Strategic Management Test 1

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Strategy definition
-goals and objectives
-A set of goal-directed actions
Competitive Advantage
-Create more economic value than rival firms
Economic value
Perceived customer benefits-Product cost
Able to sell product at a premium due to elite product
Cost Leader
Able to sell a product at same price as competitors, but produce at lower cost, creating strong margins
Sustained competitive advantage
Outperform its competitors or the industry average over a prolonged period of time
Competitive disadvantage
Underperforms its rivals or the industry average
Competitive parity
Two or more firms perform at the same level
Components of firm performance
-Industry effects=20%
-Firm effects= 30%-45% (corporate parent, year effects, unexplained variance)
-Other effects=35%-50%
Analysis Framework
Analysis Framework
Business Strategy vs. Corporate Strategy
Business Strategy
-How to build a sustainable competitive advantage in a discrete and identifiable market
Corporate Strategy
-The overall plan for a diversified company
What questions are relevant in Business Strategy?
-How attractive is an industry? opportunities or threats?
-What are the company’s distinctive competences and resources that can produce a competitive advantage?
-How can a firm position itself within the industry to create a sustainable competitive advantage?
-How sustainable is the competitive advantage?
What questions are relevant in Corporate Strategy?
Strategy applied to the multidivisional firm
What determines firm boundaries? Why do we have multi-business firms?
How do multi-business firms create or destroy value?
How should firms expand into new markets?
How about International Strategy? What questions are relevant in International Strategy?
Which country markets to enter?
Which businesses to enter?
How to enter?
How to compete?
International Strategy is just like regular strategy, only International! (unique characteristics of entering and operating in foreign markets)
External Environment
External Environment
External forces in general environment
Managers have little direct influence over, such as the firm’ s macro environment
–> PESTEL provides an analysis to understand the general environment
External forces in the task environment
Managers have some influence over it, such as the structure of the industry
–> Porter’s 5 forces help us to understand the task environment
PESTEL Framework
-Political Factors
-Economic Factors
-Sociocultural Factors
-Technological Factors
-Ecological Factors
-Legal Factors
-Government subsidies – Renewable energy investment
-Political pressure on companies – BP’s Gulf of Mexico oil spill
Economic (economy wide phenomena):
-Growth Rates – growing economy typically good for demand, may lead to speculative bubbles, can affect entry barriers and rivalry

-Interest Rates – affects incentives for capital expenditure, consumer spending

-Levels of Employment – affects availability of needed human capital (skilled or unskilled), consumer spending

-Price Stability – inflation (rising prices) related to higher interest rates, could be good or bad; deflation (lower prices) sounds good, may hurt demand and investment

-Exchange Rates – may hurt or help exports

-Consumer preferences for health foods (Whole Foods, Subway), vs a celebration of decadent food (Paula Deen, Emeril)

-Demographic trends (16.4% of the total population are Hispanic)

Biotechnology, electric vehicles, e-tailers
Aerosols, oil spills (BP – Deepwater Horizon), solar panel sales
Antitrust, Mass tort reform (asbestosis litigation), California Air Resource Board (CARB)
A group of (incumbent) companies that face more or less the same set of suppliers and buyers. Firms competing in the same industry tend to offer similar products or services that meet specific customer needs
What is the idea behind industry analysis?
It says: look at the industrial environment! Make smart decisions!
Key assumption: The drivers of profitability across industries are the same.
This is bold! He is saying we can look at ANY industry, and this framework provides a method to understand the key levers that affect profitability
What is the most effective way to learn
What is the most effective way to learn
The five forces define __________________ and shape _____________
The 5 forces define industry structure and shape the nature of competitive interaction within an industry
List five forces
-Potential Entrants (Barriers to Entry)
-Substitute Products
-Established Industry Rivalry
Barrier to entry
-It creates an obstacle for a new entrant to come into the industry

-If you are already in an industry, you want lots of barriers because they protect your profits. Otherwise, new competitors will enter and compete away your ∏.

Seven barriers to entry
-(Supply-side) Economies of Scale
-Network effects (Demand-side Economies of Scale)
-Customer Switching Costs
-Capital Requirements
-Incumbency Advantages Independent of Size
-Unequal Access to Distribution Channels
-Restrictive Government Policy
Entry Barrier: Economies of scale (supply side)
Entry Barrier: Economies of scale (supply side)
-Produce larger volumes–> Decrease cost per unit
How does economies of scale (supply side) occur
-Buy in bulk. You have special relationships with your suppliers, buy in size, and have lower cost per unit

-Set up a huge factory. With huge capacity, your fixed + operating costs / # units produced will be lower than rivals with a smaller factory

-This is a C driver (drives C down in ∏ = R – C)

-Supply side economies of scale imply that new entrants will be at a cost disadvantage relative to incumbents

-New entrants will have to enter with big investments in scale in order to compete on cost

Entry Barrier: Economies of Scale (demand side)
-This is called Network Effects
-Number of users of a product go up –> increases a buyer’s willingness to pay for the product

-E.g.: ATM networks, cell phone providers, the internet, frequent flyer miles

-If a more extensive network possessed by incumbents increases willingness to pay, a new entrant will face a disadvantage during entry due to a smaller network
–>Chase has a huge ATM network in Columbus, OH. I like this because it doesn’t cost extra to use the ATM. If Bank of America enters the Columbus market, they may have to enter with 20 ATMs in order to compete. One BOA ATM is not that appealing to customers because of a smaller network, less convenience, more fees to use other ATMs.

Entry Barrier: Customer switching costs
-They are additional costs when consumers switch products

-There are almost always some kinds of switching costs. Inconvenience and paperwork are both switching costs.

-Switching costs make it tough for a new competitor to break in to the market
–>Have to convince customers to switch by offering lower prices, discounts, good service, which lowers R and raises C

Entry Barrier: Customer switching costs (Example)
-Switching from Bank of America to Chase is a pain **********. Have to set up new online bill pay.

-Apartments and breaking leases.

-SAP: Companies that have paid tons to set it up and trained employees to use it are reluctant to switch to a competitor

Entry Barrier: Capital Requirements
-Cash! It’s what you need to start things up.

-If entry is costly, the risk of entrants coming into the industry and competing with you is lower.

What are examples?
-Soda industry: You can make soda in a bathtub with water and sugar. Entry is cheap and easy.

-Liquefied Natural Gas: To start a new LNG facility, you need $500 million for a gasification facility, $1.5-2 billion for a liquefaction facility. Entry is VERY COSTLY.

Entry Barrier: Incumbency Advantages Independent of Size
What are these?

-It’s where incumbents have higher R or lower C for reasons apart from size.

Example of Incumbency Advantages independent of size
-Better location!
–>Starting a bar at French Quarter lots of foot traffic, high visibility, more business. If you open there, you preempt the location. Later entrants can’t get it. And it gives you an advantage.

-Established brand!
–>Existing customers may naturally think of your product first
Fancy ice cream in Columbus: people think of Jenie’s ice cream first
–>Tough for new entrants.

-Cumulative Experience
–Learning curve
–>Incumbents have been
learning how to improve
operations, lowering C
and raising R, over time

Entry Barrier: Unequal Access to Distribution Channels
Better access to distribution. This can be tough to get!
Unequal Access to Distribution Channels Examples
-Existing beer producers have long standing relationships with beer distributors and bars

-I try to sell Hawk IPA. It’ll be tough. I have to convince distributers to carry my product. I have to convince bars to have a tap for my beer.

-Shelf space is big. Sellers may be tied up in long term contracts with other companies.

Entry Barrier: Restrictive Government Policies
-Governments may restrict entry into an industry, and this can slow or make it difficult for new entrants to set up business in the industry

Restrictive Government Policies Examples
-In the Liquefied Natural Gas (LNG) industry, Federal Energy Regulatory Commission (FERC) has extensive requirements to construct a gasification facility in the US. Entrants have to go through a lengthy approval process that may take many years.

-The U.S. automotive industry

-This type of government regulation makes entry tough. But if you are an incumbent, you benefit from it because it limits competition.

Power of Suppliers
-In some industries, suppliers have a lot of power and can squeeze out a lot of profit from you if you are in this industry
-If companies are really dependent on suppliers, this high level of suppliers may hurt profitability in the industry
Why is there Power of Suppliers
-Supplier industry is more concentrated
–>Microsoft squeezing profits from PC makers

-Supplier group does not depend heavily on the buyers
–>Landlord in NYC raising the rent

-Switching costs are high to change suppliers
–>Customized, highly engineered input

Suppliers threaten to integrate forward and compete!

The Power of Buyers
-If customers are powerful, they can negotiate for lower prices and drive down your profitability
When do customers have high power?
-There are few buyers, and each purchase is in very large volume relative to the total sales of the seller
–>Wal-Mart: They can demand whatever they want, and you will probably do it because they buy so much

-The industry’s products are undifferentiated
–>In a commodity industry, products are interchangeable

-Buyers face low switching costs
-Buyers can threaten to integrate backwards and become competitors
-Buyers are stronger if they are price sensitive
–>The input is a large amount of total cost structure; the buyers are strapped for cash; the quality of the product does not affect the buyer’s operations

The Threat of Substitutes
-What is a substitute?
–>A substitute performs the same or a similar function as an industry’s product by a different means
–>High threat of substitutes industry profits suffer
–>Substitute products or services limit the profit potential of an industry by placing a ceiling on prices
–>If an industry doesn’t distance itself from substitutes with product performance, marketing or other means, the industry will suffer low profits and growth
Examples of threat of substitutes
-Skype and videoconferencing; pdf and fax, ties and tools
When is a threat of substitutes high?
-Offers an attractive price-performance tradeoff
-Switching costs are low (generic drugs)
Rivalry Amongst Existing Competitors
-High rivalry limits the profitability of an industry

-The degree of rivalry depends on:
–>The intensity with which rivals compete
–>The basis on which rivals compete

-Rivalry can take many forms:
–>Price discounting, new product introduction, advertising campaigns, service improvements

Are certain rivalries better than others?
-Price competition is especially destructive since it transfers profits directly from the industry to customers

-Competition along other dimensions other than price is less destructive because it can improve customer value and support higher prices
–>Product features, support service, delivery time, brand image

When will the intensity of rivalry be the greatest?
-Numerous competitors with equal size and power
-Slow industry growth
-Exit barriers are high
When is price competition most likely to occur?
-Products and services of rivals are nearly identical and there are few buyer switching costs

-Fixed costs are high and marginal costs are low

-Capacity must be expanded in large increments to be efficient (resulting in long periods of overcapacity)

-The product is perishable

Industry Analysis can be used as a guide to help choose strategic actions:
(1) Positioning the company to cope with the current forces
(2) Anticipating and exploiting shifts in the forces
(3) Shaping the balance of the forces to create a new industry structure that is more favorable to the company
SCP Model

-It’s a theoretical framework from IO economics that helps us explain differences in industry performance

-Basic view: industry structure affects how firms behave (note: same basic approach as Porter)

-The SCP model gives us some theoretical archetypes that are useful when comparing and analyzing industries

-Think of the SCP model as a theoretical continuum of industry structures ranging from more fragmented industries to more consolidated industries

Industry Structure elements and features
-The number and size of competitors in an industry
-Whether the firm possess some degree of pricing power
-The type of product or service the industry offer (differentiated?)
-The height of entry barrier
Four main types of industry structure:
Perfect Competition
Monopolistic Competition
What is a perfectly Competitive Industry
An industry characterized as fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices
What are implications of perfect competition
-Firms are of similar size with similar products
-Consumers make decisions based mainly on price (identical products)
-Typically a low profit industry
-Firms have a hard time gaining a competitive advantage (parity only)
Examples of perfect competition?
-They are rare. Some commodity markets behave similarly (gas, copper, corn), e-tailers (, back during the internet bubble.

-It’s a theoretical state. Industries approach this.

Monopolistic Competition
-An industry characterized by many firms, a differentiated product, some obstacles to entry, and the basis for raising prices for a relatively unique product while retaining customers
What are the implications of monopolistic competition
Profits are higher than perfect competition

-Firms are offering products with unique features

-Firms are able to carve out a niche, differentiate its product or service, and have a degree of “monopoly” control over pricing

-Firms try to emphasize its product differentiation (eg, advertising)

Examples of monopolistic competition
Computers (white boxes and branded computers)
A more consolidated industry with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power
What are the implications of an oligopoly
-High profits captured by a few firms

-Can be characterized by fierce rivalry between the big players, an interdependence of actions between the players (the actions of one firm influence the actions of the other), and possible coordination between firms (collusion is illegal, tacit “unspoken” coordination is not)

-Rivalry often along non-price competition (eg, services, features)

Examples of Oligopoly
-Express Parcel Delivery (FedEx, UPS), Soft Drinks (Coke vs Pepsi), home improvement (Lowes, Home Depot), detergents (P&G vs. Unilever), airframe manufacturing (Airbus vs. Boeing)
When one (large) firm is supplying the market
If you win Monopoly, you are the only firm left
What are the implications of monopoly
The firm offers a unique product. Other firms can’t enter. The monopolist controls pricing. The monopolist is very profitable.
Examples of monopoly
-Natural Monopolies

-Governments sometimes grant the rights to be a sole supplier to incentivize a company to engage in the venture that might not be profitable otherwise

-Utilities (your power company, natural gas service)

Firms that have accrued big market power
–>Intel? (80% market share in semiconductors)

Shortcomings of Five Forces
-A 6th force: Complements
-Industry Dynamics
-Strategic Groups
6th force: Complements
-A complement = a product, service, or competency that adds value to the original product offering when the two are used in tandem.

-A complementor = a company that provides a good or service that leads customers to value your firm’s offerings more when the two are combined

Implication of complements
-Complements can increase demand and boost the profit potential for the industry and the firm

-Incumbents should encourage or cooperate with complementors

Examples of complements
Apps, video game creators, iTune software
Industry Dynamics
-A 5 forces analysis is static, providing a snapshot of the profitability of an industry

-Suggests the need to repeat your 5 forces analysis over and over to keep up with the evolution of the industry

Understanding Industry Dynamics can sharpen your understanding of the industry
-Identify trends in consolidation
–>Excessive M&A, leading to bigger firms with more market power (Chase, Citigroup; Accounting firms)
Identify emerging substitutes
–>Pdf for faxes, online conference services for business travel
Identify external shocks
–>Technological, regulatory: (internet and stock brokerages)
-Identify possible industry convergence
–>Former separate industries satisfy same customer need
–>Media markets (old-line media, print, online, TV)
Minicase- The Wonder from Sweden:
Is Ikea’s success sustainable?
-The world’s most successful global retailer (2012)
Strategic Groups
-A set of companies that pursue a similar strategy within a specific industry

-They differ by important dimensions: R&D expenditures, technology, product differentiation, product and service offerings, pricing, distribution, customer service, et al.

-Can use generic strategies as a rough cut

What is the strategic group model?
-A framework where you cluster different firms into groups based on a few key strategic dimensions

-There often are significant performance differences across groups. Some groups are more profitable than others

Implications of strategic group model
(1) firm performance is determined not only by the industry but also by the strategic group membership; (2) Within group rivalry tends to be very intense (similar firms)
Mapping Strategic Groups
Mapping Strategic Groups
Strategic Group insights
-Rivalry is strongest within group
–>The closer firms are to each other, the more intense the competition

-Strategic groups are affected differently by macro forces
–>Economic downturn hits low cost airlines differently than legacy carriers

-Strategic groups are affected differently by 5 forces
–>Barriers to entry, buyer power, threat of substitutes, etc. are higher for some groups than others.
–>Example: lower capital requirements to start a budget airline

-Some strategic groups are more profitable than others
–>Better to be a low cost airline (historically)

-So why not switch groups?
–>Mobility barrier: industry specific factors that separate one group from another
–>Think entry barriers. Think strategic fit and tradeoffs. Think generic strategies
–>If you are a low cost leader, can you also be a differentiator?

Internal Analysis
-The RBV and VRIO Framework
-Core Competencies
-Value Chain
-Dynamic Capabilities
Four resources and capabilities
-Financial resources = debt, equity, retained earnings, etc

-Physical resources = machines, manufacturing facilities, and buildings

-Human resources = all of the experience, knowledge, judgment, risk taking propensity, and wisdom of individuals

-Organizational resources = the history, relationships, trust, and organizational culture, along with a firm’s formal reporting structure, explicit management control systems, and compensation policies

Tangible Resources
Physical attributes
No physical attributes
Is tangible or intangible more likely to lead to a competitive advantage
Google tangible vs. intangible
-$5 billion of tangible resources

-$100 billion of intangible resources

Barney’s Approach
Managers should address four questions about their resources and capability
-1) Question of Value
-2) Question of Rareness
-3) Question of Imitability
-4) Question of Organization
Question of Value
-Do a firm’s resources and capabilities create more economic value by enabling it to exploit opportunities and/or neutralize threats?
-Identify what the firm is good at (ie, lifting customer’s perceived benefits, or reducing production costs)
Google’s algorithm
Amazon’s selection of items online, customer service
Honda’s engines are small but powerful and reliable
IKEA’s furniture design, low price, and experience
Tesla’s high-performance battery
Starbucks’s high-quality beverages and experience
Question of Rareness
How many competing firms already possess these valuable resources and capabilities?
-Valuable but common resources are a source of competitive parity

-To have better performance than competitors, you need to be unique!

-To gain competitive advantage, a firm needs to exploit resources and capabilities that are different from competitors

-Knowledge often diffuses over time, eroding the “rareness” of resources

Examples od Rareness
Toyota good at lean manufacturing. Is it rare anymore?
You start a sports bar. But there are tons of them.
Question of Imitability
-Do firms without a resource or capability face a cost disadvantage in obtaining it compared to firms that already possess it?
-This is about SUSTAINABILITY! If yes, firms with these abilities can have abnormally high profits for a long time

-If no, other firms will easily do what you are doing and compete away your profits

-Big question: Can firms imitate your skills?

-Important: evaluate the relevant barriers to imitation!

Imitation can occur in two ways
1) Duplication= an imitating firm builds the same kind of resources as the firm it is imitating
2) Substitution= Use some other resources instead
Barriers to Imitation
What stops or slows imitation?
1) Importance of History
–>Historically unique circumstances may have played a part in creating the resources. You can’t replicate it –>Example: Caterpillar and WWII. Gov’t support.

Example: Honda took years and years to develop their engines and engineering ability. You can’t do this overnight.

2) Importance of Numerous Small Decisions (Casual Ambiguity)

3) Importance of socially complex resources
–>Interconnectedness: Accumulating increments in an existing resource may depend not only on the level of that resource, but also on the level of other resources
–> Examples: organizational phenomena like reputation, trust, friendship, teamwork, and culture. Very tough to replicate!

The Question of Organization
Is a firm organized to exploit the full competitive potential of its resources and capabilities?

-You also need supporting complementary resources to gain a competitive advantage

-Complementary resources = resources that have limited ability to generate a competitive advantage in isolation, but in combination with other resources and capabilities, they enable a firm to realize its full competitive advantage

Examples of Complementary resources
-Formal reporting structure

-Explicit management control systems

-Compensation policies

-Sales networks

Barney Summary
Barney Summary
Core Competences
A related concept to the RBV is the notion of “Core Competences”. What are these?
–>unique strengths, embedded deep within the firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost

-It’s basically the internal characteristics of the firm that makes the firm have a competitive advantage

-“They are built through the interplay of resources and capabilities”

-“Resources reinforce core competencies, while capabilities allow managers to orchestrate their core competencies.”

-Core Competences came about at around the same time as the RBV. (See Prahalad and Hamel 1990.) Very related concepts.

-The RBV VRIO framework is a little more precise, easier to apply.

Examples of Core Competencies
Examples of Core Competencies
Link between RBV and Core Competencies
Link between RBV and Core Competencies
The Value Chain
-It describes the internal activities that a firm engages in when transforming inputs into outputs

-Primary Activities = firm activities that add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain
–>Inbound logistics (supply chain management), operations, outbound logistics (distribution), marketing and sales, after-sales service

-Support Activities = activities that add value indirectly, but are necessary to sustain primary activities
–>R&D, information systems, HR, finance, accounting, general management

Value Chain
Value Chain
How is the value chain useful?
Use it to break down the firm and understand internal firm characteristics at the activity level
–>Use the RBV to test the firm’s resources and capabilities for each activity

-Use it to understand the firm as a system of interconnected activities
–>Strategic activity system = the conceptualization of the firm as a network of interconnected activities
–>A firm’s decisions for each activity are interconnected. They affect each other
–>To gain competitive advantage, all of the firm’s decisions at the activity level should work in concert. They should reinforce each other to execute a firm’s strategy.
–>Thus, there are tradeoffs. The firm must decide what to do for each activity and WHAT NOT TO DO. (Remember Porter said this?)

Dynamic Capabilities
-A firm’s ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage. It describes the firm’s ability to reconfigure its resource base and to create external market change for others.

-Dynamic capabilities are an intangible resource built through continuous investments and experience over time.
Consider IBM as well as the bathtub metaphor

Dynamic Capabilities and the Bathtub
Dynamic Capabilities and the Bathtub
SWOT grid
SWOT grid
What is strategic positioning?
A firm’s strategic profile based on value creation and cost. The goal is to create as large a gap as possible between the value the firm’s product or service creates and the cost required to produce it (V-C).
Why do tradeoffs occur?
(1) inconsistencies with image or reputation
(2) tradeoffs arise from activities themselves
(3) limits to internal coordination and control
“Value Gap”
A firm has a competitive advantage if it has driven a wide wedge/gap between the perceived value a firm is able to create for consumers (V), captured by how much consumers are willing to pay for a product or service, and the costs incurred (C) to create that value.
–>specifically a WIDER wedge than its competitors have achieved
To have a wider value gap…
To have a wider Value Gap (V-C) than competitors, firms typically must
Perform similar activities differently, or
Perform different activities than rivals
How can a firm widen the wedge?
(1) Increase V while C goes up less (ie, increase customers’ willingness to pay without a commensurate increase in production cost)
(2) Decrease C while V goes down less (ie, decrease production cost without a commensurate decrease in willingness to pay
Generic Strategies
-A Differentiation Strategy = raise willingness to pay a great deal with only slight increases in cost

-A Cost Leadership Strategy = reap large cost savings with only slight decreases in customer willingness to pay

Combining the dimensions describing a firm’s strategic position with the scope of competition, we get two focused version of generic strategies
-Focus Differentiation

-Focused Cost Leadership

Rolex vs. Timex example
Rolex focuses on a small market segment: affluent consumers who want to present a certain image.
Timex offers watches for many different segments of the mass market
Generic Business Strategies
Generic Business Strategies
How do you figure out how to add value and obtain a wider value gap?
-Understand the Value Drivers in the industry

-Understand the Cost Drivers in the industry

-Analyze a firm activity by activity (using the value chain) to
understand why a firm does or does not have a competitive advantage.
Spot opportunities to increase a firm’s competitive advantage

-Analyze strategic options

Value Drivers
Value Drivers = factors that account for differences in willingness to pay
–>Product Features
–>Customer Service
Cost Drivers
-Cost Drivers = factors that make the cost of an activity rise or fall

-Input Factors
–>Lower cost materials, money, or labor
–>DeBeers and diamonds, Alcoa and Bauxite, GE Capital

-Economies of Scale

-Learning Curves

-Experience Curves

Economies and Diseconomies of Scale
-Increased output –> decreased cost per unit

-Spread out fixed costs (market share!)
–>Microsoft upfront R&D for Windows 7, very low marginal cost

-Specialized equipment and systems, e.g., robots, software

-Physical properties
Cube-square rule = volume increases more than surface area

What is minimum efficient scale?
-Lowest cost position
-Constant returns to scale
What are diseconomies of scale?
-The cost curve starts to go up! Your cost/units starts to increase.

-You’ve gotten too big. Why?
–>Complexity of management bureaucracy, hierarchy
–>Physical limits the building gets crowded!

Learning Curve
-Per unit costs go down with more learning
-It’s about learning by doing
-The “steeper” the curve, the more learning
Experience Curve
capture both learning effects and economies of scale

-With learning effect, you move down a given learning curve

-Better technology allows movement to a steeper curve

-Taken together, learning by doing allows a firm to lower its per unit costs by moving down a given learning curve, while leveraging experience based on economies of scale and learning allows the firm to leapfrog to a steeper learning curve, further driving down per unit costs

Learning and Experience Curves
Learning and Experience Curves
Competitive Position and the Five Forces Chart
Competitive Position and the Five Forces Chart
Can you do both a Differentiation strategy and a Cost Leadership strategy at the same time? What would Porter say?
Tough to do! Remember tradeoffs?
There’s inconsistencies in combining the two. The set of activities for one conflicts with the set of activities for the other.
It’s called an Integration Strategy. Any examples?
Has to be a very special firm. Needs to resolve the inconsistencies
How can you resolve the inconsistencies to pull it off?
-Quality – if you have superior quality, can drive down C and up V

-Economies of Scope – lower C and/or higher V that come from producing two (or more) outputs at less cost per unit than producing each output individually

-Innovation – better production process or product can resolve tradeoffs

-Structure, Culture and Routines – unique management systems that lower C and push up V

Can a diversified company have different divisions that pursue different generic strategies? Does this work? Any example
-Many firms are conglomerates = an organization that combines two or more business units, often active in different industries, under one overarching corporation

-Different divisions might pursue different strategic positions

-Does this work? Would Porter still disapprove?

–>Tata bought Jaguar and Land Rover in 2008. It then creates the Nano (the world’s cheapest car) in 2009
–>Ford and Lincoln: Would you buy a Lincoln? They just revamped, creating a separate division called the “Lincoln Motor Company”. Will this help?
–>Hyundai has the Genesis and the Equus under the Hyundai badge. Good idea?

Competitive Positioning Dynamics
-A firm’s competitive position needs refinement

-Need to constantly look for adjustments to enhance the wedge, adjust activities in response to external dynamics
–>Ebay selling skype, discontinued selling new goods

-Need to try to reach the productivity frontier = captures the best practices at a given point in time
–>Curve captures the tradeoffs between value and cost
–>You want to be on the frontier, and your location captures your desired strategic position

Competitive Positioning Dynamics
Competitive Positioning Dynamics

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