formulation. formulation overview want to create a sustainable competitive advantage grounded in...
TRANSCRIPT
FormulationFormulation
Formulation OverviewFormulation OverviewWant to create a sustainable competitive advantage
Grounded in current mission, objectives, and strategies
1. Identify rich range of strategic alternatives
2. Balanced evaluation of + and - of alternatives
3. Decide on alternatives to be implemented/recommended
Three Levels of StrategyThree Levels of Strategy
Corporate level strategyCorporate level strategy
Competitive (business level) strategyCompetitive (business level) strategy
Functional strategiesFunctional strategies
… …all need to be consistent and in all need to be consistent and in alignmentalignment
Corporate Level StrategyCorporate Level Strategy
Directional strategy (retrenchment through growth)
Portfolio strategy (what LOB’s for future)
Parenting strategy (allocation of resources + connections)
Directional Growth StrategiesDirectional Growth Strategies
ConcentrationConcentration
– Vertical integrationVertical integration
– Horizontal growthHorizontal growth
DiversificationDiversification
– Related (concentric)Related (concentric)
– Unrelated (conglomerate)Unrelated (conglomerate)
Mergers, acquisitions, strategic alliancesMergers, acquisitions, strategic alliances
Other Directional StrategiesOther Directional Strategies
StabilityStability
RetrenchmentRetrenchment
… …often more appropriate than growthoften more appropriate than growth
strategies, which tend to be overusedstrategies, which tend to be overused
Competitive StrategyCompetitive Strategy
(Sometimes called business level strategy)(Sometimes called business level strategy)
How we will compete within each line of business (LOB) or strategic business unit (SBU)
Porter’s four generic competitive strategies
Variations plus tactics
Generic Competitive StrategiesGeneric Competitive Strategies
Competitive Advantage
Lower cost
Differentiation
Broad Price leadership
Differentiation
Competitive Scope
Narrow Price focus
Differentiation Focus
Competitive AdvantageCompetitive Advantage
A firm’s ability to create value in a way that its A firm’s ability to create value in a way that its rivals cannotrivals cannot
When a firm has the potential to earn a When a firm has the potential to earn a persistently higher rate of profit than its rivalspersistently higher rate of profit than its rivals
Competitive advantage means a lack of Competitive advantage means a lack of equilibrium with rival firmsequilibrium with rival firms
Being distinctively better than rivals on 1-2 Being distinctively better than rivals on 1-2 key success factors usually translates into key success factors usually translates into competitive advantagecompetitive advantage
How does competitive advantage emerge?
External sources ofchange e.g.:•Changing customer demand•Changing prices•Technological change
Internal sources of change
Resource heterogeneity among firms means differential impact
Some firms faster and more effective
in exploiting change
Some firmshave greater creative
and innovativecapability
The Emergence of Competitive AdvantageThe Emergence of Competitive AdvantageThe Emergence of Competitive AdvantageThe Emergence of Competitive Advantage
Competitive Advantage from Competitive Advantage from Responsiveness Responsiveness toto External Change External Change
Any external change creates opportunitiesAny external change creates opportunities
Frequently, speed of response is criticalFrequently, speed of response is critical
Responsiveness requires:Responsiveness requires:
– One key resource: informationOne key resource: information
– One key capability: flexibilityOne key capability: flexibility
For example, Wal-Mart’s purchasing and For example, Wal-Mart’s purchasing and distribution driven by point-of-sale datadistribution driven by point-of-sale data
Competitive Advantage from Internally-Competitive Advantage from Internally-Generated Change: Strategic InnovationGenerated Change: Strategic InnovationCompetitive Advantage from Internally-Competitive Advantage from Internally-Generated Change: Strategic InnovationGenerated Change: Strategic Innovation
Characteristics of innovative strategies:Characteristics of innovative strategies:
– Associated with new entrants to an Associated with new entrants to an industry industry (e.g. IKEA in furniture, Home Depot(e.g. IKEA in furniture, Home Depot, Dell in , Dell in PCsPCs))
– Reconcile conflicting performance goalsReconcile conflicting performance goals (e.g. Toyota’s lean production system combines low (e.g. Toyota’s lean production system combines low cost, high quality, and flexibility)cost, high quality, and flexibility)
– Reconfiguring the value chainReconfiguring the value chain (e.g. Southwest (e.g. Southwest Airlines’ simplification of the normal airline value chain)Airlines’ simplification of the normal airline value chain)
Sustaining Competitive AdvantageSustaining Competitive Advantage
Competitive advantage is subject to Competitive advantage is subject to erosion by competitorserosion by competitors
– ……by imitation or innovationby imitation or innovation
Competitive imitation requires:Competitive imitation requires:
– Identification of a competitive advantageIdentification of a competitive advantage
– Incentive to imitateIncentive to imitate
– Diagnosis of key featuresDiagnosis of key features
– Resource acquisitionResource acquisition
REQUIREMENT FOR IMITATION
Identification - Obscure superior performance
- Deterrence--signal aggressiveIncentives for imitation intentions to imitators
- Pre-emption--exploit all available investment opportunities
- Rely upon multiple sources of Diagnosis competitive advantage to create
“causal ambiguity”
- Base competitive advantage upon Resource acquisition resources and capabilities that are
immobile and difficult to replicate
ISOLATING MECHANISM
Sustaining Competitive Advantage Against ImitationSustaining Competitive Advantage Against ImitationSustaining Competitive Advantage Against ImitationSustaining Competitive Advantage Against Imitation
TRADING MARKETS
• None (efficient markets)• Imperfect information• Transaction costs• Systematic behavioral trends
• Overshooting
NoneInsider tradingCost minimizationSuperior diagnosis(e.g. chart analysis)Contrarianism
PRODUCTION MARKETS
• Barriers to imitation
• Barriers to innovation
Identify potential barriers to imitation (e.g. deterrence, preemption, causal ambiguity, resource immobility, etc.) & base strategy upon them.
Difficult to influence or exploit.
MARKET TYPE
SOURCE OF IMPERFECTION OF
COMPETITION
OPPORTUNITY FOR COMPETITIVE
ADVANTAGE
Competitive Advantage in Different Industry Settings: Competitive Advantage in Different Industry Settings: Trading Trading Markets Markets and Productionand Production Markets Markets
Competitive Advantage in Different Industry Settings: Competitive Advantage in Different Industry Settings: Trading Trading Markets Markets and Productionand Production Markets Markets
Functional Level StrategyFunctional Level Strategy
More localized and shorter-horizon More localized and shorter-horizon
strategiesstrategies
Deal with how each functional area will Deal with how each functional area will
carry out its activities to be effective and carry out its activities to be effective and
maximize resource productivitymaximize resource productivity
Need to ensure that the set of Need to ensure that the set of
recommended strategies recommended strategies
address all the critical issues address all the critical issues
wellwell
International StrategiesInternational StrategiesLicensing
Management contracts
Exporting
Joint ventures, production sharing, subcontract arrangements
Turnkey construction contracts
BOT (build, operate, transfer) contracts
Acquisitions
Green-field development
ImplementationImplementation
ImplementationImplementation
Third stage in strategic management process
Vital, often neglected
Reread notes on implementation
Need a good implementation plan
“Then any path will do” (Cheshire Cat)
“If you don’t know where you’re going, you might wind up somewhere else!” (Yogi Berra)
BUT you have to work with the situation as your implementation proceeds
“Plans get you into things, but you got to work your way out.” (Will Rogers, Jr.)
Any implementation plan needs to answer:
What?
How?
Who?
When?
Where?
Why (are we doing it this way)?
An implementation plan is a An implementation plan is a sequence of action stepssequence of action steps
Action steps in an implementation plan may result from considering:– Basic steps necessary– Resources– Timing– Support– Reward systems– Organization structure– Culture– Tracking & control systems
Some problems in rewarding & Some problems in rewarding & measuring performancemeasuring performance
Lack of valid, measurable objectives
Can’t get timely, valid information
Side effects:
– Short-term orientation
– Goal displacement
Behavior substitution
Suboptimization
Behavior SubstitutionBehavior Substitution