Chapter 6 - Crafting Business Strategy for Dynamic Contexts pptx

Chapter 6 Crafting Business Strategy for Dynamic Contexts 2 OBJECTIVES Distinguish the ways in which firms’ strategies are related to dynamic contexts 1 Identify, compare, and contrast the various routes to revolutionary strategies 2 Evaluate the advantages and disadvantages of choosing a first-mover strategy 3 Recognize when an incumbent is caught off guard by revolutionary strategy and identify defensive tactics to reduce the effects of this competition 4 Explain the difficulties and solutions to implementing revolutionary strategies 5 3 THE TALE OF NAPSTER Sold to Software Business sold Business model options Roxio Software and music Software Music Software Sonic solutions Napster Music Bank- rupt Subscription Unlimited downloads for $9.99/month Streaming Real-network's Rhap- sody lets music lovers listen as much as they want for one monthly fee A la carte Roxio and iTunes sell single songs 4 SOUTHWEST AIRLINES “Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.” – Herb Kelleher 5 THREE CAUSES OF DYNAMIC CONTEXTS Examples Competitive Interaction When incumbents and, especially, new entrants use a new business model they drive dynamism in market Mini-mills entered with a new business model and incumbent steel companies did not respond As industries evolve and competition shifts from differentiation to price/low-cost, advantages shift between rivals Arm and Hammer almost lost its lead position when baking soda became commoditized Industry evolution When technological change is discontinuous, it does not sustain existing leaders advantages The shift to digital photography favors the strengths of Sony not photography incumbent like Kodak Technological change 6 REVERSE ENGINEERING Reverse Engineering G r n e v I r E g n I e n r e s e e 7 PHASES OF COMPETITIVE INTERACTION Phase 1 Discovery and competitive new action Phase 2 Customer reaction Phase 3 Competitor reaction Phase 4 Evaluation of action and reaction effectiveness Source: Adapted from K.G. Smith, W.J. Ferrier, and C.M. Grimm, “King of the Hill: Dethroning the Industry Leader,” Academy of Management Executive 15:2 (2001), 59-70 8 COMMODITIZATION Based on price Based on price ? Making a choice for a gas station 9 THE IMPORTANCE OF SPEED “What counts most in expeditionary marketing is not hitting a bull’s eye the first time, but how quickly one can improve one’s aim and get another arrow on the way to the target.” – Hamel and Prahalad 10 HIGH AND LOW-END DISRUPTION Strategy that may result in huge new markets in which new players redefine industry rules to unseat the largest incumbents Strategy that appears at the low end of industry offerings, targeting the least desirable of incumbents’ customers High-end Low-end [...]... McDonnell-Douglas) followed with safer, larger, and more powerful jets unsullied by tragic crashes The first mover was undercapitalized in a business in which money is the key resource American Express entered last with funds and name recognition from its traveler’s check business Diet soda Kirsch’s No-Cal (1952) Royal Crown’s Diet Rite Cola (1 962 ) Pepsi’s Patio Cola (1 963 ) Coke’s Tab (1 964 ) Diet Pepsi (1 964 )... for massive promotional campaigns 15 A GALLERY OF FIRST-MOVERS AND FAST FOLLOWERS (CONT.) Imitators/fast followers Product Pioneer(s) Light beer Rheingold’s and Gablinger’s (1 968 ) Meister Brau Lite (1 967 ) Miller Lite (1975) Natural light (1977) Coors light (1978) Bud light (1982) The first movers entered 9 years before Miller and 16 years before Budweiser, but financial problems drove both out of business. .. to new information increases its value 5 Learning options An initial investment may generate further information about a market opportunity and may help to determine whether the firm should add more capacity 24 CREATING OPTIONS FOR FUTURE COMPETITIVE ADVANTAGE AND PROFITABILITY Profit Tactical Horizon 3 Seed options for future growth business probing Horizon 2 Drives growth in emerging new business. .. product than when they have your product alone OR if it is more attractive for a supplier to provide resources to you when it is also supplying the other firm than when it is supplying you alone 12 CONVENTIONAL VS NEW MARKET-CREATION STRATEGIC MINDSETS Dimensions of competition Head-to-Head competition Emphasizes rivalry New-market creation Emphasizes substitutes across industries Emphasizes competitive... first mover lacks a key complement (e.g., channel access) that the follower possesses • First-mover costs outweigh the advantages of being the first-move 14 A GALLERY OF FIRST-MOVERS AND FAST FOLLOWERS Imitators/fast followers Product Pioneer(s) Comments Automated teller machines (ATMs) DeLaRue (1 967 ) Docutel (1 969 ) Diebold (1971) IBM (1973) NCR (1974) The first movers were small entrepreneurial upstarts... Strategies (New York Free Press, 1994), 3 7-4 3 16 EVALUATING A FIRM’S FIRST-MOVER DEPENDENCIES ON INDUSTRY COMPLEMENTS Status of complementary assets Weak protection from imitation Tightly held and important It is difficult for anyone to make money: Industry incumbent may simply give new product or service away as part of its larger bundle of offerings Value-creation opportunities favor the holder of... to which the new entrant’s innovation impacts your business For example: American Airlines can partially contain Southwest by using its bargaining power to secure more exclusive airport gates Absorption Annulment 19 NEUTRALIZATION Containment Neutralization Shaping Try to short-circuit the moves of innovators or new entrants before they make them For example: The Recording Industry Association of America... so that they are superior to many digital-based alternatives Absorption Annulment 23 REAL OPTIONS – FIVE CATEGORIES 1 Waiting-to-invest options The value of waiting to build a factory until better market information comes along may exceed the value of immediate expansion 2 Growth options An entry investment may create opportunities to pursue valuable follow-up projects 3 Flexibility options Serving... selling to banks and (2) the computer giants The first movers did not survive Ballpoint pens Reynolds (1945) Eversharp (19 46) Parker (1954) Bic (1 960 ) Commercial jets DeHaviland (1952) Boeing (1958) Douglas (1958) Credit cards Diners club (1950) Visa/MasterCard (1 966 ) American Express (1 968 ) The pioneers disappeared when the fad first ended in the late 1940s Parker entered 8 years later Bic entered last... Industry Association of America launched such a fierce legal attack on Napster that it forced even smaller Napster-like firms to stay out of the fray Absorption Annulment 20 SHAPING Containment Neutralization Shaping Shape the innovation so it becomes something the incumbent can live with or even benefit from For example: For years the American Medical Association used regulators to attack chiropractors; . Chapter 6 Crafting Business Strategy for Dynamic Contexts 2 OBJECTIVES Distinguish the ways in which firms’ strategies are related to dynamic contexts 1 Identify, compare,. OF DYNAMIC CONTEXTS Examples Competitive Interaction When incumbents and, especially, new entrants use a new business model they drive dynamism in market Mini-mills entered with a new business. as McDonnell-Douglas) followed with safer, larger, and more powerful jets unsullied by tragic crashes Credit cards Diners club (1950) Visa/Master- Card (1 966 ) American Express (1 968 ) The first