Overview : Industry Analysis : Overview : Industry Analysis Wai Chamornmarn
Thammasat university
2006
International Trade Theory : International Trade Theory Why do nations trade with each-other?
How do different theories explain trade flows?
How does free trade raise the economic welfare of all participating nations? Any disagreements?
Can government actively influence a country’s competitive advantage?
Why is an understanding of trade theory important for managers?
An Overview of Trade Theory : An Overview of Trade Theory Free Trade occurs when a government does not attempt to influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to another country.
The Benefits of Trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country.
The Pattern of International Trade displays patterns that are easy to understand (Saudi Arabia/oil or China/crawfish). Others are not so easy to understand (Japan and cars).
The history of Trade Theory and Government Involvement presents a mixed case for the role of government in promoting exports and limiting imports. Later theories appear to make a case for limited involvement. 4-7
Capitalism Requires : Capitalism Requires Consumers.
Monopolies and imperfect forms of competition to facilitate the accumulation of capital. Pure competition feeds the market economy, not necessarily capitalism.
Capital and credit have always been the surest way of capturing and controlling a foreign market. True in all forms of capitalism since the 15th century Florentines.
13th century - Florence.
16th century - Augsburg, Antwerp, Genoa,
18th century - Amsterdam and London
19th and 20th centuries - New York
21st century - Beijing??
Amartya Sen – The Modern Face of Capitalism? : Amartya Sen – The Modern Face of Capitalism? 1998 Nobel Prize winner in Economic Science.
Developed and developing nations face the persistence of poverty, hunger, violations of basic freedoms, environmental issues and concerns about sustainability of economic and social lives.
Overcoming these problems is central to development.
“Expansion of freedom is viewed…both as the primary end and as the principal means of development.”
“Development consists of the removal of various types of unfreedoms that leave people with little choice and little opportunity of exercising their reasoned agency.”
Sen’s Prescription : Sen’s Prescription What people can achieve is influenced by:
Economic opportunities (process vs. opportunity freedom).
Political liberties.
Social power.
Conditions of good health.
Basic education.
Encouragement and cultivation of initiatives.
Freedom to enter labor markets and exchange freely.
Rod’s 21st Century Synthesis : Rod’s 21st Century Synthesis Capitalism is becoming more accessible with the advent of globalization and technology.
Knowledge and human capital are becoming the most important sources of capital (knowledge capitalism).
Increase transience and fragmentation in “centers of gravity” of capitalism.
Decreased periods of competitive advantage.
More freedom in the world.
Free Trade : Free Trade Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country.
USA imports most of the sneakers and jeans consumed although these can be produced at home. Why???
International Trade Theory : International Trade Theory What is international trade?
Exchange of raw materials and manufactured goods (and services) across national borders
Classical trade theories:
explain national economy conditions--country advantages--that enable such exchange to happen
New trade theories:
explain links among natural country advantages, government action, and industry characteristics that enable such exchange to happen
Classical Country-Based Theories : Classical Country-Based Theories Mercantilism
Emerged in England in the mid-16th century
It is in a country’s best interest to maintain a trade surplus, to export more than it imports.
Takes an us-versus-them view of trade; other country’s gain is our country’s loss
Government intervention to achieve a surplus in the balance of trade.
Neo-mercantilism views persist today
Free Trade supporting theories : Free Trade supporting theories Show that specialization of production and free flow of goods grow all trading partners’ economies.
Absolute Advantage (Adam Smith, The Wealth of Nations, 1776)
countries differ in their ability to produce goods efficiently, and that a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.
countries should specialize in the production of goods for which they have an absolute advantage and then trade these goods for the goods produced by other countries.
Absolute Advantage : Absolute Advantage Adam Smith: The Wealth of Nations, 1776
Mercantilism weakens a country in the long run and enriches only a few segments
A country should specialize in and export products for which it has absolute advantage; import others
A country has absolute advantage when it is more productive than another country in producing a particular product Rice Ghana 40 G' 15 50 S. Korea 30 Cocoa
Free Trade supporting theories, cont’d. : When each country has an absolute advantage in one of the products, it is clear that trade is beneficial. But what if one country has an absolute advantage in both products?
Comparative Advantage (David Ricardo, Principles of Political Economy.1817)
it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to buy the goods that it produces less efficiently from other countries, even if this means buying goods from other countries that it could produce more efficiently itself.
Many assumptions Free Trade supporting theories, cont’d.
Comparative Advantage : Comparative Advantage David Ricardo: Principals of Political Economy, 1817
Country should specialize in the production of those goods in which it is relatively more productive... even if it has absolute advantage in all goods it produces
Absolute advantage is really a special case of comparative advantage Rice Cocoa 30 12 15 50 Ghana S. Korea
Classic Theory Limitations : Classic Theory Limitations Fundamentally: Free Trade expands the world “pie” for goods/services
Theory Limitations
Simple world (two countries, two products)
no transportation costs
no price differences in resources
resources immobile across countries
constant returns to scale
each country has a fixed stock of resources and no efficiency gains in resource use from trade
full employment
Simple Extensions of the Ricardian Model : Simple Extensions of the Ricardian Model Immobile resources:
Resources do not always move easily from one economic activity to another.
Diminishing returns:
More a country produces, at some point, will require more resources (diminishing returns to specialization).
Different goods use resources in different proportions.
However:
Free trade might increase a country’s stock of resources (as labor and capital arrives from abroad), and
Increase the efficiency of resource utilization. 4-16
Ghana’s PPF under Diminishing Returns : Ghana’s PPF under Diminishing Returns Figure 4.3
The Influence of Free Trade on the PPF : The Influence of Free Trade on the PPF Figure 4.4
Heckscher (1919)-Ohlin (1933) Theory : Heckscher (1919)-Ohlin (1933) Theory The pattern of international trade depends on differences in factor endowments not on differences in productivity
Absolute amounts of factor endowments matter
Products differ according to the types of factors that they need as inputs
A country has a comparative advantage in producing products that intensively use factors of production (resources) it has in abundance
Factors of production: labor, capital, land, human resources, technology
Leontief paradox:
US has relatively more abundant capital yet imports goods more capital intensive than those it exports
Explanation(?):
US has special advantage on producing new products made with innovative technologies
These may be less capital intensive till they reach mass-production state
International Product Life-Cycle (Vernon) : International Product Life-Cycle (Vernon) As products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade.
Most new products initially conceived and produced in the US in 20th century
US firms kept production close to the market
Aid decisions; minimize risk of new product introductions
Demand not based on price yet; low production cost not an issue
Limited initial demand in other advanced countries
Exports more attractive than production there initially
With demand increase in advanced countries
Production follows there.
With demand expansion elsewhere
Product becomes standardized
production moves to low production cost areas
Product now imported to US and to advanced countries
The Product Life-Cycle Theory : The Product Life-Cycle Theory Figure 4.5 4-24 production consumption Exports 160
140
120
100
80
60
40
20
0 United States Other Advanced Countries Developing Countries Stages of Production Development New Product Standardized Product Maturing Product Imports Imports Exports Exports Imports 160
140
120
100
80
60
40
20
0 160
140
120
100
80
60
40
20
0
The New Trade Theory : The New Trade Theory Began to be recognized in the 1970s.
Deals with the returns on specialization where substantial economies of scale are present.
Specialization increases output, ability to enhance economies of scale increase.
In addition to economies of scale, learning effects also exist.
Learning effects are cost savings that come from “learning by doing”.
4-25
Application of the New Trade Theory : Application of the New Trade Theory Typically, requires industries with high, fixed costs.
World demand will support few competitors.
Competitors may emerge because “they got there first”.
First-mover advantage.
Some argue that it generates government intervention and strategic trade policy. 4-26
First-Mover Advantage : First-Mover Advantage Economies of scale may preclude new entrants.
Role of the government. 4-27
Competitive Advantage : Competitive Advantage Porter’s “National Diamond”
“Advantages throughout the ‘diamond’ are necessary for achieving and sustaining competitive success … [but]
Advantage in every determinant is not a prerequisite…” (73)
Competitive Advantage : Competitive Advantage Factors matter but may enhance CA through their absence:
“an abundance of factors may undermine instead of enhance competitive advantage. Selective disadvantages in factors, through influencing strategy and innovation, often contribute to sustained competitive success.” (74)
Opposite of economic theory belief
Gives example of Holland’s advantage in flowers “despite its cold, grey climate”…
Second factor also important for Dutch flowers:
Home demand
Quality more important than quantity
Discerning consumers drive product innovation
Competitive Advantage : Competitive Advantage “Nations gain competitive advantage … where the home demand gives local firms a clearer or earlier picture of buyer needs…
if home buyers pressure local firms to innovate faster…” (86)
“A product’s fundamental or core design nearly always reflects home market needs.” (87)
“small nations can be competitive in segments which represent an important share of local demand but a smaller share of demand elsewhere, even if the absolute size of the segment is greater in other nations.” (88)
Competitive Advantage : Competitive Advantage Related & supporting industries
Suppliers assist “process of innovation and upgrading…
Suppliers help firms perceive new methods and opportunities to apply new technology.” (103) The full pattern of interlinking industries is very complex…
Competitive Advantage : Competitive Advantage A more disaggregated view…
Competitive Advantage : Competitive Advantage Competitive advantage in suppliers means spinoffs from one industry can be means to develop new ones
“Italian world leadership in gold and silver jewelry has been sustained … because other Italian firms produce two-thirds of the world’s jewelry-making machinery.” (101)
Related industries give strength to each other…
Competitive Advantage : Competitive Advantage Competitive advantage in related industries
Competitive Advantage : Competitive Advantage “Japan's strength in long-filament synthetic textile fibers reflects a long tradition of success in silk, as does a leading export position in silk-like continuous synthetic weaves, woven from long-filament synthetic fibers. Carbon fibers employ technology closely related to synthetic filament fibers and many of the same competitors participate in both. Also, while not overall leaders in textile machines, Japanese firms are leaders in water jet weaving machines, used to weave long-filament synthetic fibers into synthetic weaves. Such groups of linked competitive industries in a nation are common.” (105)
Competitive Advantage : Competitive Advantage Firm strategy structure & rivalry
“No one management system is universally appropriate”
But character of national management structure needs to suit needs of industry.
“Nations will tend to succeed … where the management practices and modes of organization favored by the national environment are well suited to the industries’ sources of competitive advantage.
Italian firms … are world leaders in a range of fragmented industries … operating in small niches…
In Germany … the engineering and technical background of many senior executives produces a strong inclination towards methodical product and process improvement…” (108)
Competitive Advantage : Competitive Advantage National goals
Short term focus of US firms—advantage in accounting
Long term focus of German/Japanese—advantage in engineering…
Domestic rivalry
Desire to beat own national competitors often drives innovation
Italian supercars; Japanese electronics; US software, computers…
“With little domestic rivalry, firms are more content to rely on the home market.” (119)
Competitive Advantage : Competitive Advantage Japan in particular has large number of internationally competitive firms in different industries:
Competitive Advantage : Competitive Advantage National competitive advantage therefore tends to occur in clusters
Geographic clusters: “Many of the Italian jewelry firms, for example, are located around two towns, Arezzo and Valenca Po…” (120)
Industry clusters
Related industries and supplier-buyer chains
Competitive Advantage : Competitive Advantage “The individual determinants that define the national environment are mutually dependent because the effect of one often depends on the state of the others…” (129) Example of clustering: Denmark
Competitive Advantage : Competitive Advantage
Competitive Advantage : Competitive Advantage Geographic clustering also strikingly obvious:
Clustering of internationally competitive industries in Italy:
Competitive Advantage : Competitive Advantage Interactions in the “Diamond” for Italian Ski Boot industry:
Implications for Business : Implications for Business Location implications:makes sense to disperse production activities to countries where they can be performed most efficiently.
First-mover implications:It pays to invest substantial financial resources in building a first-mover, or early-mover, advantage.
Policy implications:promoting free trade is generally in the best interests of the home-country, although not always in the best interests of the firm. Even though, many firms promote open markets.
Export orientation : Export orientation Specialization on comparative advantage
Requires successive stages of comparative advantage (flying geese model)
Supported by export subsidies which are only given temporarily
Characteristics of developmental state (Gerschenkron, 1962) : Characteristics of developmental state (Gerschenkron, 1962) Vertically integrated enterprises
Development of investment banking
Major role for government in investment decision making
Resolve problems on asymmetric information by finance for industrialization, mobilize savings and develop infant industries
Hence: a large role for government and a strong orientation towards industrialization
Rethinking the East Asian Miracle (Stiglitz and Yusuf, 2001) : Rethinking the East Asian Miracle (Stiglitz and Yusuf, 2001) Optimal macroeconomic management depends on range of country-specific factors
Slower accumulation of human & physical capital gives greater role for TFP & technology assimilation
Exports as engine of productivity growth is questionable, whereas imports and investment are more often seen as driving forces
Interventionist policies are increasingly difficult with global capital markets and free trade
With increased complexity of economic relationships, market-based rules for contracting, property and other rights emerge
“So What” for business? : “So What” for business? There are at least three main implications of the material discussed in this chapter for international businesses:
First mover implications
invest to be first, particularly in global industries or in markets which can support a few firms
Location Implication
if countries have comparative advantages MNEs want to locate appropriate activities in those countries…
Government Policy implications
companies generate imports and exports. Thus can influence government decisions on trade policy...
Foreign Investment Decisions
Which factors influence a host country’s national competitiveness? : Published in: S. O’Donnel, T.Blumentritt/Journal of International Management 5 (1999) Which factors influence a host country’s national competitiveness?
Cluster Analysis: What Is It? : Cluster Analysis: What Is It? “Clusters are geographically close groups of interconnected companies and associated institutions in a particular field, linked by common technologies and skills.”
Michael Porter, Clusters of Innovation, 2002
“Binding the cluster together are ‘buyer-supplier relationships, or common technologies, common buyers or distribution channels, or common labor pools.’ Competitive firms make a competitive cluster … and economic self-interest is ultimately the glue that binds the cluster together.”
Edward M. Bergman and Edward J. Feser,
Industrial and Regional Clusters: Concepts and Comparative Applications, 1999
Case Study : Case Study Diamond-Framework contents additional factors
Cluster Characteristics : Cluster Characteristics
Critical Factors for Cluster Emergence
Strong, diverse and tech-savvy talent pool
Florida’s three ‘T’s
Presence of established pillar companies with global reach
Strong knowledge infrastructure
research university, government labs etc.
Risk tolerant venture capital and angel investors
Sustained development strategies by civic entrepreneurs and local governments (civic capital)
Flying Geese model of trade structures in East Asia : Flying Geese model of trade structures in East Asia
Behind the shifting structure : Behind the shifting structure Stress on industrialization
through protectionism;
financed by foreign loans Period of liberalization;
Importance of OFWs
Successive stages of comparative advantage in East-Asian trade structure : Successive stages of comparative advantage in East-Asian trade structure 1) Primary import-substitution: replace labour intensive manufacturing imports with domestically produced goods
2) Primary export-“substitution”: replace agricultural exports by labour-intensive manufacturing exports
3) Secondary import-substitution: production of intermediate and capital goods for domestic market
4) Secondary export-“substitution”: shift from labour-intensive to capital- and knowledge intensive production
Conclusions on industrialization : Conclusions on industrialization
Industrial development requires productivity growth beyond exploitation of capital
Export orientation is more supportive growth, but requires strong developmental state
Careful balance between transferring resources from agriculture and supporting development within agriculture
Support of “informal” sector can be potential source of growth
Macro Environment : Macro Environment Interest Rates Inflation Rates Employment Levels Regulatory Climate
Tax Policy Consumer Spending Duties & Tariffs
Currency Exchange Rates International Cultural Differences Government Spending Rate of Innovation Consumer Characteristics Societal Norms Social Values Research Funding
Levels
Competitive Analysis : Competitive Analysis Digitalization A Changing Competitive Landscape Globalization Deregulation Communication is faster, information availability is vastly extended, coordination
cost are reduced, integration of work tasks is eased, customer reach is extended. Travel, transportation and exchange of media content (news and cultural events) extends
the globe. Some tastes and consumer behaviors emerge toward a global standard. National markets are being deregulated (privatized), e.g. financial services, transportation,
telecommunication, energy, etc., and cross-border business transactions are liberalized.
Internet Industry : Web Browsers Media Companies Content Providers Internet Industry Internet
Portals ASPs ISPs
What is an Industry?
Slide61 : Industry & Competitive Analysis
5 Forces Model of Competition
Key Success Factors
Driving Forces
Strategic Group Maps Identify
Strategic Options
for the
Company Select the Best Strategy
for the
Company Macro-Environment Micro-Environment Company Analysis
SWOT Analysis
Value Chain Analysis
Competitive Strength Assessment
FUNDAMENTAL ANALYSIS QUESTIONS : FUNDAMENTAL ANALYSIS QUESTIONS 1. What are the characteristics of my industry?
2. Who are/will be my competitors?
3. What are the current/likely positions of my competitors?
4. What moves are/will my competitors make?
5. What moves can/should I take to achieve a competitive advantage?
Natural and Strategic Competition : Natural and Strategic Competition
Natural Competition
Strategic Competition
Sources of Competition : Sources of Competition Customer need
Industry competition
Product-line competition
Organizational competition
Competitive Advantage : Competitive Advantage Outperform competitors
Grow despite competitors
Develop own distinctive competencies that hold potential for competitive advantages
Competitive Advantage: Two Analytical Tools : Competitive Advantage: Two Analytical Tools Industry analysis:
market attractiveness based on economic structure
Comparative analysis:
likely future performance of an individual firm in a particular market given the structure of the industry
Factors Contributing to Competitive Rivalry : Factors Contributing to Competitive Rivalry Opportunity potential
Ease of entry
Nature of product
Exit barriers
Homogeneity of market
Industry structure
Factors Contributing to Competitive Rivalry II : Factors Contributing to Competitive Rivalry II Industry structure
Commitment to industry
Technological innovations
Scale economies
Economic climate
Diversity of firms
Existing Rivalry : Existing Rivalry Involves jockeying for position.
Intensity of rivalry a function of -
Number of competitors
Industry growth rate
Level of fixed costs
Diversity of competitors
Lack of product differentiation
Height of “Exit Barriers”
Entry/Exit Barrier Interaction : Entry/Exit Barrier Interaction Porter, Competitive Strategy, 1980
Competitive Intelligence : Competitive Intelligence Strategies, objectives, goals
Importance of specific markets
Level of commitment
Strengths
Limitations
Weaknesses
Future changes in strategy
Effects on industry, market, our strategies
Forces Influencing Industry : Forces Influencing Industry Technological Change Government Policy Global Economic Factors
การวิเคราะห์โครงสร้างอุตสาหกรรม Michael Porter : การวิเคราะห์โครงสร้างอุตสาหกรรม Michael Porter Bargaining
power
of buyers Bargaining
power
of suppliers Threat of substitute
products or services Threat of
new entrants Rivalry among
existing competitors Entry barriers
economies of scale
product differentiation
capital requirements
brand identity
access to distribution channels improve price
performance trade-off
produced by industries
earning high profits bargaining leverage
price sensitivity high concentration
threat of forward
integration
switching costs - slow industry growth
lack of differentiation
numerous competitors
high exit barriers
Porter’s “5 Forces”: Thinking about the balance of power : Porter’s “5 Forces”: Thinking about the balance of power Political,
regulatory and
institutional
context “Complementors”
Assets/Uniqueness speak to Rivalry and the Threat of Entry. : Assets/Uniqueness speak to Rivalry and the Threat of Entry.
Porter reminds us to think about the structure of the value chain: : Porter reminds us to think about the structure of the value chain:
Powerful suppliers and buyers may constrain profitability : Powerful suppliers and buyers may constrain profitability
Role of Competitive Strategy : Role of Competitive Strategy Create a defendable position against the 5 forces.
Positioning
Shifting the balance of forces.
Exploit change resulting from shifts in the factors underlying the forces.
Business Level Strategies : Business Level Strategies What do we need to understand?
Key Success Factors
Generic Business Level Strategies
Where to find business level advantages
“Core” and “Distinctive” Competencies
Key Success Factors : Key Success Factors Each industry has certain areas that firms competing in that industry must do well in in order to survive
Can be thought of as the bare minimum that must be done in order to compete in that industry
Generic Business Level Strategies : Generic Business Level Strategies Generic Strategies are general ways to classify strategies
Examples:
Miles & Snow (prospectors, defenders, analyzers, reactors)
Ansoff & Stewart (1st mover, 2nd mover, low cost producers, niche)
Why is Michael Porter important? : Why is Michael Porter important? First strategy writer to analyze why information and IT can be critical to competitive advantage
Competitive Strategy, 1980
Competitive Advantage, 1985
What contributions is Porter best known for?
Five forces model
What makes an industry “attractive” to compete in?
2 x 2 matrix of core strategies
What are possible strategies for achieving advantage?
The value chain
How can we analyze the core activities that firms perform?
Porter’s Generic Business Level Strategies : Porter’s Generic Business Level Strategies Three (3) ways that a firm can compete and get above average returns
Overall Cost Leadership
Differentiation
Focus
Porter’s Generic Business Level Strategies : Porter’s Generic Business Level Strategies You can still be profitable without following one of these but these profits usually will be below the industry average
squeezed by the Five (5) Forces
Overall Cost Leadership : Overall Cost Leadership Basic idea is that if you can produce it more cheaply than anybody else, you will have the most profit at any price
Cost Leadership Price Leadership
Overall Cost Leadership : Overall Cost Leadership Companies need to be extremely aggressive at finding cheaper, more efficient ways of doing things
efficient scale facilities
pursuit of cost reductions
tight cost and overhead control
avoidance of marginal customers
Overall Cost Leadership and the Five (5) Forces : Overall Cost Leadership and the Five (5) Forces Competitors
lower costs mean that it can still earn returns after its competitors have competed away their profits through rivalry
Overall Cost Leadership and the Five (5) Forces : Overall Cost Leadership and the Five (5) Forces Entry
potential entrants have to overcome greater entry barriers in terms of scale economies or cost advantages
Substitutes
a better cost/benefit ratio than
its competitors
Overall Cost Leadership and the Five (5) Forces : Overall Cost Leadership and the Five (5) Forces Buyers
can exert power only to drive down prices to the level of the next most efficient competitor
Suppliers
more flexibility to cope with
input cost increases
The Risks Associated with Overall Cost Leadership : The Risks Associated with Overall Cost Leadership Technological change nullifies basis for cost advantage
Low cost learning by new entrants
Differentiation : Differentiation Rests on the creation of some product or service that is perceived industry-wide as being unique
Perception is more important than substantive differences
The firm still has to be cost conscious but this is not its primary focus
Differentiation and The Discipline of Market Leaders : Differentiation and The Discipline of Market Leaders Three (3) types of differentiation
Price
Product
Service
Differentiation and the Five (5) Forces : Differentiation and the Five (5) Forces Competitors
brand loyalty by customers and lower sensitivity to price prevents buyer switching
Differentiation and the Five (5) Forces : Differentiation and the Five (5) Forces Entry
potential entrants must overcome the perceived uniqueness of the firm
Substitutes
brand loyalty prevents buyers from switching to substitutes
Differentiation and the Five (5) Forces : Differentiation and the Five (5) Forces Buyers
buyers lack comparable alternatives
Suppliers
differentiation yields higher margins to give firms more leeway in dealing with suppliers
The Risks Associated with Overall Cost Leadership : The Risks Associated with Overall Cost Leadership Customers may decide that the extra expense is not worth the benefit
Imitation narrows perceived differentiation
Focus Strategies and the Five (5) Forces : Focus Strategies and the Five (5) Forces Same effects as overall cost leadership and differentiation but in a smaller segment of the market Differentiation Cost Leadership Industry-wide Market Segment Differentiation Focus Differentiation Cost Leadership Focus Cost Leadership
Stuck in the Middle : Stuck in the Middle Describes firms that have failed to establish themselves as following one of the above generic strategies
Loses high volume sales to cost leader and high margin sales to differentiators
Where Do We Find These Competitive Advantages? : Where Do We Find These Competitive Advantages? The Value Chain Support
Activities
Porter’s Value Chain (well suited for analyzing product/manufacturing firms) : Porter’s Value Chain (well suited for analyzing product/manufacturing firms)
Slide102 : Property and Casualty Industry Value Chain INBOUND
LOGISTICS OPERATIONS OUTBOUND
LOGISTICS MARKETING
AND SALES SERVICE PROCUREMENT TECHNOLOGY
DEVELOPMENT HUMAN
RESOURCE
MANAGEMENT FIRM
INFRASTRUCTURE -Financial Policy -Regulatory Compliance - Legal - Accounting Actuary
Training Agent
Training Claims
Training Claims
Procedures Claims Settlement
Loss Control Policy Sales
Policy Renewal
Agent Manage-
ment
Advertising
Independent
Agent Network
Billing and
Collections Underwriting
Investment Policy Rating Actuarial Methods
Investment
Practices I/T
Communications Product
Development
Market Research Figure 3-7 Included with permission of Michael E. Porter based on ideas in Competitive Advantage: Creating and Sustaining
Superior Performance, copyright 1985 by Michael E. Porter.
Slide103 : Technologies in the Value Chain INBOUND
LOGISTICS OPERATIONS OUTBOUND
LOGISTICS MARKETING
AND SALES SERVICE PROCUREMENT TECHNOLOGY
DEVELOPMENT HUMAN
RESOURCE
MANAGEMENT FIRM
INFRASTRUCTURE Information System Technology
Planning and Budgeting Technology
Office Technology Training Technology
Motivation Research
Information Technology Product Technology
Computer-Aided Design
Pilot Plant Technology Diagnostic and
Testing Technology
Communications
Technology
Information
Technology Transportation
Technology
Material Handling
Technology
Storage and
Preservation
Technology
Communication
System Technology
Testing Technology
Information
Technology Information Systems Technology
Communication System Technology
Transportation System Technology Software Development Tools
Information Systems Technology Basic Process
Technology
Materials
Technology
Machine Tools
Technology
Materials Handling
Technology
Packaging
Technology
Testing Technology
I/nformation Tech. Transportation
Technology
Material Handling
Technology
Packaging
Technology
Communications
Technology
Information
Technology Multi-Media
Technology
Communication
Technology
Information
Technology Figure 3-8 Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from
COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright
1985 by Michael E. Porter., p. 167.
The Primary Activities : The Primary Activities The “Line” Activities of the Firm Inbound logistics Operations Outbound Logistics Marketing and Sales Service
The Support Activities: Firm Infrastructure : The Support Activities: Firm Infrastructure The Structure of the Organization
The Support Activities: Human Resource Management : The Support Activities: Human Resource Management The People Considerations
of the Organization
The Support Activities: Technology Development : The Support Activities: Technology Development What the Firm Creates
and How It Creates It
The Support Activities: Procurement : The Support Activities: Procurement Getting the Necessary Materials
for the Primary Components
From the Environment
The Underlying Idea Behind Porter’s Value Chain : The Underlying Idea Behind Porter’s Value Chain Break things down into components;
Maximize the value of each component;
Maximize the value of how they interact;
Be considered brilliant.
Comprehensive MNC Strategy Model : Comprehensive MNC Strategy Model Industry
Globalization
Drivers:
Market
Cost
Government
Competitive Strategy:
Multidomestic
Global
International
Transnational Organizational
Structure:
Centralized
Decentralized Management
Processes:
Coordination
Configuration Performance:
Market share
Profits Formalization:
High
Low
Responsiveness/Integration Framework : Responsiveness/Integration Framework Global
Coordination
Integration High High Low Low Global International Transnational Multi-national Local responsiveness
Slide112 : Integration/Responsiveness Framework Global
Coordination,
Integration High High Low Low Global International Transnational Multi-national Local responsiveness Technology Worldwide
learning
… But Remember, We Said There Are Two Major Schools of Thought : … But Remember, We Said There Are Two Major Schools of Thought 1. The strategic “positioning” school of strategy
Associated with Michael Porter
Select the right “position” in an “attractive” industry
2. The Resource Based View of the Firm (RBVF)
Originated with economist Edith Penrose; developed by strategy professors Jay Barney; Dietricx & Cool
Recently popularized by Hamel & Prahalad, Competing for Time (1990) but re-named “core competencies”
Develop and exploit your unique capabilities
What Do RBVF Strategists Say? : What Do RBVF Strategists Say? Innovative IT solutions are copied or imitated
Most IT applications are imitable
Some exceptions exist when IT can’t be imitated
Unless the capabilities to create the innovative IT solution are unique and immobile, then second-movers may:
copy your great ideas more cheaply
learn from your mistakes
Customer “lock-in” does not really work
Customers are too smart and will avoid becoming over-committed to you
..
“IT and Sustained Competitive Advantage: A Resource Based Analysis,” MIS Quarterly 1995 : “IT and Sustained Competitive Advantage: A Resource Based Analysis,” MIS Quarterly 1995 Why do the authors argue that many of these resources can’t create sustainable advantage?
Customer lock-in
Access to financial capital
Proprietary technology (patents, copyrights, etc.)
Technical IT skills (e.g., software developers)
Managerial IT skills
(e.g., IT managers, business unit managers, the ability to collaborate in order to identify and deploy effective IT)
What Synchronized Business Might Look Like! : Collaborative Supply
Scheduling &
Management
Supplier Customer Firm Execution Scheduling What Synchronized Business Might Look Like! Dmd/Supply
Planning
Collaborative Strategic Plg Collaborative Supply Scheduling &
Management
Dmd/Supply
Planning Strategic
Planning Integrated Factory,
Materials/Warehouse/Transportation Execution Demand and Supply Planning Integrated SN Detailed
Scheduling For
Factory/Materials/Warehouse/Transportation Strategic Business Planning Planning
Collaborative
Planning Collaborative
Planning Factory
Execution Factory
Execution Long Range Business/Capacity Planning Long Range
Planning Long Range Planning
Enterprise Level Roadmap : Entry/Re-entry
Cycle Focus on the Value Stream Initial
Lean
Vision Short Term Cycle Create & Refine Transformation Plan Lean
Transformation
Framework
Adopt Lean
Paradigm Enterprise
Strategic
Planning Focus on Continuous
Improvement Outcomes on
Enterprise
Metrics Implement Lean Initiatives Enterprise
Level
Transformation
Plan Develop Lean Structure & Behavior Detailed
Lean
Vision Environmental
Corrective
Action Indicators Detailed
Corrective Action Indicators Decision to
Pursue
Enterprise
Transformation Build Vision
Convey Urgency
Foster Lean Learning
Make the Commitment
Obtain Senior Mgmt.
Buy-in Map Value Stream
Internalize Vision
Set Goals & Metrics
Identify & Involve Key
Stakeholders Organize for Lean Implementation
Identify & Empower Change Agents
Align Incentives
Adapt Structure & Systems Identify & Prioritize Activities
Commit Resources
Provide Education & Training Monitor Lean Progress
Nurture the Process
Refine the Plan
Capture & Adopt New Knowledge Develop Detailed Plans
Implement Lean Activities Enterprise Level Roadmap + + Long Term Cycle
One Last Important Concept : One Last Important Concept Core Competencies
Something a firm does well relative to its competitors
Distinctive Competencies
Something a firm does which makes it unique relative to its competitors
Dynamic Competitor Analysis : While useful, the competitor table and the strategic groups are, like Porter’s Analysis, essentially static.
Just as the Four-Arena Analysis is useful for using history to make guesses about the future -- especially about how trends might stop and the ground might shift --
Hamilton et al’s Core Competency Strategi