76198137 hoskisson and hitt strategic management all chapters ppt

Chapter 1

Strategic Management and Strategic CompetitivenessMichael A. Hitt R. Duane Ireland Robert E. Hoskisson2003 Southwestern Publishing Company1

Strategic Inputs

Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment

The Strategic Management ProcessStrategy ImplementationChapter 10 Corporate Governance Chapter 11 Organizational Structure and Controls Chapter 13 Strategic Entrepreneurship

Strategy FormulationStrategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 CorporateCorporateLevel Strategy

Chapter 9 Cooperative Strategy

Chapter 12 Strategic Leadership

Strategic Outcomes

Strategic Competitiveness AboveAbove-Average Returns

Feedback

2

Important DefinitionsStrategic Management ProcessThe full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn aboveabove-average returns

3

Important DefinitionsStrategic CompetitivenessAchieved when a firm successfully formulates and implements a value-creating strategy value-

AboveAbove-Average ReturnsOccurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate4

Important DefinitionsRiskAn investors uncertainty about the economic gains or losses that will result from a particular investment

Average ReturnsReturns that are equal to those an investor expects to earn from other investments with a similar amount of risk

5

Competitive LandscapeDynamics of strategic maneuvering among global and innovative combatants Price-quality positioning, new knowhow, first mover Hypercompetitive environments Fundamental nature of competition is changing Protect or invade established product or geographic markets6

Competitive LandscapeEmergence of global economy Goods, services, people, skills, and ideas move freely across geographic borders. Spread of economic innovations around the world. Hypercompetitive environments Fundamental nature of competition is changing Political and cultural adjustments are required.7

Competitive LandscapeEmergence of global economy Rapid technological change Increasing rate of technological change and diffusion The information age Increasing knowledge intensity Hypercompetitive environments Fundamental nature of competition is changing

8

Strategic FlexibilityA set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment It involves coping with uncertainty and the accompanying risks

9

Strategic FlexibilityOrganizational slack

Strategic reorientation

Strategic Flexibility flexibility

Capacity to learn10

I/O Model of Above-Average Returns Above1. External Environments GeneralGlobal

Industry Environment

1. Strategy dictated by the external environments of the firm (what opportunities exist in these environments?) 2. Firm develops internal skills required by external environment (what can the firm do about the opportunities?)11

Competitor EnvironmentTechnological

Environment

Four Assumptions of the I/O Model1. The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns above2. Most firms competing within a particular or within a certain segment of it are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources12

Four Assumptions of the I/O Model3. Resources used to implement strategies are highly mobile across firms 4. Organizational decision makers are assumed to be rational and committed to acting in the firms best interests, as shown by their profit-maximizing profitbehaviors

13

I/O Model of Above-Average Returns AboveIndustrial Organization ModelThe External Environment 1. Study the external environment, especially the industry environment economies of scale barriers to market entry diversification product differentiation degree of concentration of firms in the industry

14

I/O Model of Above-Average Returns AboveIndustrial Organization ModelThe External Environment An Attractive Industry 2. Locate an attractive industry with a high potential for aboveabove-average returns Attractive industry: one whose structural characteristics suggest above-average returns above-

15

I/O Model of Above-Average Returns AboveIndustrial Organization ModelThe External Environment An Attractive Industry Strategy Formulation Strategy formulation: selection of a strategy linked with aboveabove-average returns in a particular industry 3. Identify the strategy called for by the attractive industry to earn above-average returns above-

16

I/O Model of Above-Average Returns AboveIndustrial Organization ModelThe External Environment An Attractive Industry Strategy Formulation Assets and Skills Assets and skills: those assets and skills required to implement a chosen strategy17

4. Develop or acquire assets and skills needed to implement the strategy

I/O Model of Above-Average Returns AboveIndustrial Organization ModelThe External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Strategy implementation: select strategic actions linked with effective implementation of the 18 chosen strategy 5. Use the firms strengths (its developed or acquired assets and skills) to implement the strategy

I/O Model of Above-Average Returns AboveIndustrial Organization ModelThe External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns19

Superior returns: earning of above-average returns

ResourceResource-based Model of Above Average Returns1. Firms Resources

1. Strategy dictated by unique resources and capabilities of the firm (what can the firm do best?) 2. Find an environment in which to exploit these assets (where are the best opportunities?)20

ResourceResource-based Model of Above Average ReturnsResourceResource-based ModelResources 1. Identify the firms resources-resources-strengths and weaknesses compared with competitors Resources: inputs into a firms production process

21

ResourceResource-based Model of Above Average ReturnsResourceResource-based ModelResources Capability 2. Determine the firms capabilities--what capabilities--what it can do better than its competitors Capability: capacity of an integrated set of resources to integratively perform a task or activity

22

Four Attributes of Resources and Capabilities (Competitive Advantage)ValuableResources and Capabilities allow the firm to exploit opportunities or neutralize threats in its external environment possessed by few, if any, current and potential competitors when other firms cannot obtain them or must obtain them at a much higher cost the firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage23

Rare Costly to imitate Nonsubstitutable

Resources and capabilities that meetthese four criteria become a source of:ValuableResources and Capabilities

Rare Costly to imitate Nonsubstitutable

Core Competencies

24

Core Competencies are the basis for afirmsCompetitive advantage Strategic competitiveness Ability to earn aboveabove-average returns25

Core Competencies

ResourceResource-based Model of Above Average ReturnsResourceResource-based ModelResources Capability Competitive Advantage Competitive advantage: ability of a firm to outperform its rivals 3. Determine the potential of the firms resources and capabilities in terms of a competitive advantage

26

ResourceResource-based Model of Above Average ReturnsResourceResource-based ModelResources Capability Competitive Advantage An Attractive Industry An attractive industry: an industry with opportunities that can be exploited by the firms resources and capabilities27

4. Locate an attractive industry

ResourceResource-based Model of Above Average ReturnsResourceResource-based ModelResources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Strategy formulation and implementation: strategic actions taken to earn above average returns 5. Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment

28

ResourceResource-based Model of Above Average ReturnsResourceResource-based ModelResources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Superior Returns29

Superior returns: earning of above-average returns above-

Strategic Intent & Mission

Strategic Intent

Winning competitive battles through deciding how to leverage internal resources, capabilities, and core competencies An application of strategic intent in terms of products to be offered and markets to be served

Strategic Mission

30

The Firm and Its StakeholdersStakeholdersGroups who are affected by a The firm must maintain firms performance and who performance at an adequate have claims on its wealth level in order to retain the participation of key stakeholders

31

The Firm and Its StakeholdersStakeholdersCapital Market Stakeholders Shareholders Major suppliers of capital Banks Private lenders Venture capitalists

32

The Firm and Its StakeholdersStakeholdersCapital Market Stakeholders Primary customers Suppliers Host communities Unions

Product Market Stakeholders

33

The Firm and Its StakeholdersStakeholdersCapital Market Stakeholders

Product Market Stakeholders Employees Managers Nonmanagers34

Organizational Stakeholders

Stakeholder InvolvementTwo issues affect the extent of stakeholder involvement in the firmOrganizational

Capital Market

1How do you divide the returns to keep stakeholders involved? Product Market

35

Stakeholder InvolvementTwo issues affect the extent of stakeholder involvement in the firmOrganizational

Capital Market

2How do you increase the returns so everyone has more to share? Product Market

36

Chapter 2

The External Environment: Opportunities, Threats, and Industry Competition, and Competitor AnalysisMichael A. Hitt R. Duane Ireland Robert E. Hoskisson2003 Southwestern Publishing Company37

Strategic Inputs






Strategic Outcomes


Feedback

38

The External Environment EnvironmentSociocultural Industry Environment Threat of new entrants Power of suppliers Power of buyers Product substitutes Intensity of rivalry Competitor Environment

Technological

General

39

External Environmental AnalysisA continuous process which includes

Scanning: Identifying early signals of environmental changes and trends Monitoring: Detecting meaning through ongoing observations of environmental changes and trends Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends Assessing: Determining the timing and importance of environmental changes and trends for firms strategies and their management40

External Environmental AnalysisAnalysis of general environment Analysis of industry environment Analysis of competitor environment

The External Environment Strategic Intent Strategic Mission41

General Environment

Sociocultural segment

Women in the workplace Workforce diversity Attitudes about quality of worklife Concerns about environment Shifts in work and career preferences Shifts in product and service preferences

42

General Environment

Economic segmentInflation rates Interest rates Trade deficits or surpluses Budget deficits or surpluses Personal savings rate Business savings rates Gross domestic product

43

General Environment

Political/Legal Segment

Antitrust laws Taxation laws Deregulation philosophies Labor training laws Educational philosophies and policies

44

General Environment

Technological Segment

Product innovations Applications of knowledge Focus of private and government-supported governmentR&D expenditures New communication technologies

45

General Environment Important political events Global SegmentCritical global markets Newly industrialize countries Different cultural and institutional attributes

46

General Environment

Demographic SegmentPopulation size Age structure Geographic distribution Ethnic mix Income distribution

47

Industry EnvironmentA set of factors that directly influences a company and its competitive actions and responses. Interaction among these factors determine an industrys profit potential.

Threat of new entrants Power of suppliers Power of buyers Product substitutes Intensity of rivalry48

Five Forces Model of Competition

Identify current and potential competitors and determine which firms serve them. Conduct competitive analysis. Recognize that suppliers and buyers can become competitors. Recognize that producers of potential substitutes may become competitors.

49

Five Forces Model of Competition

Five Forces of Competition

Bargaining Power of Buyers

50

Threat of New Entrants

Barriers to entry

Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Government policy Expected retaliation51

Bargaining Power of Suppliers it is dominated by a few powerful when: A supplier group is large companies

satisfactory substitute products are not available to industry firms industry firms are not a significant customer for the supplier group suppliers goods are critical to buyers marketplace success effectiveness of suppliers products has created high switching costs suppliers are a credible threat to integrate forward into the buyers industry 52

Bargaining Power of Buyers

Buyers (customers) are powerful when: they purchase a large portion of an industrystotal output the sales of the product being purchased account for a significant portion of the sellers annual revenues they could easily switch to another product the industrys products are undifferentiated or standardized, and buyers pose a credible threat if they were to integrate backward into the sellers industry 53

Threat of Substitute Products

Product substitutes are strong threat when: customers face few switching costssubstitute products price is lower substitute products quality and performance capabilities are equal to or greater than those of the competing product

54

Intensity of Rivalry

Intensity of rivalry is stronger when competitors: are numerous or equally balanced

experience slow industry growth have high fixed costs or high storage costs lack differentiation or low switching costs experience high strategic stakes have high exit barriers

55

High Exit Barriers specialized assets (assets with values linked to Common exit barriers include:

a particular business or location) fixed costs of exit such as labor agreements strategic interrelationships (relationships of mutual dependence between one business and other parts of a companys operation, such as shared facilities and access to financial markets) emotional barriers (career concerns, loyalty to employees, etc.) government and social restrictions56

Strategic GroupsStrategic group: a group of firms in an industry following the same or similar strategy along the same strategic dimensions. The strategy followed by a strategic group differs from strategies being implemented by other companies in the industry.57

Competitor Environment

Competitor intelligence is the ethical gathering of needed information and data about competitors objectives, strategies, assumptions, and capabilitieswhat drives the competitor as shown by its future objectives what the competitor is doing and can do as revealed by its current strategy What the competitor believes about itself and the industry, as shown by its assumptions What the the competitor may be able to do, as 58 shown by its capabilities

Competitor AnalysisFuture objectives

Future Objectives: How do our goals compare

with our competitors goals? Where will the emphasis be placed in the future? What is the attitude toward risk?

59


Current Strategy: How are we currently

Current strategy

competing? Does this strategy support changes in the competitive structure?

60


Assumptions: future Do we assume the

Current strategy

Assumptions

will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves?

61


Capabilities: What are our strengths

Current strategy

and weaknesses? How do we rate compared to our competitors?

Assumptions

Capabilities62

Competitor AnalysisFuture objectives Response

Current strategy

Response:What will our competitors do in the future? Where do we hold an advantage over our competitors? How will this change our relationship with our competitors? 63

Assumptions

Capabilities

Chapter 3

The Internal Environment: Resources, Capabilities and Core CompetenceMichael A. Hitt R. Duane Ireland Robert E. Hoskisson2003 Southwestern Publishing Company64

Strategic Inputs






Strategic Outcomes


Feedback

65

Sustainability of a Competitive Advantage

Sustainability of a competitive advantage is a function of: the rate of core-competence obsolescence due coreto environmental changes the availability of substitutes for the core competence the imitability of the core competence

66

External and Internal AnalysesEnvironment Sociocultural Industry Environment

By studying the external environment, firms identify what they might choose to do

Opportunities and threatsCompetitor Environment Technological General67

External and Internal AnalysesBy studying the internal environment, firms identify what they can do Unique resources, capabilities, and core competencies (sustainable competitive advantage)68

Challenge of Internal Analysis

How do we effectively manage current core competencies while simultaneously developing new ones? How do we assemble bundles of resources, capabilities and core competencies to create value for customers? How do we learn to change rapidly?

69

Three Conditions Affecting Managerial Decisions About Resources, Capabilities, and Core Competencies

Uncertainty regarding characteristics of thegeneral and the industry environments, competitors actions, and customers preferences

Complexity regarding the interrelated causesshaping a firms environments and perceptions of the environments

Intraorganizational Conflicts amongpeople making managerial decisions and those affected by them70

Components of Internal AnalysisCore Competencies Capabilities Resources Tangible Intangible Four Criteria of Sustainable Advantages Valuable Rare Costly to Imitate Nonsubstitutable Discovering Core Competencies

Strategic Competitiveness Competitive Advantage

Value Chain Analysis

Outsource

71

Discovering Core Competencies

Resources Tangible Intangible

Resources are what a firm has to work with--its assets-with--its assets-including its people and the value of its brand name

Resources represent inputs into a firms production process... such as capital equipment, skills of employees, brand names, finances and talented managers72


Resources Tangible Intangible

Tangible Resources Financial Physical Human resources Organizational

Intangible Resources Technological Innovation Reputation

73


Capabilities

Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage

74


Capabilities

Capabilities are what a firm does, and represent the firms capacity or ability to integrate individual firm resources to achieve a desired objective

75


Core Competencies

Core competencies are resources and capabilities that serve as a source of competitive advantage over rivals Core competencies distinguish a company competitively and make it distinctive McKinsey and Co. recommends using three to four competencies when framing strategic actions76

Discovering Core Competencies Four Criteria of Sustainable Advantages Valuable Rare Costly to Imitate Nonsubstitutable

Valuable: Capabilities that help a firm neutralize threats or exploit opportunities

77


Rare: Capabilities that are not possessed by many others

78


Costly to imitate: capabilities that other firms cannot develop easily, usually due to Unique historical conditions Causal ambiguity Social complexity79


Nonsubstitutable: capabilities that do not have strategic equivalents Invisible to competitors Firm specific knowledge Trust-based working relationships between managers Trustand nonmanagerial personnel

80

Core Competence as a Strategic CapabilityResources Inputs to a firms production process Core Competence A strategic capabilityDoes it satisfy the criteria of sustainable competitive advantage?

The source of

Capability An integration of a team of resources

Yes

No

Capability A nonstrategic team or resource 81

Performance ImplicationsCompetitive ConsequencesNo Yes No No No No Competitive Disadvantage Competitive Parity Temporary ComCompetitive Advantage Sustainable ComCompetitive Advantage

Performance ImplicationsBelow Average Returns Average Returns Above Average to Average Returns Above Average Returns

Yes/ No No Yes/ No

Yes

Yes No

Yes

Yes Yes

Yes

82

The Basic Value ChainTechnological Development Human Resource Mgmt.

Firm Infrastructure

Support Activities

Service Marketing & Sales Procurement Outbound Logistics Operations Inbound Logistics Primary Activities83

OutsourcingTechnological Development

Human Resource Mgmt.

Support Activities

Firm Infrastructure

Outsourcing is the purchase of some or all of a valuevaluecreating activity from an external supplier Usually this is because the specialty supplier can provide these functions more efficiently

Service Procurement Marketing & Sales Outbound Logistics Operations Inbound Logistics84 Primary Activities

Strategic Rationales for Outsourcing

Improve Business Focus lets company focus on broader business issues by having outside experts handle various operational details

Provide Access to World-Class WorldCapabilities the specialized resources of outsourcing providers makes world-class capabilities worldavailable to firms in a wide range of applications85


Accelerate Business Re-Engineering ReBenefits achieves re-engineering benefits more quickly reby having outsiders--who have already outsiders--who achieved world-class standards--take over worldstandards--take process

Share Risks reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities86


Free Resources for Other Purposes permits firm to redirect efforts from non-core nonactivities toward those that serve customers more effectively

87

Outsourcing Issues

Greatest Value outsource only to firms possessing a core competence in terms of performing the primary or support activity being outsourced

Evaluating Resources and Capabilities dont outsource activities in which the firm itself can create and capture value

Environmental Threats and Ongoing Tasks do not outsource primary and support activities that are used to neutralize environmental threats or complete necessary ongoing 88 organizational tasks

Outsourcing Issues

Nonstrategic Team of Resources do not outsource capabilities that are critical to their success, even though the capabilities are not actual sources of competitive advantage

Firms Knowledge Base do not outsource activities that stimulate the development of new capabilities and competencies

89

Core Competencies: Cautions and Reminders

Never take for granted that core competencies will continue to provide a source of competitive advantage All core competencies have the potential to become core rigidities Core rigidities are former core competencies that now generate inertia and stifle innovation

90

Chapter 4

BusinessBusiness-Level Strategy

Michael A. Hitt R. Duane Ireland Robert E. Hoskisson2003 Southwestern Publishing Company91

Strategic Inputs



Strategy FormulationStrategic Actions Chapter 4 BusinessBusiness-Level Strategy


Strategic Outcomes


Feedback

92

BusinessBusiness-Level StrategyBusinessBusiness-level strategy: an integrated and strategy: coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets

93

Core Competencies and StrategyCore competencies The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets 94

Strategy

BusinessBusiness-level strategy

Key Issues of Business-Level BusinessStrategy

What good or service to offer customers How to manufacture or create the good or service How to distribute the good or service in the marketplace

95

The Central Role of CustomersIn selecting a business-level businessstrategy, the firm determines1. who it will serve 2. what needs those target customers have that it will satisfy 3. how those needs will be satisfied

96

Managing Relationships With Customers

Customer relationships are strengthened by offering them superior value help customers to develop a new competitive advantage enhance the value of existing competitive advantages

97

Managing Relationships With CustomersEstablish a competitive advantage along these dimensions: Reach

the firms access and connection to customers

Richness the depth and detail of the two-way flow of twoinformation between the firm and customers

Affiliation facilitating useful interactions with customers98

Market Segmentation

Consumer Markets

Customers

Industrial Markets

99

Market Segmentation: Consumer MarketsDemographic factorsPer. Dem.

Socioeconomic factors Geographic factors Psychological factors Consumption patterns Perceptual factors100

Consumer Con. Soc. MarketsPsy. Geo.

Market Segmentation: Industrial MarketsEndEnd-use segments Product segments Geographic segments Common buying factor segments Customer size segmentsSize End

Industrial Buy.Markets Pro.Geo.

101

Types of Business-Level Strategies Business

BusinessBusiness-level strategies are intended to create differences between the firms position relative to those of its rivals To position itself, the firm must decide whether it intends to perform activities differently or to perform different activities as compared to its rivals

102

Five Generic StrategiesCompetitive AdvantageCost Uniqueness Differentiation Cost Leadership

Competitive Scope

Broad target

Integrated Cost Leadership/ Differentiation Narrow target

Focused Cost Leadership

Focused Differentiation

103

Cost Leadership StrategyAn integrated set of actions designed to produce or deliver goods or services at the lowest cost, relative to competitors with cost, features that are acceptable to customers relatively standardized products features acceptable to many customers lowest competitive price

104

Cost Leadership StrategyCost 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 processes105

How to Obtain a Cost AdvantageDetermine and control Reconfigure, if needed

Cost Drivers Alter production process Change in automation New distribution channel New advertising media Direct sales in place of indirect sales

Value Chain New raw material Forward integration Backward integration Change location relative to suppliers or buyers106

Factors That Drive CostsEconomies of scale Asset utilization Capacity utilization pattern Seasonal, cyclical Interrelationships Order processing and distribution Value chain linkages Advertising & sales Logistics & operations

Product features Performance Mix & variety of products Service levels Small vs. large buyers Process technology Wage levels Product features Hiring, training, motivation107

Questions Leading to Lower Costs1. How can an activity be performed differently or even eliminated? 2. How can a group of linked value activities be regrouped or reordered? 3. How might coalitions with other firms lower or eliminate costs?

108

Cost Leadership Strategy and the Five Forces of CompetitionRivalry Among Competing FirmsFive Forces of CompetitionBargaining Power of Suppliers

Can use cost leadership strategy to advantage since: competitors avoid price wars with cost leaders, creating higher profits for the entire industry

109

Cost Leadership Strategy and the Five Forces of CompetitionBargaining Power of BuyersFive Forces of CompetitionBargaining Power of Suppliers

Can mitigate buyers power by: driving prices far below competitors, causing them to exit and shifting power with buyers back to the firm

110

Cost Leadership Strategy and the Five Forces of CompetitionBargaining Power of SuppliersFive Forces of CompetitionBargaining Power of Suppliers

Can mitigate suppliers power by: being able to absorb cost increases due to low cost position being able to make very large purchases, reducing chance of supplier using power111

Cost Leadership Strategy and the Five Forces of CompetitionThreat of New EntrantsFive Forces of CompetitionBargaining Power of Suppliers

Can frighten off new entrants due to: their need to enter on a large scale in order to be cost competitive the time it takes to move down the learning curve

112

Cost Leadership Strategy and the Five Forces of CompetitionThreat of Substitute ProductsFive Forces of CompetitionBargaining Power of Suppliers

Cost leader is well positioned to: make investments to be first to create substitutes buy patents developed by potential substitutes lower prices in order to maintain value position113

Major Risks of Cost Leadership Strategy

Dramatic technological change could take away your cost advantage Competitors may learn how to imitate value chain Focus on efficiency could cause cost leader to overlook changes in customer preferences

114

Differentiation StrategyAn integrated set of actions designed by a firm to produce or deliver goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them price for product can exceed what the firms target customers are willing to pay nonstandardized products customers value differentiated features more than they value low cost115

Differentiation Strategy

Value provided by unique features and value characteristics Command premium price High customer service Superior quality Prestige or exclusivity Rapid innovation

116

Differentiation StrategyDifferentiation actions required by this strategy: developing new systems and processes shaping perceptions through advertising quality focus capability in R&D maximize human resource contributions through low turnover and high motivation 117

How to Obtain a Differentiation AdvantageControl if needed Reconfigure to maximize

Cost Drivers

Value Chain

Lower buyers costs Raise performance of product or service Create sustainability through: customer perceptions of uniqueness customer reluctance to switch to non-unique product non118

Factors That Drive Differentiation

Unique product features Unique product performance Exceptional services New technologies Quality of inputs Exceptional skill or experience Detailed information

119

Differentiation Strategy and the Five Forces of CompetitionRivalry Among Competing FirmsFive Forces of CompetitionBargaining Power of Suppliers

Can defend against competition because: brand loyalty to differentiated product offsets price competition

120

Differentiation Strategy and the Five Forces of CompetitionBargaining Power of BuyersFive Forces of CompetitionBargaining Power of Suppliers

Can mitigate buyer power because: well differentiated products reduce customer sensitivity to price increases

121

Differentiation Strategy and the Five Forces of CompetitionBargaining Power of SuppliersFive Forces of CompetitionBargaining Power of Suppliers

Can mitigate suppliers power by: absorbing price increases due to higher margins passing along higher supplier prices because buyers are loyal to differentiated brand122

Differentiation Strategy and the Five Forces of CompetitionThreat of New EntrantsFive Forces of CompetitionBargaining Power of Suppliers

Can defend against new entrants because: new products must surpass proven products or, new products must be at least equal to performance of proven products, but offered at lower prices123

Differentiation Strategy and the Five Forces of CompetitionThreat of Substitute ProductsFive Forces of CompetitionBargaining Power of Suppliers

Well positioned relative to substitutes because: brand loyalty to a differentiated product tends to reduce customers testing of new products or switching brands124

Major Risks of Differentiation Strategy

Customers may decide that the price differential between the differentiated product and the cost leaders product is too large Means of differentiation may cease to provide value for which customers are willing to pay

125

Major Risks of Differentiation Strategy

Experience may narrow customers perceptions of the value of differentiated features of the firms products Makers of counterfeit goods may attempt to replicate differentiated features of the firms products

126

Focused Business-Level Strategies BusinessA focus strategy must exploit a narrow targets differences from the balance of the industry by: isolating a particular buyer group isolating a unique segment of a product line concentrating on a particular geographic market finding their niche127

Factors That May Drive Focused Strategies

Large firms may overlook small niches Firm may lack resources to compete in the broader market May be able to serve a narrow market segment more effectively than can larger industryindustry-wide competitors Focus may allow the firm to direct resources to certain value chain activities to build competitive advantage128

Major Risks of Focused Strategies

Firm may be outfocused by competitors Large competitor may set its sights on your niche market Preferences of niche market may change to match those of broad market

129

Advantages of Integrated StrategyA 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 rivals130

Benefits of Integrated Strategy

Successful firms using this strategy have aboveabove-average returns Firm offers two types of values to customers some differentiated features (but less than a true differentiated firm) relatively low cost (but now as low as the cost leaders price)131

Major Risks of Integrated Strategy

An integrated cost/differentiation business level strategy often involves compromises (neither the lowest cost nor the most differentiated firm) The firm may become stuck in the middle lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy132

Chapter 5

Competitive Rivalry and Competitive DynamicsMichael A. Hitt R. Duane Ireland Robert E. Hoskisson2003 Southwestern Publishing Company133

Strategic Inputs



Strategy FormulationStrategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics


Strategic Outcomes


Feedback

134

Definitions

Competitors firms operating in the same market, offering similar products and targeting similar customers

Competitive rivalry the ongoing set of competitive actions and responses occurring between competitors competitive rivalry influences an individual firms ability to gain and sustain competitive advantages135

Definitions

Competitive behavior the set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position

Competitive dynamics the total set of actions and responses taken by all firms competing within a market

136

From Competitors to Competitive DynamicsCompetitors Engage in Competitive rivalry What results? Why? To gain an advantageous market position Through competitive behavior Competitive actions Competitive responses What results? Competitive Dynamics Competitive actions and responses taken by all firms competing in a market

How?

137

Effect of Competitive Rivalry on a Firms Strategies

Success of a strategy is determined by: the firms initial competitive actions how well it anticipates competitors responses to them how well the firm anticipates and responds to its competitors initial actions

Competitive rivalry affects all types of strategies most dominant influence is on the firms businessbusiness-level strategy or strategies.138

A Model of Competitive RivalryCompetitive Analysis Market commonality Resource similarity feedback Outcomes Market position Financial performance

Drivers of Competitive Behavior Awareness Motivation Ability

Interim Rivalry Likelihood of Attack First mover incentives Organizational size Quality Likelihood of Response Type of competitive action Reputation Market dependence 139

Competitive Rivalry

Firms are mutually interdependent one firms competitive actions have noticeable effects on competitors one firms competitive actions elicit competitive responses from competitors competitors feel each others actions and responses

Marketplace success is a function of both individual strategies and the consequences of their use140

Competitor Analysis

Competitor analysis a technique firms use to understand their competitive environment. Along with the general and industry environments, the competitive environment comprises the firms external environment a technique used to help the firm understand its competitors the first step to being able to predict competitors behavior in the form of its competitive actions and responses141

Market Commonality

Market Commonality is concerned with the number of markets with which a firm and a competitor are jointly involved the degree of importance of the individual markets to each competitor

Most industries markets are somewhat related in terms of technologies core competencies

Multimarket competition Firms competing in several markets142

Resource Similarity

Resource similarity the extent to which the firms tangible and intangible resources are comparable to a competitors in terms of both type and amount

Firms with similar types and amounts of resources are likely to have similar strengths and weaknesses use similar strategies

Assessing resource similarity can be difficult if critical resources are intangible 143 rather than tangible

A Framework of Competitor AnalysisHigh Market Commonality Low KEYThe shaded area represents degree of market commonality between two firms Resource endowment A Resource endowment B144

II I III IV

Low

Resource Similarity

High

Drivers of Competitive Actions and Responses: AwarenessDrivers of competitive behavior

Awareness

Awareness is the extent to which competitors recognize the degree of their mutual interdependence mutual interdependence results from market commonality resource similarity

145

Drivers of Competitive Actions and Responses: MotivationDrivers of competitive behavior

Awareness Motivation

Motivation concerns the firms incentive to take action or to respond to a competitors attack and relates to perceived gains and losses

146

Drivers of Competitive Actions and Responses: AbilityDrivers of competitive behaviorAwareness Motivation Ability Ability relates to each firms resources the flexibility these resources provide Without available resources the firm lacks the ability to attack a competitor to respond to the competitors actions

147

Drivers of Competitive Actions and Responses: Market CommonalityDrivers of competitive behavior influenced byMarket commonality A firm is more likely to attack the rival with whom it has low market commonality than the one with whom it competes in multiple markets Because of the high stakes of competition under the condition of market commonality, there is a high probability that the attacked firm will respond to its competitors action in an effort to protect its position in one or more markets

148

Drivers of Competitive Actions and Responses: Resource SimilarityDrivers of competitive behavior influenced byMarket commonality Resource similarity The greater the resource imbalance between the acting firm and competitors or potential responders, the greater will be the delay in response by the firm with a resource disadvantage When facing competitors with greater resources or more attractive market positions, firms should eventually respond, no matter how challenging the response

149

Competitive Rivalry

Competitive action a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position

Competitive response a strategic or tactical action the firm takes to counter the effects of a competitors competitive action

150

Strategic and Tactical Actions

Strategic action or a strategic response a market-based move that involves a marketsignificant commitment of organizational resources and is difficult to implement and reverse

Tactical action or a tactical response market-based move that is taken to fine-tune a marketfinestrategy; it involves fewer resources and is relatively easy to implement and reverse

151

Factors Affecting Likelihood of Attack: First Mover IncentivesFirst mover incentives First movers allocate funds for product innovation and development aggressive advertising advanced research and development First movers can gain the loyalty of customers who may become committed to the firms goods or services market share that can be difficult for competitors to take during 152 future competitive rivalry

Factors Affecting Likelihood of Attack: SizeFirst mover incentives Size Small firms are more likely to launch competitive actions to be quicker in doing so Small firms are perceived as nimble and flexible competitors relying on speed and surprise to defend their competitive advantages or develop new ones while engaged in competitive rivalry Small firms have the flexibility needed to launch a greater variety of 153 competitive actions

Factors Affecting Likelihood of Attack: SizeFirst mover incentives Size Large firms are likely to initiate more competitive actions as well as strategic actions during a given time period Large organizations commonly have the slack resources required to launch a larger number of total competitive actions

Think and act big and well get smaller. Think andact small and well get bigger. - Herb Kelleher,Former CEO, Southwest Airlines154

Factors Affecting Likelihood of Attack: QualityFirst mover incentives Size Quality Quality exists when the firms goods or services meet or exceed customers expectations Product quality dimensions include

Performance Features Flexibility Durability Conformance Serviceability Aesthetics Perceived quality155

Factors Affecting Likelihood of Attack: QualityFirst mover incentives Size Quality Quality exists when the firms goods or services meet or exceed customers expectations Service quality dimensions include

Timeliness Courtesy Consistency Convenience Completeness Accuracy

156

Factors Affecting Likelihood of Response

Firms study three factors to predict how a competitor is likely to respond to competitive actions type of competitive action reputation market dependence

157

Factors Affecting Likelihood of Response: Type of Competitive ActionType of competitive action

Strategic actions receive strategic responses Tactical responses are taken to counter the effects of tactical actions Strategic actions elicit fewer total competitive responses A competitor likely will respond quickly to a tactical action The time needed to implement and assess a strategic action delays competitors responses158

Factors Affecting Likelihood of Response: ReputationType of competitive action Reputation An actor is the firm taking an action or response Reputation is the positive or negative attribute ascribed by one rival to another based on past competitive behavior The firm studies responses that a competitor has taken previously when attacked to predict likely responses

159

Factors Affecting Likelihood of Response: Market DependenceType of competitive action Reputation Market dependence Market dependence is the extent to which a firms revenues or profits are derived from a particular market In general, firms can predict that competitors with high market dependence are likely to respond strongly to attacks threatening their market position

160

Competition

Competitive Dynamics competitive dynamics concerns the ongoing actions and responses taking place among all firms competing within a market for advantageous positions

Competitive Rivalry building and sustaining competitive advantages are at the core of competitive rivalry competitive advantages are the link to an advantageous market position161

Strategic Conduct is Dynamic A firms strategic conduct is dynamic in nature Actions and responses shape the competitive positions of each firms business level strategy

Firm A

Firm B

162

Strategic Conduct is Dynamic Actions taken by one firm elicits responses from competitors Competitive responses lead to additional actions from the firm that acted originallyActions New Actions New Response Response

Firm A

Firm B

163

Competitive Dynamics:SlowSlow-Cycle MarketsSlowSlow-cycle markets SlowSlow-cycle markets the firms competitive advantages are shielded from imitation for long periods of time imitation is costly Competitive advantages are sustainable in slow-cycle markets slow A proprietary, one-of-a-kind one-ofcompetitive advantage leads to competitive success in a slow-cycle slowmarket

164

Gradual Erosion of a Sustainable Competitive AdvantageReturns from a Sustainable Competitive Advantage Exploitation

Launch

Counterattack

0

5Time (Years)

10165

Competitive Dynamics:FastFast-Cycle MarketsSlowSlow-cycle markets FastFast-cycle markets FastFast-cycle markets the firms competitive advantages arent shielded from imitation imitation happens quickly and somewhat inexpensively Competitive advantages arent sustainable Competitors use reverse engineering to quickly imitate or improve on the firms products Non-proprietary technology is Nondiffused rapidly

166

Obtaining Temporary Advantages to Create Sustained AdvantageReturns from a Series of Replicable Actions Firm has already moved to next advantage Counterattack

Exploitation Launch

0

5

10Time (Years)

15167

Competitive Dynamics:StandardStandard-Cycle MarketsSlowSlow-cycle markets FastFast-cycle markets StandardStandard-cycle markets StandardStandard-cycle markets the firms competitive advantages may be shielded from imitation imitation is moderately costly Competitive advantages are partially sustainable if the firm is able to continuously upgrade the quality of its competitive advantages Firms seek large market shares gain customer loyalty through brand names 168 carefully control operations

Chapter 6

CorporateCorporate-Level Strategy

Michael A. Hitt R. Duane Ireland Robert E. Hoskisson2003 Southwestern Publishing Company169

Strategic Inputs



Strategy FormulationStrategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 6 CorporateCorporateLevel Strategy


Strategic Outcomes


Feedback

170

Two Levels of StrategyA diversified company has two levels of strategy 1. Business-Level Strategy (Competitive Strategy) BusinessHow to create competitive advantage in each business in which the company competes- low cost - differentiation - focused low cost - focused differentiation - integrated low cost/ differentiation

2. Corporate-Level Strategy (Company-wide Strategy) Corporate(CompanyHow to create value for the corporation as a whole171

Key Questions in Corporate Strategy1. What businesses should the corporation be in? 2. How should the corporate office manage the array of business units? Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts172

Levels and Types of DiversificationLow Levels of DiversificationSingle Business> 95% of business from a single 95% business unit

Dominant BusinessBetween 70 and 95% of business from a single business unit

173

Levels and Types of DiversificationModerate to High Levels of DiversificationRelated Constrained

76198137 hoskisson and hitt strategic management all chapters ppt

Documents