Chapter Five - Crafting Business Strategy doc

1 Chapter Five Crafting Business Strategy 2 OBJECTIVES Define generic strategies and show how they relate to a firm’s strategic position 1 Describe the drivers of low-cost, differentiation, and focus strategic positions 2 Identify and explain the risks associated with each generic strategy position 3 Show how different positions fit with various stages of the industry life cycle 4 Evaluate the quality of the firm’s strategy5 3 JUDO STRATEGY “At its heart, judo strategy is about developing a deep understanding of your competition and the moves that will turn your competitors’ strength to your advantage.” – David Yoffie and Mary Kwak From Judo Strategy 4 THE RACE TO THE FUTURE IS ON Companies can be classified as: Drivers Passengers Road Kill Which will get to the future first? 5 STRATEGIC POSITIONING SHOULD IMPROVE PROFITABILITY Where managers of a company situate that company relative to it’s rivals along important competitive dimensions Definition Purpose To reduce the effects of rivalry and thereby improve profitability 6 No advantage over rivals Advantage over rivals Low-cost Differentiation Description Produce an essentially equivalent product at a lower cost Produce a differentiated product and charge suffici- ently higher prices to more than off-set the added costs of differentiation A FIRM CAN GAIN ADVANTAGE OVER RIVALS IN TWO WAYS 7 Adapted from poster, M.1980. Competitive strategy, 1980. Low-cost Differentiation Strategic advantage Strategic target Narrow (i.e., particular segment only) Broad (i.e., industry wide) Broad differentiation Focused cost leadership Focused differentiation Broad low-cost leadership THE STRATEGIC POSITIONING MODEL 8 LOW-COST LEADERSHIP AND DIFFERENTIATION OFFER GREATER MARKET SHARE AND/OR PROFITS Examples Benefits Low-cost leadership Differentiation • Pacific Cycle • Gallo Wines • Wal-Mart • Southwest Airlines • Home Depot • Trek Bicycles • Coca-Cola and Pepsi • Mercedez Benz • Honda, Yamaha, and Suzuki motorcycles • Stouffers (frozen foods) • Capture market share by offering lower-price or • Earn higher by maintaining price parity • Capture market share by offering higher quality at same price or • Earn higher margins by raising prices over competitors 9 Low-cost Differentiation Strategic advantage Strategic target Narrow Broad • Trek Bicycles • Coca-cola • Jet Blue • Montague • Mercedes Benz (in US) • Wal-Mart • Gallo Wines STRATEGIC POSITIONING EXAMPLES 10 KEY DRIVERS OF COST ADVANTAGE • Economies of scale • Learning • Product technology • Product design • Location advantages for sourcing inputs [...]... A STRATEGY Key Evaluation Criteria 1 Does your strategy exploit your key resources? Sub-questions • With your particular mix of resources, does this strategy give you an advantageous position relative to your competitors? • Can you pursue this strategy more economically than competitors? • Do you have the capital and managerial talent to do all you envision? • Are you spread too thin? 2 Does your strategy. .. high-quality Purpose To drive up customer’s willingness to pay and generate demand sufficient to (1) Recoup added costs and (2) Generate enough profits to make strategy worthwhile 18 DRIVERS AND THREATS TO DIFFERENTIATION AND LOW-COST ADVANTAGE Drivers Low-cost • Economies of scale • Learning • Economies of scope • Superior technology • Product design • Location Threats • New technology • Too low-quality... with the key success factors of your industry? • Will competitors have difficulty imitating you? • If imitation cannot be foreclosed, does your strategy include a 4 Are the elements of your strategy consistent and aligned with your strategic position? 6 Can your strategy be implemented? ceaseless regimen of innovation and opportunity creation to keep distance between you and the competition? • Have you... styling • Under estimating Differentiation • Speed cost of differentiation • Convenient access • Over fulfillment of • Unusually high-quality buyer’s needs • Lower cost imitation 19 COUNTERFEITING AS A THREAT TO DIFFERENTIATION • $250 billion annually lost to American businesses • 750,000 jobs lost annually • $600 billion in counterfeited goods 20 THE LONG TAIL AND MARKET SEGMENTATION 100,000 CDs •... competition? • Have you made choices of arenas, vehicles, differentiators, and staging, and economic logic? • Do they all fit and mutually reinforce each other? • Will your stakeholders allow you to pursue this strategy? • Do you have the proper complement of implementation levers in place? • Is the management team able and willing to lead the required changes? 23 . 1 Chapter Five Crafting Business Strategy 2 OBJECTIVES Define generic strategies and show how they relate to a firm’s strategic position 1 Describe the drivers of low-cost, differentiation,. generic strategy position 3 Show how different positions fit with various stages of the industry life cycle 4 Evaluate the quality of the firm’s strategy5 3 JUDO STRATEGY “At its heart, judo strategy. rivals Low-cost Differentiation Description Produce an essentially equivalent product at a lower cost Produce a differentiated product and charge suffici- ently higher prices to more than off-set