    its suppliers, customers, and employees that are
    not available to other firms. Thus, culture is
    an organizational asset.

15
Business Strategy and Competitive Advantage
  • How can corporate culture be a source of
    sustained competitive advantage?
  • Corporate culture is hard for another firm to
    imitate. In fact, an organization may have
    difficulty in replicating its own culture in
    other geographic areas.
  • Invisible or intangible assets like corporate
    culture are often the only sustainable source of
    competitive advantage, primarily because such
    advantages are so difficult to imitate.

16
Business Strategy and Competitive Advantage
  • An organizations knowledge or expertise can lead
    to sustainable advantage if
  • The knowledge is tacit rather than articulable
  • Tacit Knowledge We know more than we can
    tell.
  • Tacit Skills Riding a bike, swimming, learning
    by doing which is critical for maintaining a
    manufacturing base
  • The knowledge is not observable in use
  • The knowledge is (socially) complex, rather than
    simple.

17
Sustainable Competitive Advantage
  • Costly Duplication
  • Historical Conditions
  • Uncertainty
  • Social Complexity
  • Property Rights Protection

18
Forms of Competitive Advantage
Similar ProductAt Lower Cost
Price PremiumFrom Unique Product
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22
Generic Competitive Business Strategies for
Strategic Advantage
23
Where To Use Cost Advantage
  • Mature Industries
  • High Fixed Costs of Entry
  • Homogeneous Customer Preferences
  • Innovation
  • Emphasis on Process Vs. Product
  • Proprietary Process Technology
  • MES high in Relation to Total Demand

24
Creating Cost Advantage
  • Total Quality Management (TQM)
  • Design For Manufacturability (DFM)
  • Process Design
  • Learning-By-Doing Versus Learning-Before-Doing
  • Just-In-Time Inventory Methods

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Risks of Cost Advantage
  • Changing Production Technologies
  • From High to Low Entry Barriers
  • Changing Customer Preferences
  • Ability to Differentiate Commodity Product
  • Transition From Mature to Declining Industry
  • Increasing Price Competition With High Exit
    Barriers
  • Increasing Supplier Power
  • Increasing Concentration of Supplier power

27
Differentiation Advantage
  • Differentiation Advantage occurs when a firm is
    able to obtain from its differentiation a price
    premium in the market which exceeds the cost of
    providing differentiation.

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29
Sustaining A Price Premium -Where To Use A
Differentiation Strategy
  • Quality
  • Performance
  • Product Features
  • Reliability
  • Durability
  • Conformance to standards
  • Serviceability
  • Aesthetics
  • Perceived Quality

30
Sustaining A Price Premium -Where To Use A
Differentiation Strategy
  • Service
  • Timeliness, Courtesy, Consistency, Convenience,
    Completeness, Accuracy
  • Brand Image and Reputation
  • First-mover advantages
  • Bundling Of Features
  • Bundling Of Services
  • Linkages with other firms (alliances)
  • Packaging

31
Creating Differentiation Advantage
  • Defining The Customer
  • Learning About Customer Needs
  • Designing Products and Services To Meet Customer
    Needs
  • Delivering Products and Services To The Customer
  • Providing After-Sales Service
  • Awareness Of Costs

Being Customer-Driven Implies A Radically
DifferentManagement Organization Strategy As
Compared WithThe Cost Driven Company!
32
Creating Differentiation Advantage
-Differentiation Advantage and Product Quality
  • Defining Quality
  • Superior Features Vs. Meeting Expectations
  • Achieving Quality TQM
  • Customer Focus
  • Quality Measurements
  • Supplier Relations
  • Design For Manufacturability

33
Creating Differentiation Advantage
-Differentiation Advantage and Advertising
  • Types Of Advertising
  • Consumer Education
  • Brand Identification
  • Advertising As An Investment
  • Entry Barriers
  • Consumer Search Costs
  • The Costs Of Advertising
  • Demographics
  • Costs Of Delivery

34
Strategy and Channel Selection
  • Distribution Can Provide Value To The Customer
  • Networks of independent and company-owned
    bottlers
  • Managing Distributors and Marketers
  • Distribution Can Provide Sustainable Advantage
  • Distribution As An Entry Barrier

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How Can Differentiation Advantage Fail?
  • Provision costs exceed value to customers
  • Not enough customers in segment
  • Customers dont value services or characteristics
  • Brand image cant be created or is easily
    duplicated

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42
Demings 14 Points to Quality
  • 1. Consistency of Purpose (to innovate)
  • 2. Learn (to improve every system)
  • 3. Require statistical evidence of process
    control.
  • 4. Require statistical evidence of control in
    purchasing parts (do not use price tag alone).
  • 5. Use statistical methods to isolate the
    sources of trouble.

43
Demings 14 Points to Quality
  • 6. Institute modern on-the-job training.
  • 7. Improve supervision to develop
    inspirational leaders.
  • 8. Drive out fear and instill learning.
  • 9. Break down barriers between departments.
  • 10. Eliminate slogans.

44
Demings 14 Points to Quality
  • 11. Constantly revamp work methods.
  • 12. Institute massive training for employees in
    statistical methods.
  • 13. Retrain people in new skills (encourage
    education and self improvement).
  • 14. Create a structure to implement these
    changes.
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