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69 Cards in this Set
- Front
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A strategy designed for a firm or a division of a firm that competes within a single business
Ex: How a firm is going to compete in a specific product market/business/industry |
business-level strategy (Formulation) |
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Broad based characterizations of strategy that can be applied to a wide variety of businesses
What are the two dimensions? |
generic business level strategy
1. value proposition 2. competitive scope (breadth of market) |
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Value proposition |
How a firm positions itself with respect to creation of value
---->cost: cost leadership --- > value: differentation |
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competitive scope |
breadth of the market: variety of customer segments? narrow customer segments? |
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3 generic business-level strategies |
1. Who are our customers?
2. What are their needs? -These are the process of business definition/customer &product orientation
3. How to satisfy those needs (Deciding the basis of competitive advantage: On what basis will the firm compete?) -This is the position |
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Firms in cost leadership (competitive advantage in low cost, standardized)
Provide acceptable quality
Parity on differentiation |
Southwest Airlines McDonalds Wal-Mart |
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Firms in differentation (prestige of brand, customization, customer service, product innovation)
Customers are willing to pay a premium, something they will value
Parity on cost |
Apple Caterpillar
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Whereas the overall cost leadership and differentiation strategies strive to attain advantages industrywide, ______ have a narrow target market in mind |
Focus
Cost leadership: Motel 6, Redbox
Differentiation: Abercrombie & Fitch, Hollister |
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Value chain activities associated with the overall cost leadership |
Support: little management, effictive orientation and training to max. employee productivity, automated technology, procure low-cost materials
Primary: effective receiving dock operations, minimized rework, effective delivery fleets, purchase of media in large blocks, use of single type of vehicle to minimize repair costs |
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Value chain activities associated with differentiation |
Support: widely respected CEO enhances firm reputation, programs to attract talented employees, superior material handling, purchase of high-quality components to enhance product image
Primary: Superior material handling, low defect rates, accurate/responsive ordering, creative/innovative advertising, rapid response to customer requests |
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Support activities |
Firm infrastructure HR Technology Procurement |
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Primary Activities |
Inbound logistics Operations Outbound Marketing and Sales Service |
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How does overall cost leadership improve Competitive Position with the Five Forces |
-Rivalry: lower costs allow a firm to earn returns -Buyers: low cost position protects from powerful buyers -Suppliers: low cost position provides more flexibility to cope with demands from powerful suppliers |
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How does differentiation improve Competitive Position with the Five Forces |
-Rivalry: protection from rivals because of brand loyalty -Buyers: reduces buyer power because buyers lack comparable alternatives -Suppliers: decreased because there is certain amount o prestige associated with being the supplier to a producer of highly dif. products -Substitutes: Enhances customer loyalty which reduces threat of substitutes -high entry barriers -increasing margins results avoids the need for a low cost position - |
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Disadvantages of overall cost leadership |
-Too much focus on one or a few value chain activities -Increase in the cost of the inputs on which the advantage is based -Strategy is imitated to easily -Lack of parity on differntiation -Reduced flexibility -Obsolescene of the basis of cost advantage |
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Disadvantages of differntiation |
-Uniqueness that is not valuable -Too much differentation -Too high a price premium -Differentiation that is easily imitiated -Dilution of brand identification through product line extenstions -Perceptions of differentiation may vary between buyers and sellers |
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How can firms successfully compete using a combination cost leadership/differentiation strategy |
Provide differentiated attributes and lower prices to provide unique value to customers in and efficient manner
Ex: provide superior quality which will lead to lower costs because of less need for rework in manufacturing, fewer warranty claims, reduced need for customer service personel |
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Combination cost leadership/differentiation strategy |
-Automated and flexible manufacturing systems: mass customization
-Exploiting the profit pool concept for competitive advantage: the total profits in an industry at all points along the industry's value chain
-Coordinating the "extended" value chain by way of information technology: use information tech. to link their own value chain with the value chains of their customers and suppliers
-Integrated overall low-cost and differentiation strategies by improving competitive position through the Five Forces |
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How do generic strategies address five forces? |
1. overall cost leaderships: based on creating a low-cost position 2. differentiation: requires a firm to create products and/or services that are unique and valued 3. focus: directs attention towards narrow product lines, buyer segments, or targeted geographic markets |
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*** Now on corporate level strategy |
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A strategy that focuses on gaining long-term revenue, profits, and market value through managing operations in multiple businesses |
corporate level strategy |
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Corporate level strategy address two related issues |
1.What business to compete in 2. How these businesses can achieve synergy
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A firm entering a different business in which it can benefit from leveraging core competencies, sharing activities, or building market power (horizontal relationships)
Core competencies must be in the value chain, not in the product |
Related diversification |
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The process of a company expanding into different areas, such as industries and product lines. |
Corporate diversification |
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The process of expanding business opportunities through additional market potential of an existing product. Diversification may be achieved by entering into additional markets and/or pricing strategies. |
Product line diversification |
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Four means of creating value with related diversification |
Leveraging core competencies Sharing activities Pooled negotiating power Vertical integration. |
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Leveraging core competencies |
-Must enhance competitive advantages by creating superior customer value -Different businesses in the corporation must be similar in at least one important way related to core competence -Core competencies must be difficult for competitors to imitate or find substitutes for |
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Sharing activities |
Having activities of two or more businesses value chains done by one of the businesses
Ex: common manufacturing facilities, distribution channels, and sales forces |
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Pooled negotiating power |
The improvement in bargaining position relative to suppliers and customers
Ex: The affiliation of a business with a strong parent company can strengthen an organizations bargaining position relative to suppliers |
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Vertical integration |
An expansion or extension of the firm by integrating preceding or successive production processes
Ex: A firm becomes it's own supplier or distributor |
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A firm entering a different business that has little horizontal interaction with other businesses of a firm |
unrelated diversification -benefits from vertical relationships: creation of synergies from the interaction of the corporate office with the individual business units |
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Difference between related and unrelated diversification |
Related: benefits from horizontal relationships, which leverage on core competencies or the sharing of activities across business units w/in a corporation
Unrelated: benefit from vertical/hierachial relationships |
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Two means of creating value with unrelated diversification through restructuring and corporate parenting |
-Corporate office can contribute to "parenting" and restructuring of businesses. They create value through management expertise Ex. improve plans and budgets
-Corporate office can add value by viewing the entire corporation as a family or "portfolio" of businesses and allocating resources to optimiate corporate goals of profitability, cash flow , and growth. Find poorly performing firms with unrealized potential and change management and strategies, infuse with new technologies, etc. |
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1.Related Diversification: Economies of scope -leveraging core competencies -sharing activities (vertical) |
leveraging core competencies: #M leverages its competencies in adhesives tech. to many industries including automotive and construction
sharing activities: McKesson, a large distribution company, sells many product lines, such as pharmaceuticals and liquor, through it's superwarehouse |
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2. Related Diversification: Market Power -pooled negotiating power -vertical integration (vertical) |
pooled negotiating: ConAgra, a diversified food producer, increases its power over suppliers by centrally purchasing huge quantities of packaging materials for all its food divisions
vertical integration: Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacuting process |
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3. Unrelated Diversification: Parenting, restructuring, and financial synergies (horizontal) |
Corporate restructing and parenting: the corporate office of Cooper industries adds value to its acquired businesses by perofmring such activities as auditing their manufacturing operation, improving their accounting activities, and centralizing union negotiations
Portfolio management: Novartis uses portfolio management to improve many key activities, including resource allocation and reward and evaluation systems |
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Creating and maintaining sustained competitive advantage through (2 things) |
o 1. Choice of mix of businesses o 2. Creating value (synergy) through the mix of businesses
Ex: PepsiCo creates greater value operating its carbonated soft drink business in conjunction with its snack goods business than the value that these businesses would have if they were stand alone firms; TimeWarner operates multiple types of media outlets (TV, radio, magazines, [cable]) |
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Three types of corporate level strategy |
1. single business related 2. related diversification 3. unrelated diversification |
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Corporate business portfolio creates value not through diversification of risk (investors can do this at much lower cost and with less risk) but by |
creation of synergies (complementarities) among the various businesses |
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Role of managers and investors in corporate business portfolio |
o Managers: utilize assets to create value o Investors: provide external (equity) funding |
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Related diversifiers, on average, tend to ______ single business firms and unrelated diversifiers |
outperform |
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Sources of value from related diversification |
Sharing activities: complementary value chain activities Ex. common distribution channels (PepsiCo: soft drinks and snack chips, Quaker Oats division)
Leveraging core competences: utilizing knowledge across multiple businesses Ex. marketing knowledge (about consumer behavior, product research) about carbonated soft drinks can be applied to the snack goods business, too; General Electric applied what it learned about financing consumer purchases of appliances to other financial services (e.g., GE Capital, airplane leasing) |
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Horizontal integration |
-Operating at the same level in the supply chain across multiple businesses -PepsiCo distributes its soft drink and snack products through the same or similar intermediaries (grocery stores, convenience stores, vending machine operators) -PepsiCo also purchases similar inputs (high fructose corn syrup [corn sugar], corn meal, flour, potatoes, cheese, packaging material) from the same or similar suppliers -The firm is then able to bargain with suppliers and buyers more effectively due to the large volume it buys and to the large volume of products it sells to retailers and other distribution channel intermediaries. -By dominating these multiple supply chains, the firm is “pooling its negotiating power.” |
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Vertical integration |
-Acting as one’s own supply and/or buyer -Reducing costs by eliminating the profit that the intermediary (supplier or buyer) earns (or earning that profits oneself) |
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Corporate parenting |
- Corporate direction -Central financial controls while providing operational latitude and other support functions w/ decentralized operations |
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Restructuing |
- Reorganizing/reconfiguring the corporate portfolio -Asset restructuring: reconfiguring portfolio · Selling unproductive assets · Combining acquired assets with existing assets -Capital restructuring: changing debt-equity mix -Management restructuring: management changes, changes in structure or reporting relationships |
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Risks associated with expanding into foreign markets |
Political: terrorism, unresolved conflicts
Economic: currency fluctuations, trade barriers, counterfitting
Management: culture and language diversity, marketing and product modifications |
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The incorporation of one firm into another through purchase |
acquisitions |
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The combining of two or more firms into one new legal entity |
mergers |
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A cooperative relationship between two or more firms |
strategic alliance -may be formal/informal with a written contract |
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New entities formed within a strategic alliance in which two or more firms, the parents, contribute equity to form the new legal entity |
joint ventures -require the creation of a third party |
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Entering a new business through investment in new facilities, often called corporate enterpreneurship and new venture development |
internal development - |
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These attributes jointly determine the playing field that each nation establishes and operates for its industries |
Diamond National Advantage -factor endowments -demand conditions -related and supporting industries -firm strategy |
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the nations position in factors of production such as skilled labor or infrastructure, necessary to compete in a given industry |
factor endowments |
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the nature of home market demand for the industrys product or service |
demand conditions |
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The presence or absence in the nation of supplier industries and other related industries that are internationally competitive |
related and supporting industries |
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The conditions in the nation governing how companies are created, organized, and manged, as well as the nature of domestic rivaly |
firm strategy, structure, and rivalry |
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two opposing forces firms experience in expanding internationally |
1. reducing costs 2. adapting to local markets |
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4 international strategic choices |
· International · Multidomestic · Global level · Transnational |
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international strategy low local adaption/low lower costs |
· Pressures for cost reduction and local adaptation are low · Standardized product extending into foreign markets · Local adaptation very limited · Centralization of some value chain activities |
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Global strategy low local adaptions/high lower costs |
· High emphasis on cost reduction and control and little on local adaptation · Economies of scale · Corporate office provides central coordination · Products and brands prone to global strategy o Consumer electronics § TVs, VCRs, cameras, computers § High tech products with strong functional image § Culture has little impact on universality of product understanding and perception · High-image products o Cosmetics, apparel o Strong associations with fashion, sensuality, wealth, status · Service and B2B products o Emphasis on corporate image in global marketing o IBM, airlines, banks · Brands positioned primarily on basis of country of origin o Beer brands such as Heineken, Foster’s, Budweiser o Levi’s o Coke |
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multidomestic strategy high local adaption/low lower costs |
· High emphasis on local adaptation with low emphasis on cost efficiencies o cultural differences inhibit/restrain use without adaptation o consumption patterns are appreciably different o outbound logistics: distribution channels do not mesh with home market distribution · Decentralized subsidiaries operate independently from each other · Adaptation may not be limited only to product but may extend to other activities (e.g., personnel practices) |
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low ownership and control/low investment risk to high ownership and control/high investment risk
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exporting licensing franchising strategic alliance joint venture wholly owned subsidiary |
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transnational strategy high local adaption/high lower costs |
· Tradeoffs of efficiency, local adaptation, learning · High levels of decentralization o Downstream activities more likely to be decentralized o Upstream activities more likely to be centralized · Interdependent divisions may produce components and products for one another |
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Exporting |
producing goods in home market and selling in foreign market · Use of export intermediaries (domestic-based export merchants or agents or export-management companies), local distributors with local knowledge or export department/division or sales branch/subsidiary · Low control over distribution channels/dependence on channel intermediaries |
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licensing and franchising |
long term contractual arrangements granting licensee rights to licensor’s knowledge base in exchange for royalty or licensing fee (franchising – a special form of licensing) · Limits risk while growing revenues, which are normally shared with licensee/franchisee |
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Strategic alliances and joint ventures
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Strategic alliance o Partial ownership in foreign company o Generally smaller in scope than joint venture o Risks: cultural differences may present challenges |
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joint venture |
common ownership with foreign partner firm in local operation · Xerox o Joint venture with Fuji (Japanese film company) to develop Xerox market in Japan o Joint venture with Rank Organisation PLC to develop Xerox market in UK o Xerox later bought out interest of both j/v partners · Nestlé and Coca-Cola collaborated in Japan to distribute hot canned drinks through vending machines o Nestle’s brand names (Nestle and Nestea) and competence in developing and producing soluble beverage products o Coca-Cola’s powerful international distribution and vending machine network |
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wholly owned subsidiaries |
Foreign direct investment/100% ownership of stock · Achieved through acquisition or “greenfield” venture (development of totally new operation from ground up [starting from “green field”]) · Greatest amount of control with greatest amount of investment risk due to capital investment, total ownership, currency fluctuations, changing market conditions, and expropriation · Requires market of considerable size · advantages o Cost savings: less expensive raw materials, investment incentives, lower freight costs o Stronger local image (e.g., through job creation) o Deeper relationships with local stakeholders |
