Week 3 strategic purpose choices

3BM020 Organisational Strategy and Decision Making Session Glyn Littlewood Strategic purpose & choice business level strategy Outcomes covered in this session • Identify strategic business units (SBUs) in organisations • Explain bases of achieving competitive advantage in terms of Porter’s generic strategies & ‘routes’ on the strategy clock • Assess the extent to which these are likely to provide sustainable competitive advantage Outcomes covered in this session • Identify strategies suited to hypercompetitive conditions • Explain the relationship between competition and collaboration • Employ principles of game theory in relation to competitive strategy In the news Google set to launch branded smartphones •Why would they this & what is driving this strategy? In the news Google set to launch branded smartphones •This week will see the launch of new devices aimed at competing in markets with Apple and Amazon •They will carry Googles own brand & design, including a voice responsive “smart speaker”, they are the first products of a new hardware division set up earlier this year •Previously Google have concentrated on the development of software & services In the news • This development offers a distinctive product aimed at competing in the high end of the market with Apple iPhone & Samsung Android devices • Apple lead the way on the amount spent in its App Store compared with the amount spent in Google’s rival Play Store – Google cannot stand by & let the wealthy end of the market go to Apple • Google are also developing a virtual reality headset that be paired to its Android phones • Global revenue from Smartphone sales 2016 $425.9 billion dollars https://www.ft.com/content/31ad45f4-88b2-11e6-8cb7-e7ada1d123b1 https://www.statista.com/statistics/237505/global-revenue-from-smartphones-since-2008/ Business level strategies: what are we going to cover? Strategic business units A strategic business unit is a part of an organisation A strategic business unit is a part of an organisation for which there is a distinct external market for for which there is a distinct external market for goods or services that is different from another SBU goods or services that is different from another SBU • Opposing pitfalls in identifying SBUs – Too many different products/markets means lack of focus – Too few means not reflecting diversity of products/markets Strategic business units A strategic business unit (SBU) supplies goods or services for a distinct domain of activity • A small business has just one SBU • A large diversified corporation is made up of multiple businesses (SBUs) • SBUs can be called ‘divisions’ or ‘profit centres’ • SBUs can be identified by: – Market based criteria (similar customers, channels and competitors) – Capability based criteria (similar strategic capabilities) The Purpose of SBUs • To decentralise initiative to smaller units within the corporation so SBUs can pursue their own distinct strategy • To allow large corporations to vary their business strategies according to the different needs of external markets • To encourage accountability – each SBU can be held responsible for its own costs, revenues and profits Competitive strategies in hypercompetitive conditions • Hypercompetition describes markets with continuous disequilibrium and change e.g popular music or consumer electronics • Successful hypercompetition demands speed and initiative rather than defensiveness Competitive strategies in hypercompetitive conditions • Competitive advantage is temporary – Rapid imitation – Not sustainable • Competitive advantage relates to – Organisation’s ability to change – Speed – Flexibility – Innovation – Disruption of market Interactive price and quality strategies Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Hypercompetition: Managing the Dynamics of Strategic Manoeuvring by Richard D’Aveni with Robert Gunther Copyright © 1994 by Richard D’Aveni All rights reserved Competitive strategies in hypercompetitive conditions Competition & collaboration • Collaboration may help to achieve advantage or avoid competition • Organisations may compete in some markets and collaborate in others • Collaboration can be – between potential competitors or – between buyers and sellers • Collaboration is advantageous when the transaction costs are lower than when operating alone • Collaboration can help build switching costs Competition & collaboration Game theory Game theory encourages an organisation to consider competitors’ likely moves and the implications of these moves for its own strategy Game theory The inter­relationships between the competitive  moves of a set of competitors • Strategist must anticipate competitor reactions • Core assumptions: – Competitor will behave rationally and try to win to their own benefit – Competitor is in an interdependent relationship with other competitors – Competitors are aware of the interdependencies and of the moves that competitors could take Implications of game theory • To benefit from game theory strategists need to: – Put themselves in the position of the competitors • Take an informed, rational view on likely competitor actions • Choose best course of action – Identify if there is any competitor strategy which might lead to their domination of the market • Take steps to eliminate the strategy Implications of game theory • Game theory attempts to predict the outcomes of customer reactions or; • In some cases, to show how the outcome of negotiations may well produce a suboptimal solution unless both sides of the negotiations realise the consequences of their actions • Game theory has some value in negotiations but suffers from three difficulties: mathematical complexity; ambiguous conclusions; being only one small part of the strategy process Changing rules of the game • The logic of the game may mean that it is impossible to compete within existing rules • Alternative approach: Change the rules of the game • In price-based market – Shift bases of differentiation – Make pricing more transparent – Incentives for customer loyalty Summary • Business level strategy – Competing better/providing best value – Strategy development for each SBU • Generic strategies for competitive advantage – No frills, low price, differentiation, hybrid, focused differentiation • Sustainable competitive advantage requires – Linked competences, difficult to imitate – Ability to achieve lock-in as industry standard Summary • Hypercompetition – Need speed, flexibility, innovation and change • Collaboration and competition – As alternatives or in parallel • Game theory – Pre-empt or counter competitors’ moves Sources & Further reading • Grant, R Strategic Planning in a Turbulent Environment, Strategic management journal, vol 24, p 499, 2003 • Johnson, G., Scholes, K., & Whittington, R Exploring Corporate Strategy 7th Edition (2005) Prentice Hall • Johnson, G., Scholes, K & Whittington, R (2008) Exploring Corporate Strategy, 8th Edition, Prentice Hall • Johnson, G, Whittington, R, & Scholes, K (2011) Exploring Strategy, 9th edition Prentice Hall Sources & Further reading • Lynch, R Corporate Strategy 4th Edition (2006) Prentice Hall • Mintzberg, H., Lampel, J., Quinn, J, B, & Ghoshal, S The Strategy Process 4th International Edition (2003) ... https://www.ft.com/content /31 ad45f4-88b2-11e6-8cb7-e7ada1d123b1 https://www.statista.com/statistics/ 237 505/global-revenue-from-smartphones-since-2008/ Business level strategies: what are we going to cover? Strategic. .. or services ‘the razor & blade’ strategy • i.e buying a particular razor ties the customer into buying the compatible blade • Apple & Digital rights management - iTunes Strategic lock-in • Proprietary... the development of software & services In the news • This development offers a distinctive product aimed at competing in the high end of the market with Apple iPhone & Samsung Android devices •