Formulating Strategy

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Formulating Strategy,

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STRATEGIC FORMULATION : 

STRATEGIC FORMULATION

OUTLINE : 

OUTLINE Strategic formulation at Business Level Strategic Formulation at Corporate Level Diversification Strategic Alliance and joint ventures Mergers and Acquisition International Business Strategies

Strategic formulation at Business Level Strategy : 

Strategic formulation at Business Level Strategy Definition: Business level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.

The Purpose of a Business-LevelStrategy : 

The Purpose of a Business-LevelStrategy To create differences between the firm’s position relative to those of its rivals. To position itself, the firm must decide whether it intends to: Perform activities differently or Perform different activities as compared to its rivals.

Cont. . . . . : 

Cont. . . . . Five Force Analysis SWOT Analysis Value Chain Analysis

Consumer : 

Consumer The customer are the foundation of successful business-level strategies and should never be taken for granted. Global Competition Meet the need of new customer Example: Dell And HP Effectively managing relationship with Customers Deliver Superior value

Consumer and Business level Strategy : 

Consumer and Business level Strategy When an organization select business-level strategy the firm determines: Who will be served. What need the target customers have that it will satisfy. How those need will be satisfied. Satisfy Current consumer

Cont. . . . . : 

Cont. . . . . Reach, Richness, and Affiliation 1. Reach: Reach dimension of relationship with customers. Example: Amazon.com V/s Barnes Barnes & Noble , Carries 200,000-plus titles in793 stores that average 25,000 sq. feet. Amazon.com offers more than 4.5million titles and is located on tens of millions of computer screens.

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2. Richness Depth and detail of the two-way flow of information between the firm and the consumer. 3. Affiliation Viewing the world through the customer’s eyes and constantly seeking ways to create more value.

Who? ? ? : 

Who? ? ? Determine the customers to Serve Market segmentation Basis for customer segmentation

What? ? ? : 

What? ? ? Determining Which Customer need to satisfy. Identify the targeted customers’ need that its goods or services can satisfy. How? ? ? Determining core competencies necessary to satisfy customer needs.

Types of Business Level Strategy : 

Types of Business Level Strategy

Cost Leadership : 

Cost Leadership An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers. Relatively standardized products Features acceptable to many customers Lowest competitive price

Cost saving actions required by this strategy: : 

Cost saving actions required by this strategy: Building efficient scale facilities Tightly controlling production costs and overhead Minimizing costs of sales, R&D and service Building efficient manufacturing facilities Monitoring costs of activities provided by outsiders Simplifying production processes

How to Obtain a Cost Advantage : 

How to Obtain a Cost Advantage Alter production process Change in automation New distribution channel New advertising media New raw material Forward integration Backward integration Change location relative to suppliers or buyers

Example: : 

Example: Wal-Mart Wal-Mart's founder, Sam Walton, developed the every day low prices (EDLP) strategy. Close relationships with its suppliers and vendors Own distribution network for supplying its retail outlets with consumer goods.

Differentiation Strategy : 

Differentiation Strategy Rivalry with Competitors Defends against competitors because brand loyalty to differentiated product offsets price competition. Bargaining Power of Buyers Can mitigate buyers’ power because well differentiated products reduce customer sensitivity to price increases.

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Can mitigate suppliers’ power by: Absorbing price increases due to higher margins. Passing along higher supplier prices because buyers are loyal to differentiated brand. Can defend against new entrants because: New products must surpass proven products. New products must be at least equal to performance of proven products, but offered at lower prices.

Example: : 

Example: Mercedes cars

Examples of Value-Creating Activities Associated with the Differentiation Strategy : 

Examples of Value-Creating Activities Associated with the Differentiation Strategy

Approaches to differentiation : 

Approaches to differentiation A different taste Special features Superior Service Spare parts availability Quality manufacturing A full range of services

Situation Suitable for differentiation Strategy : 

Situation Suitable for differentiation Strategy When many ways to differentiate the product or services. When the customer tastes, preferences, needs and uses of the item are diverse. Where a few competitor follow the differentiation strategy.

Advantages of Differentiation : 

Advantages of Differentiation Premium Price. Capturing Additional Customer. Customer Loyalty. Enhance the Profitability when the cost of differentiation is less than the extra price of the product.

Disadvantage of differentiation Strategy : 

Disadvantage of differentiation Strategy It is unsuccessful when the customer do not value the additional features. It result in a loss when the cost of differentiation is more than the extra price. Over differentiation may exceed the need of the customer.

Focus Strategies : 

Focus Strategies An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment. Particular buyer group youths or senior citizens Types of focused strategies Focused cost leadership strategy Focused differentiation strategy

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To implement a focus strategy, firms must be able to: Complete various primary and support activities in a competitively superior manner.

Factors That Drive Focused Strategies : 

Factors That Drive Focused Strategies Large firms may overlook small niches. A firm may lack the resources needed to compete in the broader market. A firm is able to serve a narrow market segment more effectively than can its larger industry-wide competitors. Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage.

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Competitive Risks of Focus Strategies A focusing firm may be “out focused” by its competitors. A large competitor may set its sights on a firm’s niche market. Customer preferences in niche market may change to more closely resemble those of the broader market.

Integrated Cost Leadership/ Differentiation Strategy : 

Integrated Cost Leadership/ Differentiation Strategy A firm that successfully uses an integrated cost leadership/differentiation strategy should be in a better position to: Adapt quickly to environmental changes. Learn new skills and technologies more quickly. Effectively leverage its core competencies while competing against its rivals.

Slide 30: 

Commitment to strategic flexibility is necessary for implementation of integrated cost leadership/differentiation strategy. Flexible manufacturing systems (FMS) Information networks Total quality management (TQM) systems

Risks of the Integrated CostLeadership/ Differentiation Strategy : 

Risks of the Integrated CostLeadership/ Differentiation Strategy Often involves compromises Becoming neither the lowest cost nor the most differentiated firm. Becoming “stuck in the middle” Lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy.

Deciding Which Generic Competitive Strategy to Use : 

Deciding Which Generic Competitive Strategy to Use Each positions a company differently in its market and competitive environment. Each establishes a central theme for how a company will endeavor to outcompete rivals. Each creates some boundaries for direction as market circumstances unfold.

Fig. 6.1: A Company’s Menu of Strategy Options : 

Fig. 6.1: A Company’s Menu of Strategy Options

Corporate-level Strategy : 

Corporate-level Strategy

Slide 37: 

A corporate-level strategy specifies actions a firm takes to gain a competitive advantage by selecting and managing a group no different businesses competing in different product markets. It is concerned with two key issues: In what product markets and businesses the firm should compete. How corporate headquarters should manage those business.

Diversification : 

Diversification

Why Do Firms Diversify? : 

Why Do Firms Diversify? The theories that attempt to explain why corporations diversify fall into five groups: Economies of scale and scope (synergy). Market Power Profit Stability Improve Financial Performance. Growth.

Economies of scale and scope : 

Economies of scale and scope The merger of two companies producing similar products should allow a firm to pool production and attain lower operating costs. The economy may come from reduced overhead or the ability to spread a larger amount of production over lower (consolidated) fixed costs.

Slide 41: 

There may also be differential management capabilities: an efficiently managed firm may acquire a less efficient firm with the intent of bringing better management to the business. Efficiencies can also be gained through pooled financial resources or simply through pooled risk.

Market Power : 

Market Power Mergers and acquisitions can increase a firm's market share when both firms are in the same business.

Profit Stability : 

Profit Stability Acquisition of new business can reduce variations in corporate profits by expanding the corporation's lines of business. This typically occurs when the core business depends on sales that are seasonal or cyclical.

Improve Financial Performance. : 

Improve Financial Performance. Large firms generate cash that can be invested in other ventures. The firm acts as a banker of an internal capital market.

Growth. : 

Growth. Diversification is simply a way to grow. Indeed, some authorities cite growth as the principle reason for diversification.

Slide 46: 

There are basic two type of diversification. Related diversification When a firm share different things like product, technologies or distribution channels. Unrelated diversification When a firm enter in totally new field or industry

Levels of Diversification : 

Levels of Diversification Diversified firms vary according to their level of diversification and the connections between and among their businesses. Low level Diversification Moderate to high levels of diversification Very high Levels of diversification

Low level Diversification : 

Low level Diversification Single Business diversification 95% or more of revenue comes from a single business. Dominant business Between 70% and 95% of revenue comes from a single business. i.e. Pen Manufacturing Pen Manufacturing Company

Moderate to high levels of diversification : 

Moderate to high levels of diversification Related Constrained strategy Less than 70% of revenue comes from the dominant business and all businesses share product, technological and distribution linkages.

Very high Levels of diversification : 

Very high Levels of diversification Related linked(Mixed related and unrelated): Less than 70% of revenue comes from the dominant business. There are only limited links between businesses.

Very high Levels of diversification : 

Very high Levels of diversification Unrelated: Less than 70% of revenue comes from the dominant business, and there are no common links between businesses.

Related Diversification Can be used When : 

Related Diversification Can be used When Strategic Fits in R&D and Technology Activities Strategic Fits in Supply Chain Activities. Manufacturing Related Strategic Fits. Distribution Related Strategic Fits. Strategic Fits in Sales and Marketing Activities. Strategic Fits in Managerial and Administrative Support Activities.

Merit of Unrelated Diversification : 

Merit of Unrelated Diversification Business risk is scattered. Financial Resource can be utilized in a better way. Shareholders’ wealth can be enhanced. Stable profitability.

Drawbacks of Unrelated Diversification : 

Drawbacks of Unrelated Diversification Difficult to manage the business for top level management. No potential for competitive advantage.

Slide 55: 

The following are the two ways diversification strategies can create value Operational Relatedness Sharing Activity between business. Corporate Relatedness Transferring core competency into business.

Strategy for entering New Business : 

Strategy for entering New Business Acquisition of an Existing Business Internal Startup Joint Venture and Strategic partnership

Acquisition of an Existing Business : 

Acquisition of an Existing Business Most popular mean of diversification. Finding right kind of company is a challenge. The biggest dilemma for a firm faces is whether to pay a premium price for a successful company or to buy a struggling company at bargaining price.

Internal Startup : 

Internal Startup Building new business subsidiary from scratch. There are many barriers like; Invest in new production capacity, Develop sources of supply, Hire and train employees, Build channels of distribution, Grow a customer base etc.

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When to have internal Startup The parent company have most or all of the skills There is ample time to launch the business. The cost are lower than those of acquiring another firm. The startup industry not have powerful rivals.

Joint Venture and Strategic partnership : 

Joint Venture and Strategic partnership Joint venture entail forming a new corporate entity owned by the partners. Strategic partnerships is a formal relationship between two or more companies in pursuit of common goal in their business even while remaining as independent organizations.

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Strategic partnership or joint venture can be useful in the situations like: To pursue an opportunity that is too complex, uneconomical or risky for single organization. When opportunities require a broader range of competencies and know how. To enter in to the foreign market.

Horizontal Diversification : 

Horizontal Diversification Acquiring or developing new products or offering new services that could appeal to the company´s current customer groups. In this case the company relies on sales and technological relations to the existing product lines. For example a dairy, producing cheese adds a new type of cheese to its products.

Vertical Diversification : 

Vertical Diversification Occurs when the company goes back to previous stages of its production cycle or moves forward to subsequent stages of the same cycle. Production of raw materials or distribution of the final product.

Slide 64: 

For example, if you have a company that does reconstruction of houses and offices and you start selling paints and other construction materials for use in this business. This kind of diversification may also guarantee a regular supply of materials with better quality and lower prices.

Concentric Diversification : 

Concentric Diversification Enlarging the production portfolio by adding new products with the aim of fully utilizing the potential of the existing technologies and marketing system. Marketing & technology related -rain coat manufacturer -rubber based items -gloves, shoes.

Conglomerate diversification : 

Conglomerate diversification Unrelated to customer groups, function, technology ITC -Cigarette & Hotel

How to Evaluate a Diversified Company’s Strategy : 

How to Evaluate a Diversified Company’s Strategy Step 1: Assess long-term attractiveness of each industry Step 2: Assess competitive strength of firm’s business units Step 3: Check competitive advantage potential of cross-business strategic fits among business units Step 4: Check whether firm’s resources fit requirements of present businesses Step 5: Rank performance prospects of businesses and determine priority for resource allocation Step 6: Craft new strategic moves to improve overall company performance

Step 1: Evaluate Industry Attractiveness : 

Step 1: Evaluate Industry Attractiveness Attractiveness of each industry in portfolio Each industry’s attractivenessrelative to the others Attractiveness of all industries as a group

Industry Attractiveness Factors : 

Industry Attractiveness Factors Market size and projected growth Intensity of competition Emerging opportunities and threats Resource requirements Seasonal and cyclical factors Social, political, and environmental factors Industry profitability

Procedure: Calculating Attractiveness Scores for Each Industry : 

Step 1: Select industry attractiveness factors Step 2: Assign weights to each factor (sum of weights = 1.0) Step 3: Rate each industry on each factor, using a scale of 1 to 10 Step 4: Calculate weighted ratings; sum to get an overall industry attractiveness rating for each industry Procedure: Calculating Attractiveness Scores for Each Industry

Step 2: Evaluate Each BusinessUnit’s Competitive Strength : 

Step 2: Evaluate Each BusinessUnit’s Competitive Strength Objectives Determine how well each business is positioned in its industry relative to rivals. Evaluate whether it is or can be competitively strong enough to contend for market leadership.

Factors to Use in Evaluating Competitive Strength : 

Factors to Use in Evaluating Competitive Strength Relative market share Costs relative to competitors Ability to exercise bargaining leverage with key suppliers or customers Brand image and reputation Competitively valuable capabilities Profitability relative to competitors

Step 3: Check Competitive Advantage Potential of Cross-Business Strategic Fits : 

Step 3: Check Competitive Advantage Potential of Cross-Business Strategic Fits Objective Determine competitive advantage potential of value chain relationships and strategic fits among businesses. Whether one or more businesses have valuable strategic fits with other businesses in portfolio

Evaluate Portfolio for Competitively Valuable Cross-Business Strategic Fits : 

Evaluate Portfolio for Competitively Valuable Cross-Business Strategic Fits Identify businesses which have valuechain match-ups offering opportunities to Reduce costs Purchasing Manufacturing Distribution Transfer skills / technology / intellectual capital from one business to another Create valuable new competitive capabilities

Step 4: Check Resource Fit : 

Step 4: Check Resource Fit Objective Determine how well firm’s resources match business unit requirements Good resource fit exists when A business adds to a firm’s resource strengths,either financially or strategically Firm has resources to adequately support requirements of its businesses as a group

Step 5: Rank Business Units Based onPerformance and Priority for Resource Allocation : 

Step 5: Rank Business Units Based onPerformance and Priority for Resource Allocation Factors to consider in judging business-unit performance Sales growth Profit growth Return on capital employed in business Industry attractiveness and business strength ratings

Step 6: Craft New StrategicMoves - Strategic Options : 

Step 6: Craft New StrategicMoves - Strategic Options Stick closely with existing business lineup and pursue opportunities it presents Broaden company’s business scope by making new acquisitions in new industries Divest certain businesses and retrench to a narrower base of business operations Restructure company’s business lineup, putting a whole new face on business makeup Pursue multinational diversification, striving to globalize operations of several business units

Strategy Options for a Company Already Diversified : 

Strategy Options for a Company Already Diversified

Strategies to Broaden a Diversified Company’s Business Base : 

Strategies to Broaden a Diversified Company’s Business Base Conditions making this approach attractive Slow grow in current businesses Vulnerability to seasonal or recessionary influences or to threats from emerging new technologies Potential to transfer resources and capabilities to other related businesses Complement and strengthen market position of one or more current businesses

Divestiture Strategies Aimed at Retrenching to a Narrower Diversification Base : 

Divestiture Strategies Aimed at Retrenching to a Narrower Diversification Base Strategic options Retrenchment Divestiture Sell it Spin it off Liquidate it (Close it down because no buyers can be found).

Options forAccomplishing Divestiture : 

Options forAccomplishing Divestiture Sell it Involves finding a company which views the business as a good deal and good fit Spin it off as independent company Involves deciding whether or not to retain partial ownership Liquidation Involves closing down operations and selling remaining assets A last resort because no buyer can be found

Retrenchment Strategies : 

Retrenchment Strategies Objective Reduce scope of diversification to smaller number of “core “ businesses Strategic options involve divesting businesses Having little strategic fit with core businesses Too small to contribute to earnings

Conditions That MakeRetrenchment Attractive : 

Conditions That MakeRetrenchment Attractive Diversification efforts have become too broad, resulting in difficulties in profitably managing all the businesses Worsening market conditions in a once-attractive industry Lack of strategic or resource fit of a business A business is weakly positioned in its industry

Strategies to Restructure a Company’s Business Lineup : 

Strategies to Restructure a Company’s Business Lineup Objective Make radical changes in mix of businesses in portfolio via both Divestitures and New acquisitions in order to put on whole new face on the company’s business makeup

Conditions That Make Portfolio Restructuring Attractive : 

Conditions That Make Portfolio Restructuring Attractive Too many businesses in unattractive industries Too many competitively weak businesses Ongoing declines in market shares of one or more major business units New technologies threaten survival of one or more core businesses “Unique opportunity” emerges and existing businesses must be sold to finance new acquisition

Multinational Diversification Strategies : 

Multinational Diversification Strategies Distinguishing characteristic Diversity of businesses and diversity of national markets Presents a big strategy-making challenge Strategies must be conceived and executed for each business, with as many multinational variations as appropriate.

Appeal of MultinationalDiversification Strategies : 

Appeal of MultinationalDiversification Strategies Offer two avenues for long-term growth in revenues and profits Enter additional businesses Extend operations of existing businesses into additional country markets

Opportunities to Build Competitive Advantage via Multinational Diversification : 

Opportunities to Build Competitive Advantage via Multinational Diversification Full capture of economies of scale and experience curve effects Capitalize on cross-business economies of scope Transfer competitively valuable resources from one business to another and from one country to another Leverage use of a competitively powerful brand name

Strategic Alliances : 

Strategic Alliances

Strategic Alliances : 

Strategic Alliances A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property.

Alliances Can Enhance a Firm’s Competitiveness : 

Alliances Can Enhance a Firm’s Competitiveness Alliances and partnerships can help companies cope with two demanding competitive challenges. Racing against rivals to build a market presence in many different national markets Racing against rivals to seize opportunities on the frontiers of advancing technology

Capturing the Full Potential of a Strategic Alliance : 

Capturing the Full Potential of a Strategic Alliance Capacity of partners to defuse organizational frictions Ability to collaborate effectively over time and work through challenges Technological and competitive surprises New market developments Changes in their own priorities and competitive circumstances

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Collaborative partnerships nearly always require an evolving relationship whose competitive value depends on Mutual learning Cooperation Adaptation to changing industry conditions Competitive advantage emerges when a company acquires valuable capabilities via alliances it could not obtain on its own

Why Are Strategic Alliances Formed? : 

Why Are Strategic Alliances Formed? To collaborate on technology development or new product development To fill gaps in technical or manufacturing expertise To acquire new competencies To improve supply chain efficiency To gain economies of scale in production and/or marketing To acquire or improve market access via joint marketing agreements

Potential Benefits of Alliances to Achieve Global and Industry Leadership : 

Potential Benefits of Alliances to Achieve Global and Industry Leadership Get into critical country markets quickly to accelerate process of building a global presence. Gain inside knowledge about unfamiliar markets and cultures. Access valuable skills and competencies concentrated in particular geographic locations. Master new technologies and build new expertise faster than would be possible internally.

Why Alliances Fail ? ? ? : 

Why Alliances Fail ? ? ? Reasons for alliance failure Inability of partners to work well together Changing conditions rendering purpose of alliance obsolete Emergence of more attractive technological paths Marketplace rivalry between one or more allies

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Merger – Combination and pooling of equals, with newly created firm often taking on a new name Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired

Merger and Acquisition Strategies : 

Merger and Acquisition Strategies

Slide 100: 

Merger: is a pooling of equals, with the newly created company often taking on a new name. Acquisition: is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired.

Slide 101: 

Merger-acquisition Much-used strategic option The difference between merger and acquisition relates more to the details of ownership, management control and financial arrangements than strategy and competitive advantage.

Objectives of Mergers and Acquisitions : 

Objectives of Mergers and Acquisitions To gain more market share and create a more efficient operation To expand a firm’s geographic coverage To extend a firm’s business into new product categories or international markets To gain quick access to new technologies To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities

Pitfalls of Mergers and Acquisitions : 

Pitfalls of Mergers and Acquisitions Combining operations may result in Resistance from rank-and-file employees Hard-to-resolve conflicts in management styles and corporate cultures Tough problems of integration Greater-than-anticipated difficulties in Achieving expected cost-savings Sharing of expertise Achieving enhanced competitive capabilities

Vertical Integration Strategies : 

Vertical Integration Strategies

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Extend a firm’s competitive scope withinsame industry Backward into sources of supply Forward toward end-users of final product Can aim at either full or partial integration

Strategic Advantages of Backward Integration : 

Strategic Advantages of Backward Integration Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers. Potential to reduce costs exists when Suppliers have sizable profit margins. Item supplied is a major cost component. Resource requirements are easily met.

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Can produce a differentiation-based competitive advantage when it results in a better quality part. Reduces risk of depending on suppliers of crucial raw materials/parts/components.

Strategic Advantages of Forward Integration : 

Strategic Advantages of Forward Integration To gain better access to end users and better market visibility To compensate for undependable distribution channels which undermine steady operations To offset the lack of a broad product line, a firm may sell directly to end users

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To bypass regular distribution channels in favor of direct sales and Internet retailing which may Lower distribution costs Produce a relative cost advantage over rivals Enable lower selling prices to end users

Strategic Disadvantages of Vertical Integration : 

Strategic Disadvantages of Vertical Integration Boosts resource requirements. Locks firm deeper into same industry. Poses all types of capacity-matching problems. May require totally different skills/ capabilities Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products

Outsourcing Strategies : 

Outsourcing Strategies

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Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities

When Does Outsourcing Make Strategic Sense? : 

When Does Outsourcing Make Strategic Sense? Activity can be performed better or more cheaply by outside specialists Activity is not crucial to achieve a sustainable competitive advantage Risk exposure to changing technology and/or changing buyer preferences is reduced

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Operations are streamlined to Cut cycle time Speed decision-making Reduce coordination costs Firm can concentrate on “core” value chain activities that best suit its resource strengths

Strategic Advantages of Outsourcing : 

Strategic Advantages of Outsourcing Improves firm’s ability to obtain high quality and/or cheaper components or services. Improves firm’s ability to innovate by interacting with “best-in-world” suppliers. Increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently. Allows firm to concentrate its resources on performing those activities internally which it can perform better than outsiders.

Pitfalls of Outsourcing : 

Pitfalls of Outsourcing Farming out too many or the wrong activities, thus. Hollowing out capabilities. Losing touch with activities and expertise that determine overall long-term success.

Offensive and Defensive Strategies : 

Offensive and Defensive Strategies

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Used to build new or stronger market position and/or create competitive advantage Used to protect competitive advantage (rarely used to create advantage) Offensive Strategies Defensive Strategies

Types of Offensive Strategies : 

Types of Offensive Strategies 1. Initiatives to match or exceed competitor strengths 2. Initiatives to capitalize on competitor weaknesses 3. Simultaneous initiatives on many fronts 4. End-run offensives 5. Guerrilla offensives 6. Preemptive strikes

1. Attacking Competitor Strengths : 

1. Attacking Competitor Strengths Objectives Whittle away at a rival’s competitive advantage Gain market share by out-matching strengths of weaker rivals

Options for Attacking a Competitor’s Strengths : 

Offer equally good product at a lower price Develop low-cost edge, then use it to under-price rivals Add appealing new features Run comparison ads Construct new plant capacity in rival’s market strongholds Offer a wider product line Develop better customer service capabilities Options for Attacking a Competitor’s Strengths

2. Attacking Competitor Weaknesses : 

2. Attacking Competitor Weaknesses Objective: Utilize company strengths to exploit a rival’s weaknesses Weaknesses to Attack Customers that a rival is least equipped to serve Rivals providing sub-par customer service Rivals with weaker marketing skills Geographic regions where rival is weak Market segments a rival is neglecting

3. Launching Simultaneous Offensives on Many Fronts : 

3. Launching Simultaneous Offensives on Many Fronts Objective Launch several major initiatives to Throw rivals off-balance fall apart their attention Force them to use substantial resources to defend their position

4. End-Run Offensives : 

4. End-Run Offensives Objectives Tactic around strong competitors Capture unoccupied or less contested markets Change rules of competition in aggressor’s favor

Approaches for End-Run Offensives : 

Approaches for End-Run Offensives Introduce new products that redefine market and terms of competition Build presence in geographic areas where rivals have little presence Create new segments by introducing products with different features to better meet buyer needs Introduce next-generation technologies to leapfrog rivals

5. Guerrilla Offenses : 

Approach Use principles of surprise and hit-and-run toattack in locations and at times where conditionsare most favorable to initiator Appeal Well-suited to small challengers with limited resources and market visibility 5. Guerrilla Offenses

Options for Guerrilla Offenses : 

Options for Guerrilla Offenses Make random, scattered raids on leaders’ customers Occasional low-balling on price Intense bursts of promotional activity Special campaigns to attract buyers fromrivals plagued with a strike or delivery problems

Slide 130: 

Challenge rivals encountering problems with quality or providing adequate technical support File legal actions charging antitrust violations, patent infringements, or unfair advertising

6. Preemptive Strikes : 

6. Preemptive Strikes Approach Involves moving first to secure an advantageous position that rivals are foreclosed or discouraged from duplicating!

Preemptive Strike Options : 

Preemptive Strike Options Secure exclusive/dominant access to best distributors Secure best geographic locations Tie up best or most sources of essential raw materials Obtain business of prestigious customers Build an image in buyers’ minds thatis unique or hard to copy

Using Offensive Strategy to Achieve Competitive Advantage : 

Using Offensive Strategy to Achieve Competitive Advantage Strategic offensives offering strongest basis for competitive advantage entail An important core competence A unique competitive capability Much-improved performance features An innovative new product Technological superiority A cost advantage in manufacturing or distribution Some type of differentiation advantage

Defensive Strategy : 

Defensive Strategy

Defensive Strategy : 

Defensive Strategy Objectives Lessen risk of being attacked Blunt impact of any attack that occurs Influence challengers to aim attacks at other rivals Approaches Block avenues open to challengers Signal challengers vigorous retaliation is likely

1. Block Avenues Open to Challengers : 

1. Block Avenues Open to Challengers Participate in alternative technologies Introduce new features, add new models, or broaden product line to close gaps rivals may pursue Maintain economy-priced models Increase warranty coverage Offer free training and support services

Slide 137: 

Reduce delivery times for spare parts Make early announcements about new products or price changes Sign exclusive agreements with distributors

2.Signal Challengers Retaliation Is Likely : 

2.Signal Challengers Retaliation Is Likely Publicly announce management’s strong commitment to maintain present market share Publicly commit firm to policy of matching rivals’ terms or prices Maintain war chest of cash reserves Make occasional counter responseto moves of weaker rivals

Strategies for Using the Internet : 

Strategies for Using the Internet Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?

Five Approaches : 

Five Approaches Use company web site solely to disseminate product information Use company web site as a minor distributionchannel for accessing customers and generating sales Use company web site as one of several importantdistribution channels for accessing customers Use company web site as primary distributionchannel for accessing buyers and making sales Use company web site as the exclusive channelfor accessing buyers and conducting sales transactions

Using the Internet to Disseminate Product Information : 

Using the Internet to Disseminate Product Information Approach: Website used to provide product information of manufacturers or wholesalers. Relies on click- through to websites of dealers for sales transactions Informs end-users of location of retail stores

Using the Internet as a Minor Distribution Channel : 

Using the Internet as a Minor Distribution Channel Approach – Use online sales to Achieve incremental sales Gain online sales experience Conduct marketing research Learn more about buyer tastes and preferences Test reactions to new products Create added market buzz about products

Brick-and-Click Strategies: An Appealing Middle Ground Approach : 

Brick-and-Click Strategies: An Appealing Middle Ground Approach Approach Sell directly to consumers and Use traditional wholesale/retail channels

Reasons to pursue a brick-and-click strategy : 

Reasons to pursue a brick-and-click strategy Manufacturer’s profit margin from online sales is bigger than that from sales through traditional channels. Encouraging buyers to visit a firm’s website educates them to the ease and convenience of purchasing online. Selling directly to end users allows a manufacturer to make greater use of build-to-order manufacturing and assembly

Strategies for Online Enterprises : 

Strategies for Online Enterprises Approach – Use Internet as the exclusivechannel for all buyer-seller contact and transactions

Success depends on following features : 

Success depends on following features Deliberate efforts to engineer a value chain that enables differentiation, lower costs, or better value for the money Innovative, fresh, and entertaining website Clear focus on a limited number of competencies and a relatively specialized number of value chain activities Innovative marketing techniques Minimal reliance on ancillary revenues

Choosing Appropriate Functional-Area Strategies : 

Choosing Appropriate Functional-Area Strategies Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves Functional strategies include Research and development Production Human resources Sales and marketing Finance

First-Mover Advantages : 

First-Mover Advantages When to make a strategic move is often as crucial as what move to make First-mover advantages arise when Pioneering helps build firm’s image and reputation Early commitments to new technologies,new-style components, and distributionchannels can produce cost advantage Loyalty of first time buyers is high Moving first can be a preemptive strike

First-Mover Disadvantages : 

First-Mover Disadvantages Moving early can be a disadvantage when Costs of pioneering are sizable and loyalty of first time buyers is weak Innovator’s products are primitive, not living up to buyer expectations Rapid technological change allows followers to leapfrog pioneers

INTENSIFICATION : 

INTENSIFICATION

Slide 151: 

Intensification involves expansion within the existing line of business. Intensive expansion strategy involves safeguarding the present position and expanding in the current product-market space to achieve growth targets.

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A firm selecting an intensification strategy: To concentrates on its primary line of business To meet its growth objectives by increasing its size of operations in its primary business. Intensive expansion of a firm can be accomplished in three ways: Market penetration Market development Product development

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Intensification strategy is followed when adequate growth opportunities exist in the firm’s current products-market space.

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