Please pick four principles or learnings that resonated with you from this week's material (one each from Chapter 5, Chapter 6, the Harvard Business Review reading, and this week's video). Please explain each principle or learning, why it resonated with you, and an example in practice from your organization (it could be a strength or opportunity. Please review attachments for this assignment.
Slide 1 Competing for Advantage 1 Chapter 5 Business-Level Strategy PART III CREATING COMPETITIVE ADVANTAGE 1 The Strategic Management Process 2 Figure 1.6: The Strategic Management Process – A logical approach for responding to 21st century competitive challenges. Provides an outline of the content of the textbook by each chapter. Creating Competitive Advantage Business-level strategy – competitive advantages the firm will use to effectively compete in specific product markets Competitive rivalry and dynamics – analysis of competitor actions and responses is relevant input for selecting and using specific strategies Cooperative strategy – an important trend of forming partnerships to share and develop competitive resources Corporate-level strategy – concerns the businesses in which the company intends to compete and the allocation of resources in diversified organizations Acquisition and restructuring strategies – primary means used by diversified firms to create corporate-level competitive advantages International strategy – significant sources of value creation and above-average returns Strategy is concerned with making choices. The main point of strategy is to help decision makers choose among competing priorities and alternatives facing their firms. The fundamental objective of all strategies is to create value for stakeholders. Each strategy should specify desired outcomes and how they are to be achieved. Strategies are purposeful, precede action, and demonstrate a shared understanding of the firm’s strategic intent and strategic mission. Business-Level Strategy Key Terms Business-level strategy Integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets 3 Business-Level Strategy – Five basic approaches combine the scope of an organization's activities in the market (broad or narrow) with the primary source of its competitive advantage (low cost or uniqueness). In this chapter, the analysis of each of the five basic business-level strategies describes how the effective use of each strategy allows the firm to favorably position itself relative to the five competitive forces in the industry. Five Elements of Strategy 4 Figure 2.4: Five Elements that Identify a Firm’s Strategy – revisited from Chapter 2 Business-level strategy should be thought of as the firm’s core strategy in each market or industry. Discussion points: Defining the business arenas – critical starting point for strategic planning and management Commonly used growth vehicles – internal development, joint ventures, licensing, franchising, and acquisitions Differentiators – help a firm determine how it is expected to win customers in the marketplace Staging – the timing of strategy and the sequence of moves the firm will take to carry it out (increasingly important because of the speed of change in the competitive environment) Economic logic – pulls together all of the above elements and focuses on achieving above-average financial returns Types of Business-Level Strategy 5 Figure 5.1: Types of Business-Level Strategy – There are five types of “generic” business-level strategies that firms choose among to establish and defend their desired strategic positions against rivals. Discussion points: A business-level strategy reflects where and how the firm has an advantage over its rivals. The firm's business-level strategy is a deliberate choice about how it will perform the value chain activities and support functions in ways that create unique value. An effectively formulated strategy marshals, integrates, and allocates the firm’s resources, capabilities, and competencies in proper alignment with the external environment. Sound strategic choices reduce uncertainty, facilitate success, and depend upon continuously-updated competitive advantages to achieve long-term success. Business-Level Strategy Dimensions Competitive advantage Superior value Competitive scope Target market 6 Features of the Five Business-Level Strategies – The five basic strategies are generic and can be used in any business in any industry. Each business-level strategy helps the firm establish and exploit a competitive advantage within a particular competitive scope. Discussion points: None of the five business-level strategies is inherently or universally superior to the others. The effectiveness of each strategy is contingent upon the opportunities and threats in a firm's external environment and the possibilities provided by the firm's unique resources, capabilities, and core competencies. Regardless of the approach selected, achieving a competitive advantage depends upon offering the customer superior value. The scope which is selected defines the firm’s intended target market. Competitive Advantage Dimension Low Cost Efficiency Differentiation Distinctiveness Integration Combined approach Competitive Advantage Dimension – Firms typically select between two distinct forms of competitive advantage (low cost or uniqueness). Discussion points: They may choose lower cost than rivals, where the focus is on efficiency. Or they may choose ability to differentiate and command a premium price relative to the additional cost of differentiating, where the focus is on distinctiveness. In either case, offering superior value to the customer is required to achieve a competitive advantage. Firm may elect to develop a combined low cost/differentiation approach to create value for customers in several market segments, but not the whole industry. 7 Competitive Scope Dimension Broad market Industry-wide customer base Narrow market Niche customer base Focus strategies Competitive Scope Dimension – Selection of the scope (broad or narrow) defines the target market, or the nature and size of the customer group, for the firm. Discussion points: Choice determines what customers the firm will use its capabilities to create value for. Broad scope involves serving multiple customer segments in multiple geographic areas with multiple products. Narrow scope involves serving one customer segment, geographic region, or product line. Focus strategies exist within the narrow market approach and can emphasize either low cost or differentiated competitive advantages. A focus strategy selects a segment or group of segments in the industry and tailors its approach to serving them to the exclusion of others. 8 Serving Customers Who will be served - market segmentation What customer needs will be satisfied - low cost vs. differentiation How those needs will be satisfied - core competencies Serving Customers – Orientation toward customers is the foundation of all successful business-level strategies. It is necessary to manage all aspects of the firm's relationships with its customers to create superior value, secure customer loyalty, and increase returns. Strategic competitiveness results only when the firm is able to satisfy a group of customers by using its capabilities to compete in individual product markets. Discussion points: The most successful companies constantly seek to chart new competitive space in order to serve new customers while finding better ways to satisfy existing customers.Example: Starbuck’s Customer loyalty is directly related to profitability. “Winning is not just about closing the sale.” Norm Brodsky, entrepreneur The art of managing all aspects of customer relationships involves participating in e-commerce. Competing successfully involves integrating Internet technology with the firm’s strategy, rather than isolating it as a tool. Example: Amazon Customer relationships involve answering: who, what, and how. Who – customers to target for the firm’s goods and services -Market segmentation is defined on Slide 10. -Common characteristics on which consumer and industrial customers’ needs vary are outlined in Table 5.1 and on Slide 11. What – needs of the targeted customer group to satisfy -Two generalized forms of value Low cost with acceptable featuresExample: Walmart Highly differentiated features with acceptable costExample: Saks Fifth Avenue How – manner in which to satisfy customer needs Addressed through core competencies used to implement value-creating strategies. Only firms with the capacity to continuously improve, innovate, and upgrade competencies can expect to meet and exceed customer expectations across time.Example: SAS Institute 9 Who: Determining the Customers to Serve Key Terms Market segmentation Process of clustering people with similar needs into individual and identifiable groups to determine which customer segments to target 10 Who: Determining the Customers to Serve – To determine which customers the firm will serve, it must divide them into groups based on differences in customer needs. Basis for Customer Segmentation 11 Table 5.1: Basis for Customer Segmentation – factors that aid in segmenting consumer markets based on varying customer needs Discussion points: Almost any human or organizational characteristic can be used to subdivide a market into distinct segments. Selection of target customers as the basis for a business-level strategy must be aligned with the firm’s core competencies and with opportunities in the external environment.Example: Automobile industry Strategy and Structure Key Terms Organizational structure Specifies the firm's formal reporting relationships, procedures, controls, and authority and decision-making processes 12 Strategy and Structure – Reciprocal and influential relationships exist among strategy, organizational structure, and firm performance. Discussion points: Developing an organizational structure that will effectively support the firm’s strategy is difficult. Uncertainty in the global economy and dynamic competitive environments contribute to this difficulty. Structure should flow from the selection of a business strategy. Once in place, the structure influences strategic actions and choices for future strategies. Changes in strategy call for an assessment to determine if the organization has the ability to complete the strategic activities and tasks required of the new strategy and if the structure is consistent with implementation requirements. Strategy and Structure Key Terms (cont.) Simple structure Structure in which the owner-manager makes all major decisions and monitors all activities while the staff serves as an extension of the manager's supervisory authority Functional structure Structure consisting of a chief executive officer and a limited corporate staff, with functional line managers in dominant organizational areas Multidivisional structure Structure consisting of operating divisions, each representing a separate business or profit center in which the top corporate officer delegates responsibilities for day-to-day operations and business-unit strategy to division managers 13 Strategy and Structure – Three major types of organizational structures are used to implement strategies. Discussion points: Simple structure Owner-manager typically works in the business on a daily basis Informal relationships Few rules Limited task specialization Modest information systems Frequent and informal communications between owner-manager and employees Functional structure Evolves from a simple structure as the business expands and becomes more complex Allows for functional specialization – professional development of functional specialists Facilitates active sharing of knowledge within functional departments Can have a negative effect on communication and coordination across functions CEO must drive decisions and actions to promote the entire firm rather than individual functions Supports business-level strategies described in this chapter and some corporate-level strategies with low levels of diversification Multidivisional structure (M-form) Evolves from a functional structure as the business becomes more diversified Requires analysis of growing amounts of data and information Each division represents a distinct, self-contained business with its own functional hierarchy Supports corporate-level strategies described in Chapter 8 Cost Leadership Strategy Key Terms Cost leadership strategy Integrated set of actions designed to produce or deliver goods or services with features that are acceptable to customers at the lowest cost, relative to competitors 14 Cost Leadership Strategy – A strategy of low cost leadership seeks cost advantages while serving a broad customer segment. Example: Ryanair Holdings Cost Leadership Strategy – Implementation No-frills, standardized goods Acceptable qualities and features Emphasis on production efficiency Continuously reduce costs of value chain activities 15 Successful Execution of the Cost Leadership Strategy Discussion points: Selling no-frills, standardized goods to the industry’s most typical customer that minimally offer qualities and features acceptable to customersExample: Even