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© 2000 The McGraw-Hill Companies, Inc.
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Group ExerciseGroup Exercise
For your Case Company:
1. Are there examples of rivals that more closely follow CL, Diff, and Focus?
2. Provide 5 different company examples (hypothetical is ok) of rivals deploying one of the named grand strategies.
1
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Break Out ReportingBreak Out Reporting
Case:
Industry:
Company & Rival Generic Strategy Examples:
Grand Strategy Examples:
2
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Session 12Session 12
Business Strategy:Building Sustainable Competitive
Advantages
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Session Objectives: Three ItemsSession Objectives: Three Items
1.Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage Evaluating Cost
Leadership Opportunities Evaluating Differentiation
Opportunities Evaluating Speed as a
Competitive Advantage Evaluating Market Focus
as a Way to Win Competitive Advantage
2.Selected Industry Environments and Business Strategy Choices Emerging Industries Growth Industries Mature Declining Industries Fragmented Industries Global Industries
3.Dominant Product/Service Businesses: Diversification to Build Value
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Key Issues: Strategic Choice in Single BusinessesKey Issues: Strategic Choice in Single Businesses
1. What strategies are most effective at building sustainable competitive advantages for single business units?
2. When should dominant-product/service businesses diversify to build value and competitive advantage? What grand strategies are most appropriate?
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How should you choose How should you choose among competitive among competitive advantage strategies?advantage strategies?
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Prominent Sources of Competitive AdvantageProminent Sources of Competitive Advantage
Cost leadership
Differentiation
Speed
Market focus
Sources of competitive advantage
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For Each of the Four: CL, Diff, Speed/RR, MFFor Each of the Four: CL, Diff, Speed/RR, MF
Skills and Resource Requirements
Structural/Organizational Requirements
Value Chain Examples
Advantages
Risks
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Evaluating A Business’s Evaluating A Business’s Cost LeadershipCost Leadership Opportunities Opportunities
A. Skills and Resources Fostering Cost Leadership• Sustained capital investment and access to capital• Process engineering skills• Intense supervision of labor or core technical operations• Products or services designed for ease of manufacture or
delivery• Low-cost distribution system
B. Organizational Requirements Supporting Cost Leadership• Tight cost control• Frequent, detailed control reports• Continuous improvement and benchmarking orientation• Structured organization and responsibilities• Incentives based on meeting strict, usually quantitative targets
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Evaluating A Business’s Evaluating A Business’s Cost LeadershipCost Leadership Opportunities -- Opportunities --C. Examples of Ways Businesses Achieve Competitive AdvantageC. Examples of Ways Businesses Achieve Competitive Advantage
Technology development
Process innovations lowering production costs
Product redesign to reduce number of components
Global, online suppliers provide automatic restocking of orders based on sales
Inbound logistics Operations Outbound logistics Marketing & sales
Serv
iceEconomy of
scale in plant reduces equipment costs and depreciation
Computerized routing lowers transportation expense
Cooperative advertising with distributors creates local cost advantage in buying media space and time
Subcontractedservicetechniciansrepairproductcorrectlyfirst timeor bearcosts
Reduced levels of management cuts corporate overhead
Computerized, integrated information system reduces errors and costs
Safety training for all employees reduces absenteeism, downtime, and accidents
Human resource
management
General administration
Favorable long-term contracts; captive suppliers or key customer for supplier Procurement
margin
Profit
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Advantages of a Cost Leadership StrategyAdvantages of a Cost Leadership Strategy
Low-cost advantages reduce likelihood of pricing pressure from buyers
Low-cost advantages reduce likelihood of pricing pressure from buyers
Sustained low-cost advantages may push rivals into other areas, lessening price competition
Sustained low-cost advantages may push rivals into other areas, lessening price competition
New entrants must face an entrenched cost leader without experience to replicate cost advantages
New entrants must face an entrenched cost leader without experience to replicate cost advantages
Low-cost advantages should lessen attractiveness of substitutes
Low-cost advantages should lessen attractiveness of substitutes
Higher margins allow low-cost producers to withstand supplier cost increases
Higher margins allow low-cost producers to withstand supplier cost increases
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Key Risks of Cost LeadershipKey Risks of Cost Leadership
Many cost-saving activities are easily duplicated Many cost-saving activities are easily duplicated
Exclusive cost leadership can become a trapExclusive cost leadership can become a trap
Obsessive cost cutting can shrink other competitive advantages involving key product attributes
Obsessive cost cutting can shrink other competitive advantages involving key product attributes
Cost differences often decline over timeCost differences often decline over time
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Industry Environments and Strategy ChoicesIndustry Environments and Strategy Choices
Emerging IndustriesGrowth IndustriesMature IndustriesDeclining IndustriesFragmented IndustriesGlobal Industries
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For each Industry Environment …For each Industry Environment …24
Characteristics
Strategic Options
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Characteristics of Markets in Emerging IndustriesCharacteristics of Markets in Emerging Industries
Proprietary technology and technological uncertainty
Competitor uncertainty regarding inadequate information
High initial cost structureFew entry barriersFirst-time buyers require initial inducement Inability to easily obtain raw materials and
componentsNeed for high-risk capital
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Strategic Options for Emerging IndustriesStrategic Options for Emerging Industries
1. Ability to shape industry’s structure 1. Ability to shape industry’s structure
2. Ability to rapidly improve product quality 2. Ability to rapidly improve product quality
3. Establish favorable relations with key suppliers 3. Establish favorable relations with key suppliers
4. Ability to establish technology as dominant force 4. Ability to establish technology as dominant force
5. Acquire a core group of loyal customers 5. Acquire a core group of loyal customers
6. Ability to forecast future competitors 6. Ability to forecast future competitors
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Grand Strategy Selection MatrixGrand Strategy Selection Matrix
Overcome weaknesses
Maximize strengths
External (acquisition
or merger for resource
capability)
Internal (redirected resources within the
firm)
Turnaround or retrenchmentDivestitureLiquidation
Vertical integrationConglomerate diversification
Concentrated growthMarket developmentProduct developmentInnovation
Horizontal integrationConcentric diversificationJoint venture
IIIIVIII
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Model of Grand Strategy ClustersModel of Grand Strategy Clusters
Rapid market growth
Slow market growth
Weak competitive
position
Strong competitive
position
1. Concentrated growth
2. Vertical integration3. Concentric
diversification
1. Reformulation of concentrated growth
2. Horizontal integration3. Divestiture4. Liquidation
1. Concentric diversification
2. Conglomerate diversification
3. Joint venture
1. Turnaround or retrenchment2. Concentric diversification3. Conglomerate diversification4. Divestiture5. Liquidation
IIIIIIIV
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Conclusion: Selecting a Business Strategy toConclusion: Selecting a Business Strategy toAchieve a Competitive AdvantageAchieve a Competitive Advantage
Focusing on key sources of competitive advantage requiring
total, consistent commitment
Weighing skills, resources, organizational requirements, and
risks of each source of competitive advantage
Considering unique effects of the generic industry environment on a
firm’s value chain activities
Selection of appropriate business strategie(s) involves