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- Business-Level .Strategy
- Generic. Busi-
Requires .a .choice .- .how .to .overcome .the .five .forces .and .achieve .competitive
. advantage?
Cost .Leadership ness-Level .Strate-. Ditterentiation gies
- Cost .Leadership .Strategy
- Differentiation .Strategy
Focus
Creating .a .low-cost .position .relative .to .a .firm's .peers. Managing .relationships .throughout .the .entire .value .chain .to .lower .costs.
Products .and/or .services .that .are .unique .and .valued. Emphasis .on .non .price .attributes .for .which .customers .will .gladly .pay .a .premium.
- Focus. Strategy Narrow .product .lines, .buyer .segments, .or .targeted .geographic .markets. Advantages .obtained .either .through .ditterentiation .or .cost .leadership.
- Cost .Leadership .Strategy .Activi- .ties
- Cost .Leadership .Strategy .Pitfalls
Protects .a .firm .against .rivalry .from .competitors. .Protects .the .firm .against .powerful .buyers. Provides .more .flexibility .to .cope .with .demands .from .powerful .suppliers .who .want .to .increase .input .costs. Provides .substantial .entry .barriers .due .to .economies .of .scale .and .cost .advan- .tages. Puts .the .firm .in .a .favorable .position .with .respect .to .substitute .products.
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 .can .be .too .easily .imitated. A .lack .of .parity .in .ditterentiation. .Reduced .flexibility. Obsolescence .of .the .basis .of .a .cost .advantage.
- Creates .higher .entry .barriers .due .to .customer .loyalty. Provides .higher .margins .that .enable .the .firm .to .deal .with .supplier .power.
Differentiation .Strategy .Activities
- Differentiation .Strategy . Pitfalls
- Focus .Strategy .Activities
- Focus .Strategy .Pitfalls
Reduces .buyer .power .because .buyers .lack .suitable .alternatives. .Establishes .customer .loyalty .and .hence .less .threat .from .substitutes.
Uniqueness .that .is .not .valuable. .Too .much .ditterentiation. Too .high .a .price .premium. .Ditterentiation .that .is .easily .imitated. Dilution .of .brand .identification .through .product .line .extensions. .Perceptions .of .ditterentiation .may .vary .between .buyers .and .sellers.
Creates .higher .entry .barriers .due .to .cost .leadership .or .ditterentiation .or .both. .Can .provide .higher .margins .that .enable .the .firm .to .deal .with .supplier .power. .Reduces .buyer .power .because .the .firm .provides .specialized .products .or .services. .Focused .niches .less .vulnerable .to .substitutes.
Erosion .of .cost .advantages .within .the .narrow .segment. Highly .focused .products .and .services .are .still .subject .to .competition .from .new .entrants .and .from .imitation. Focusers .too .focused .to .satisfy .buyer .needs.
- Experience .Curve. Refers .to .how .business ."learns" .to .lower .costs .as .it .gains .experience .with .pro- .duction .processes; .the .decline .in .unit .costs .of .production .as .cumulative .output .increases.
- What .are .the .different .ways .that .companies .can .differentiate .themselves?
- Combination
.Strategy
Integration .of .low-cost .and .ditterentiation .strategies .makes .it .diflcult .for .com- .petitors .to .duplicate .or .imitate .strategy; .the .goal .is .to .provide .unique .value .in .an
. eflcient .manner.
- What .activities .do. Automated .and .flexible .manufacturing .systems .allow .for .mass .customization. companies .ap- .ply .to .effective- .ly .combine .cost .leadership .and .differentiation?
- Combination .Strategy . Risks
- What .is .meant .by ."stuck .in .the .mid- .dle"?
- Industry .Life .Cy- .cle
Data .analytics .allows .firms .to .customize .products .and .services .while .using .re- .sources .eflciently. Exploitation .of .the .profit .pool .concept .creates .a .competitive .advantage. Using .technology, .firms .can .unscale, .relying .on .suppliers .or .customers .to .provide .critical .inputs .to .the .process.
Firms .that .fail .to .attain .both .overall .low-cost .and .ditterentiation .strategies .may .end .up .with .neither .to .become ."stuck .in .the .middle" Firms .can .also .underestimate .the .challenges .and .expenses .associated .with .coor- .dinating .value-creating .activities .in .the .extended .value .chain Firms .can .also .miscalculate .sources .of .revenue .and .profit .pools .in .the .firm's .industry
When .firms .try .to .attain .both .cost .and .ditterentiation .advantages.
The .stages .of .introduction, .growth, .maturity, .and .decline .that .typically .occur .over .the .life .of .an .industry.
- Introduction New .products .that .are .not .known .to .customers Poorly .defined .market .segments .Unspecified .product .features .Low .sales .growth Rapid .technological .change .Operating .losses Need .for .financial .support
- Growth Strong .increases .in .sales .Growing .competition .Developing .brand .recognition Need .for .financing .complementary .VC .activities .such .as .marketing, .sales, .customer .service, .research/development
- Maturity Slowing .demand .growth .Saturated .markets Direct .competition .Price .competition Strategic .emphasis .on .eflcient .operations
- Decline Falling .sales .and .profits .Increasing .price .competition .Industry .consolidation
- Introduction .Strategies
- Growth .Strate- .gies
- Maturity .Strate- .gies
- Decline .Strate- .gies
Develop .a .product .and .get .users .to .try .it Generate .exposure .so .the .product .becomes ."standard"
Create .branded .ditterentiated .products .Stimulate .selective .demand Provide .financial .resources .to .support .value-chain .activities
Create. eflcient. manufacturing. operations Lower .costs .as .customers .become .price-sensitive .Adopt .reverse .or .breakaway .positioning
Maintaining .the .product .position .Harvesting .profits .and .reducing .costs .Exiting .the .market Consolidating .or .acquiring .surviving .firms
- What .does .a .clear. Helps .strategic .leaders .to .pursue .growth .for .the .right .reasons .and .make .better understanding .of. decisions .for .the .firm .and .its .stakeholders; .helps .to .determine .boundaries .of .a these. dimensions. firm. do?
- Key. Motivations (1) .Increase .profitability for .Firms .to .Grow .(2).Lower.costs (3) Increase .market .power (4) Reduce .risk (5) Motivate .management
- Transaction .Costs. All .costs .associated .with .an .economic .exchange; .applying .the .logic .of .transaction .cost .economics .enables .strategic .leaders .to .answer .the .question .of .whether .it .is .cost-ettective .for .their .firm .to .expand .its .boundaries .through .vertical .integration .or .diversification.
- External .Transac- .tion .Costs
Costs .of .searching .for .a .firm .or .an .individual .with .whom .to .contract, .and .then
. negotiating, .monitoring, .and .enforcing .the .contract.
- Transaction .Costs. Costs .pertaining .to .organizing .an .economic .exchange .within .a .hierarchy; .also called .administrative .costs.
- In-house .Costs .< .Market .Costs
- In-house .Costs .> .Market .Costs
- Short-Term .Con- .tracts
Vertically .integrate Own .production .of .the .inputs .& .output .distribution .channels
. The .firm .should .consider .purchasing .instead.
Allow .for .a .somewhat .longer .planning .period .than .individual .market .transactions. .Drawback: .Firms .responding .to .the .RFP .have .no .incentive .to .make .any .transac- .tion-specific .investments .due .to .the .short .duration .of .the .contract. .(i.e. .buying .new .machinery .to .improve .product .quality)
Strategic .Al- .liances
- Parent-Sub- .sidiary .Relationshi p
- Vertical .Integra- .tion
- Backward .Inte- .gration
- Forward .Integra- .tion
Can .facilitate .investments .in .transaction-specific .assets .without .encountering .the
. internal .transaction .costs .involved .in .owning .firms .in .various .stages .of .the .IVC.
By .owning .a .subsidiary, .a .parent .company .can .otter .stock .and .drive .investments .for .their .company .for .just .the .subsidiary .portion .of .their .company. .In .this .way, .they .can .raise .capital .without .incurring .the .risk .of .altering .their .main .company's .stock .value.
The .firm's .ownership .of.its.production .of .needed .inputs.or .of.the .channels.by .which .it .distributes .its .outputs.
A .form .of .vertical .integration .in .which .a .company .expands .its .role .to .fulfill .tasks .formerly .completed .by .businesses .up .the .supply .chain; .when .a .company .buys .another .company .that .supplies .the .products .or .services .needed .for .production. .[i.e. .clothing .manufacturer .buying .a .textile .company .that .produces .the .material .for .their .clothing]
A .form .of .downstream .vertical .integration .whereby .the .company .owns .& .controls
. business .activities .that .are .ahead .in .the .value .chain .of .its .industry, .this .might .include .direct .distribution .or .supply .of .the .company's .products. [i.e. .clothing .manufacturer .that .typically .sells .its .clothes .to .retail .department .stores .opening .its .own .retail .locations]
- Benefits. of. VI Lowering .costs Improving .quality Facilitating .scheduling .& .planning .Facilitating .investments .in .specialized .assets Securing .critical .supplies .& .distribution .channels
- Risks .of .VI Increasing .costs .Reducing .quality .Reducing .flexibility Increasing .the .potential .for .legal .repercussions
Related .Diversifi- .cation
- Unrelated .Diver- .sification .(con- .glomerate)
- How .do .firms .benefit .from .re- .lated .diversifica- .tion?
- Benefit .of .Unre- .lated .Diversifica- .tion
- How .are .internal .capital .markets .a .source .of .value .creation .for .con- .glomerates?
- Existing .Market
- .Existing .Core .Competencie s
- New .Market .- .New .Core .Com- .petencies
- Existing .Market .- .New .Core .Com- .petencies
Obtains .revenues .from .other .lines .of .business .that .are .linked .to .the .primary .business .activity; .derives .<70% .of .its .revenues .from .one .business.
Businesses .share .few, .if .any, .competencies.
The .rationale .is .to .benefit .from .economies .of .scale .& .scope .by .utilizing .resources
. and .leveraging .competencies.
Works .well .in .emerging .economies, .increases .performance .in .weak .financial .contexts .by .greater .external .financial .dependence .and .greater .firm .financial .con-
. straints.
If .the .conglomerate's .HQ .does .a .more .eflcient .job .of .allocating .capital .though .its .budgeting .process .than .what .could .be .achieved .in .external .capital .markets.
Leverage .existing .core .competencies .to .improve .current .market .position
Build .new .core .competencies .to .create .and .compete .in .markets .of .the .future
Build .new .core .competencies .to .protect .and .extend .current .market .position
- New .Market .- .Ex- .isting .Core .Com- .petencies
- Diversification .& .Firm .Perfor- .mance .Relation- .ship
- Diversification .Discount
- Diversification .Premium
Redeploy .and .recombine .existing .core .competencies .to .compete .in .markets .of .the
. future
Situation .in .which .the .stock .price .of .highly .diversified .firms .is .valued .at .less .than
. the .sum .of .their .individual .business .units.
Situation .in .which .the .stock .price .of .related-diversification .firms .is .valued .at .greater .than .the .sum .of .their .individual .business .units.
- Restructuring Reorganizing .and .divesting .business .units .and .activities.
- What .does .re- .structuring .do?
- Boston .Consult- .ing .Group .BCG .Matrix
- Dog .- .Low .Rela-
Helps .refocus .a .company .& .leverage .core .competencies .more .fully.
A .corporate .planning .tool .in .which .the .corporation .is .viewed .as .a .portfolio .of .business .units, .which .are .represented .graphically .along .relative .market .share .and .speed .of .market .growth; .SBUs .are .plotted .into .four .categories, .each .of .which .warrants .a .ditterent .investment .strategy.
Earnings: .Low, .unstable tive .Market .Share .Cashflow: .Neutral .or .negative & .Low .Market .Growth
- Cash .Cow .- .High .Relative .Market
Strategy: .Harvest/divest
Earnings: .High, .stable .Cashflow: .High, .stable Share .& .Low .Mar- .Strategy: .Hold ket .Growth
.a .principal .pursues .his .or .her .own .interests.
- Information .Asymmetry
- Industry .Value .Chain .Stages
- Where .is .back- .ward .integration .located .on .the .IVC?
- Where .is .forward .integration .locat- .ed .on .the .IVC?
- Specialized .As- .sets
Situation .in .which .one .party .is .more .informed .than .an-other .because .of .the .possession .of .private .information.
1 - .Raw .Materials 2 - .Components .& .Intermediate .Goods 3 - .Final .Assembly .& .Manufacturing 4 - .Marketing .& .Sales 5 - .After-Sales .Services .& .Support
.Beginning .- .Stage. 1
End .- .Stage. 5
Unique .assets .with .high .opportunity .cost; .they .have .significantly .more .value .in .their .in-tended .use .than .in .their .next-best .use. .They .come .in .three .types: .site .specificity, .physical-asset .specificity, .and .human-asset .specificity.
- Site .Specificity Assets .required .to .be .co-located, .such .as .the .equipment .necessary .for .mining .bauxite .and .aluminum .smelting.
- Physical-Asset .Specificity
- Human-Asset .Specificity
Assets .whose .physical .and .engineering .properties .are .designed .to .satisfy .a .par- .ticular .customer. .Unique .equipment, .such .as .molds .and .a .specific .production .process, .is .required .to .produce .the .ditterent .and .trademarked .products/packag- .ing.
Investments .made .in .human .capital .to .acquire .unique .knowledge .and .skills, .such .as .mastering .the .routines .and .procedures .of .a .specific .organization, .which .are .not .transferable .to .a .ditterent .employer.
