Define the Business

Define the Business - M WO‘ S'10 fflfifé5~7 234095...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 8
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 10
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 12
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: M WO‘ S '10 fflfifé5~7 234095;! MB“ 7/” 57" P497367? HODEté‘ eiine the Business _ 4 Identify and Define the “Target Market” Over time Market Evolution can be along any ofthe 3 Axes Customer Problem (8) Solved (Benefits) Competitio 7‘ Product / ° New Technology and SerViceS Operations Design a New Customer Problems Solved ' New Customer Groups S erved Customer(s) Served (Needs > & Behavior Organizational Patterns) Or in Polar Coordinates to Combinations of all 3 Structure Technology & Operations (The “Value Chain”) ' Remember ll! Good Ideas = Effective Products / Services = Profitable Business ‘0 [in/W", “" THE myriad activities that go into creating, producing, selling, and delivering a product or service are the basic units of competitive advan- tage. Operational efl'ectiveness means perform- , ing these activities better—that is, faster, or v' with fewer inputs and defects—than rivals“. g , Companies can reap enormous advantages from operational effectiveness, as Japanese firms ' ' demonstrated in the 19705 and 19803 with such practices as total quality management and con- tinuous improvement. But from a competitive standpoint, the problem with operational effectiveness is that best practices are easily , emulated. As all competitors in an industry adopt them, the productivity frontier—the maximum value a company can deliver at a TH REE key principles underlie strategic positioning. 1.Strategy is the creation of a unique and valuable position, involving a different set of activities. Strategic position emerges from three distinct sources: - serving few needs of many customers (Jiffy Lube provides only anto lubricants) - serving broad needs of few customers (Bessemer Trust targets only very high-wealth clients) - serving broad needs of many customers in a narrow market (Carmike Cinemas operates only in cities with a population under 200,000) . 2. Strategy requires you to make trade-offs r. in competing—to choose what not to do. Some competitive activities are incompati— ble; thus, gains in one area can be achieved only at the expense of another area. For example, Neutrogena soap is positioned more as a medicinal product than as a cleansing agent. The company says "no" to sales based on deodorizing, gives up large volume, and sacrifices manufacturing efficiencies. By contrast, Maytag's decision to extend its product line and acquire other What Is Strategy? given cost, given the best available technology, skills, and management techniques—shifts out- ward, lowering costs and improving value at the same time. Such competition produces absolute improvement in operational effectiveness, but ‘ relative improvement for no one. And the more 5 benchmarking that companies do, the more '- I ' _c0mpetitive convergence you have—that is, the more indistinguishable companies are from one another. Strategic positioning attempts to achieve sus- tainable competitive advanti’ge b‘g" preserving what is distinctive about-a company. It means performing difierent activitiesfrom rivals, or performing similar activities diligent ways. i brands represented a failu‘Ie to make "' difficult trade-offs: the boost in revenues came at the expense ofreturn on sales. 3. Strategy involves creating "fit" among a company's activities. Fit has to do with the ways a company's activities interact and reinforce one another. For example, Van- guard Group aligns all of its activities with a low-cost strategy; it distributes funds directly to consumers and minimizes port- folio turnover. Fit drives both competitive advantage and sustainability: when activi— ties mutually reinforce each other, competi- tors can’t easily imitate them. When Conti— nental Lite tried to match a few of South— west Airlines' activities, but not the whole interlocking system, the results were disastrous. Employees need guidance about how to deepen a strategic position rather than broaden or compromise it. About how to extend the com- , pany's uniqueness while strengthening the fit among its activities. This work of deciding which target group of customers and needs to serve requires discipline, the ability to set lim- its, and forthright communication. Clearly, strategy and leadership are inextricably linked. :5. it... I.I:: .1! E1.- .. UhisUEuW haulsmvlm LO Ida-DEV.” IHIH Pia-hm . 32:35» 2 31535 hi5 Smou waists.“ 35553 be uuanhotua aura Pia—om :25; =o=3=3=m .B 355:5qu xmaohfiuzag Sunfish; 2:53am 25mg: . Fan—“Em 2: 5 "FE... 3 =0:Em2:m $23325 . . . . _ o o F: Eume :oEuuQ cog—ESE 53m ._o 38.: 2 “Sta—u.— =o:Equ_ Ean .C a asp. . _ h . eoznscubE—v .5 :3 :o 3: E .0 Us E— mEEu b an Emou mcfusan misEmnam .. . . . a 2: a PB :0 yucmEEtun EE 2 "Stu—E . bins—Em as. E mun—EB: :38 2 .u _ U 5:33. 2 25:? be oucfiEaE_ 5:55:35“. 5:35 2:9: 83:33 .3 35.35 ESE: "Ev: “E: 2.3 Suzanna .o snow mzzuarsm . . 2:320 =0:£EP5.ED 32:3... so 63E. 33o mciuzam .Bham 5:52 vcfim uE30> .555 32.28:? 6.62; cosmhcuuzou EE “33> BEES—5 33:23 $6137.; cozmbcuucou “93m .3 Eat? Sufi—Em 31m 555:5 uEEfi—Em .. . 530; 5.9:; .3 m.:n:_.E.S_uD K .335 Eigm .9 n_:n=_Eu_uQ E—gE E 375:..— : 54:14:... “Exam .3 Eu=nE=m .3 330m uEEnmhum 330m wet—€35 EoEumEou ? m: n . a w m anti—Eu.— v38me know—on EuEEPSO gain—v Samoa $3.33 @5332; . 3:9: b338,. 9 “882 EEG mat—Eu. .CEutn—Em “puss—">343". £3a3< cos—515v 2 Sunni “EuEEmsvfl 353.0 “38 wcfiusam _ .3352 “ESQ “8559? Save...» bsgwaci _ 3.0m .6 numEacoum _ _ numb-m PEN _ -. Eumtmn :5 “82% 250969 EoEunEou .6 3:539 5 \EquEou E:o:~E..££ 8:23 9.5 5:528on Smou mam—333m 5:53 vcfim 32—23:? 835.5 . bmungnuhgo EuEEbE— BEE 925.138 Auwnuofi .EV vuxE . £30..» Fans—u:— mEEEm >52 .3 EEC. . “Ears—FEES Fizz . Figure One PORTER'S THREE GENERIC STRATEGIES STRATEGIC ADVANTAGE Uniqueness Low Cost Industrywide DIFFERENTIATION MARKET BREADTH _ Individual Segment Source: M. E. Porter, Comgetitive Strategy. New York: Free Press, 1980. q \I Eumabcm $5 EmEmmmbsm £333 262 e 3365 oz: 355 a E «mafia—SE. .95.} iota: 35:53 558 Ea: mmucEmt% m.u:oEuwm..e£ . EmEmmm may EEzEgo 58:32.8 EEEBéumEm“ a 23336 vcmEmu . . 33.0 93023 . mszumhtmcn 2.23523 3E0qu EoEamm $95 2:. . 333E. m”. #333» 2.53 2F c mDUDm “.0 m.me Egg .Bascgg §==eanu: :95; .w $22.2 35mm mEuEmmm cm cozmzcmhmxmu 232% 5% 96205 @3308 cozmzcflota . amnwmrééaofi 38 e E9598 «:mtanm mag oEoufi 5:55.02“. .8 325 . 85E” EcuzonEoo . boEEnsm “0:. m. :OBEEEmEQ e. ZOFSHmemnE—P uO. WKME EcmEmom E $50 .952 - :26 9620» 23:2: «moo . 52 mm cozmzcfimEb E ~§E_xo._n_ .. Eve; uEEobms “moo .8 Bang .850 . mmucmzu 3205.02 . Bsz. EoEanEou - 32.5an 90... E uEEotso. «moo . m_ImeD<m._ .500 no mgwE EEEEE 852% m5 5 wwa TABLE 13—1 Evolutionary l -r-:: puny-G» Drivingllndush’y Structural ' Long-run chang'a in , _ __ : Changes in buyer segments Buyer learning - _ : . 'Rocluction of Uncertainty ‘ - "' 5 IZ-‘l - Diffusion of proprietary knowledge '7 f . Accumulntion-of experience ‘ o D Expansion (or oontraction) in mule ' " Chgmges in input and'ourrenoY'costs Product innovation ' A ' 5 Marketing innovation Process innovation Structural change in adjacent lndustria"? Government policy changes ' g- Entrics and exits - ". ,. , ._..I-.- : ,:.-'.'. THE “48"MODEL OF THE PRODUCT LIFE CYCLE fiTANDARDIZATlON fiATURATION _S_OPHI STICATION §LOW DOWN ‘ v e ‘ F3fi’w: _V.,,.i may .i— ._~>_y ~. .7“ a. ram; ,::-,~_:..-e,ib“DEER-2" 3} I Time %T Low Propensity to Buy High “fl What Drives _ What the Competitor the Competitor Is Doing and Can Do FUTURE GOALS - CURRENTSTRATEGY At all levels of management ‘ ‘ ‘ How the-business is and ‘in multiple dimensions currently Competing COMPETITOR’S RESPONSE PROFILE Is the competitor satisfied with its current position? What likely moves or strgtegy shifts will the competitor'makg? Where is the competitor viglnerablle? What will provoke the greatest and most effective retaliation by the competitor? ASSUMPTIONS CAPABILITIES Held about itself 3nd the industry Both strengths and weaknesses SURE 3-1 The Components of a Competitor Analysis Protessor Michaet Porter’s concept ot "comoEtitive strategy“ dominated the strategy debate throughout the 19805. it remains in widespread use today. ased at Harvard Business School, Eisner has Worked in the fields of , th business strategr and industrial economics. Hisbocrlts , Competiritx Srer and Advantage Were published in l980 and 1935 respectively and together form an integrated approach to strategy. They set out concepts and analytical techniques. designed for managers in. any business to use to understand their competitive situation and how competitive advantage rnightbe achieved. His aim throughout is to promote the clear strategic thinking frcm'which he believes efiective strategy arises. ' Porter’s Approach , The aims ofa finn's strategy are to decide its goals and the means by which they can be achieved. In deciding these goals and means, managers must take into account internal factors such as the company‘s skills, resources and values, and external factors, including opportunities and threats in the industry and business environment He argues that a business without a clear strategy will have no basis on which to integrate its activities and achieve consistency between its various 'ftmctions and units. Porter puts the strategic business decisions of individual firms in the context of economic forces. These arise from the industry in which the finn operates or from the Wider business environment afi’ecting the firrn's costs, the prices it can charge, its sales and profits. Many of these forces afi'ect all of the competitors in an industry and limit the average profitability within it. The focus of an indiVidual finn's strategy is therefore how to achieve and sustain above average returns - that is, how to bend the forces of competition in its favour. The competitive business environment is a complex system of interactions. r analysis so that the characteristics ofa strategic situation canbe assessed and key decisions identified. The tools are applicable to any industry and firm. Analytical 'lbols 1. Industry analysis To understand the opportunities and threats in air-industry, it is essential to be clear about its scope, the forces that drive competition within it, its potential for profitability and how all these are changing. Porter proposes a ‘structural analysis ofindusuies', using a tool commonly called the five Forces Model (see Figure 1). ' r evfis'lzz; Fundamental to Porter's approach is that competition works, in a free market, to constantly erode profits. He therefore identifies five main forces of competition. To the firms Within the industry that already provide customers with competing products and services, Potter adds potentifl new entrants to the industry, and substitutes. Substitutes are difl'ercnt ways ofmeeting the same underlying customer needs in ways that are outside the industry's currently defined boundary. Powerful customers or suppliers can also use their superior bargaining power to draw profits out of the industry. Potential Entrants The aim ofthe analysis is 1.0 identify the nature, strength and impact oithese competitive pressures so that individual firms can create strategies that defend them from their impact, or influence them in their favour. '2. dyiiamica Given that achieving above—average returns is likely to appeal 10 all competitors, a major concernin strategy fonnation is to understand competitors and the Competitive dynamics in the industry. This means understanding mmpetitors‘ goals, strategies, capabflib'es and what View they take of their position. mien-nation mustbe gleaned by recognising and interpreting a'ny indications of ~ oompetitors' positions or intentions. Most indusuies are oligopolies, when: competing firms respond to each other's actions as well as to overall market conditions. This raises the dilemma of whether firms will compete within accepted conventions or become mavericks, for instanceby starting price wars, thus threatening indUSuy-Wide profitability. A central issue is the strength ofcommitment of individual firms to a strategy or market position, their likely reactions to threatening competitive moves and how this is signalled bet-ween competitors. Generic Strategies _ Finns aim to cope successfully with the competitive forces, to achieve superior returns and a position that is defensible in the long run. At a very high level there are three ways of doing this, which Porter calls "generic strategies: 1. Overall cost leadership a delivering acceptable quality so as to merit at least average prices but at the lowest possible cost Threat of new entrants Industry Competitors Bargaining power i. t'a Supptrers a {WW r3 Bargaining pom! or buyers Rivalry among existing firms Threat of substitute products or services ' —rrr needs uniquely so as to merit premium prices by selectively adding cost in areas producing high added vflue Focus - selecting a limited target marltet in terrrrs of customer group, product range, geography; or vero'cal integration. Competitive advantage arises from serving the selected market more efl'ectively or efficiently ' or both '0 select and then apply an appropriate eneric strategy, managers must nderstand their Own cost drivers, what onstitutes value to customers and how r deliver it, What alternatives are vailable to customers, who is aiming to rovide these and how. in doing sothey , ill need to combine the techniques of impcfitor analysis with a complete nderstanding ofboth their own and reir industry’s value chain (see Issue 8 age 9). aner argues that firms are most likely r succeed by concentrating on one of tese three generic strategies because my use different capabilities and are Ipported by diB-erent organisation ructures and cultures. All firms must :hieve acceptable quality and control teir costs but this alone will not form a rategy that is likely to provide above- rerage returns. ram competitive lvantage, Porter warns, is ultimately tined throuyi a firm's activities, not rough devising strategic goals. categio Gniups he firms within any industry have Herent goals, adopt different genetic rategies and implement them in fferent ways. Porter proposes the rncept ofstrategic groups to map out re competitive structure within tdustries in more detail (see figure 2). he basis of the technique to identify re strategic choices that firms have rade in deciding the way they will rmpete. Porter provides a list of ossible strategic dimensions including: orand strength product quality cost reduction distribution channel technical leadership customer service vertiml integration price positioning :rategic groups are firms following milar strategies on these dimensions. rme dimensions may not vary limit the ways in which firms compo bewuse, once a position is adopted, it may prove difiicult to change. 'iypically there are only a few key dimensions defining a small number ofstratep'c groups within an industry. 50 pairs of contrasting dimensions can often be used to map such groups. ' Managers need to consider whether their firm is positioned Within the most appropriate Strategic group, the specific competitive forces applying to it, and how to succeed within it This framework also prevides a basis for charting changes in firms' strategies and shifis taking place in the whole industry's map. Industry Evolution V Industry structures change as industries evolve. Being able to predict or at least recognise such changesearly is crucial to developing competitive strategyaforter uses the familiar concept oithe industry life cycle but concentrates on the evolutionary processes that are driving change, rather than on attempting to devise generic descriptions of the results. These evolutionary processes involve changes in: - growth and scfle - urstcmer behaviour - the knowledge and experience of competitors - innovation in'prcducts and processes - government policy * - change in related industries All ofthcse afi'ect the competitive Spaclallutlnn Assembler Vertical Integration High Vertical Integration Figure 2: A Map at Strategic Groups in a Hypothetical industry ...—._......_, ....._. ....~. -.._......_.-.....w..,. -n. indusz to new entrants and existing competitors They also atTect indusrry consolidation and shifts in industry boundaries — both ni'WhiCh are critical considerations in strategic chlsiDn~taking murder.- Michael Poner, 'Crrmpen'rive Shalegy', The Free Press, 1980, iSBN 0—02- 915360-8; 'Comperin'uc Advanlagc', The Free ' Press, 198.5, ISBN U—OZ-QZSOQO—O, (see page 39 for updates). ‘-.--v. - - . .u.‘... -: r-. -'—-;:. if ,graurrsrrndsiisfiareo ream " ' '-‘.‘.—v-.".'-' I I'.'- -. ". - .- .-' '3‘ . "- ’- >- ! w - drfi’ere— " _ 'rr'fiéo'dritret- - I :- ; - -- f“ V r p _ : {up}. “s 35"?“ 'm' ' pd «1'.- pram-11m spam" f'atag.=.;-arsa_n{= bestiff assay-tor a given finn'is-tflnmabely“ " _ ifiin‘hiquc misfiyiisiqfi ' l transit " Drum "' ‘ ' “ Z‘Bow'c’vir;"~ ; ' _ lévd five c‘ari " .three_ internallyxjiorisistent‘g'enefic "" ' _‘§_tr'aie"gies'(which'cav be used singly - -: r 'ptin combination) I.» creating... a -' ' r dfiendablefiositiofl...’ Bad workmen , Soften blame their tools rather than " ‘ that: m'ni abuse crater-rt '- 32.59.59 .3 ...:e , a. 23:3: 0.2.5:. . 20.... 69:6: Ea: 3.3.: o:. 93.32....0 ,, waving.— u...u:s 2.3:. :3: 2 3:: 2.2.3 3:; 6H 2.25. .22. 3. $235.02 $23... .. 3:: 3.3%: .55... $23.32.... . 2.5.3 2:25.33 530.353 52%;: .o 2:. 1..» 55:29.. , “2.0.9.5 52:66 , 3.55 2. .o 3.3:... .§.xx..=. 13 3:...) 33......” .. :§&.$§ William. .6353 a. 5:3 0. 23:3 3.3:. _ 5.2525 2:. . coo: 2.2.3 .33 oh _ . . . . a 2:23: _ .0 3.9.2. :5. 0.1.9: :3: = :25 so. . 2.... . _ . . 3:5... .5... 5.3:. 3.2:»: 33...: 3.32. :5. _ 323... o::a.c:o _ .o :o..-:..anu 3:. 3:: :32... 3:! 0... 9.5.1.. >35... 3.22. :5 _ .3933: _ 9522.: .5. _ E. 32: 2. .38 _ 2.9.5.". 3:; .3: .. _ . _ . — . . _ $5.2; _ 33:3 9:. _ u E .2: a: 332... _ 2.. .953: :1... _ . _ . . . . 2:29.53 _ 3353:. E333 E033: . 3:: 30.2.- 2: _ 9.: ES: 3:! a» _ 3.2.3.... _ $225.32....“ . . :22...» 8.53m 2:825 a. .Q 3:: . ... . Luz—3:. :a... _ _ _ . . . 7 23:2. .a 2.2235... 3.2.3.5.: 3.3:. :8 angle: .a 3......5 2: =52 :. 3....353 2.22 2.52.: 3 =3. 2.2:: .23 $3313“. ..ao....::u:. 22332: $1.223 a: .30 :5. 3:3: 5;, in: .33.: a: 2:2: .32.... .23 .355 $23.53.... 8. .3... .3... n:— .._.s :25: :0 22:50 .3353... 3:3... ..::..=.:.:..O $55.2: 3:355“. 2:23.30 9322:. 3:. .o 3:25.— ..3:a:=.. 2: 3:2. 3......m astio .ululIIIIIIIJ ..:o....::Eou . 32:22. E 3.5 a. 22:3 2.3:. :2... 3:. _ mg: 32.6 3:; o: 22:: _ .o 2: 2.32m. _ . a... 5520):. . . . n «3523: _ _ . _ 22:5: _ _ 9.5.0.3.”. _ 6:23)...sz _ _ 3.22m... _ 3...... _ _ 232...: _ . $32.6: _ 5:325:23: _ _ 3.9.30 2.5.62. 9:. :32... _ _ .o 23:32:... $8.33 _ 2.9.5.235: _ o:.~.:::Em _ 2.525.... 52.3.: _ :o..n~.E:.nao _ 55:25.... _ 52.3.: :o..=.:_uu:a.m _ _ _. . . . . _ . . _ . _ "x: 258.35 _ 3.32. .o .3... _ us 2...: 2.33.2. . conic: tau—33...: _ . .I E: 33.5 3:... a: . 3.5323 . 3.3.2:; . .u. n..:5(r)(ul-U. (I. III.)I\-L I - :gpmxmmm mmEmw "moufiom FREE—.2... 2:. 3.....naaau 3.2.5 :5. go... .2393 .anE3 :55 o. 3.3:... _ . .\ . .caEam. .IJ .. 3.3525 I“ EaEum. 2mm: ..|I|.IIIIIIII.J . . . _ _ _ 333.30 w.::E:a:n “ _ _ "a. 8.32.. 3.. 5...; c. .c::::. a:. .o 2:... . :. .32...“ 3:. use: 25.... 5:)... 2.3:. 6.0:...55 :2. 6:. 2.020 35.5 2. 5.2.5:. _ 33:0: @233. Banana... a:_ noun. _ . . _ _ _ . _ $023.32 _ . . . _ . _ £9.13 :53: mm. 32.33: .Qoucou . . one... 3: .3; out...» o:. n. :51. so. _ ..:u.>.:a noon a. 3:2. . um: man: 23:: . : 2.3:: a 3.. 3333.5... .6 $23.... :. .33.: :5 5 2:332. 23:32:: 33:. _ E: EntonE. 26.... _ $52.53 “no. 2: .:::an. .23.: :33. 5.. $0.... _ >. x: 333.2. a: 3. .aanu E0: :22. _ $23505 33%.... 2:25... .55.... 3.39... _ $2359... a o :5 Eu .50... 33:2: :5 a. 3:: _ 5.3.3:. E2525 0. :2... .62.: 23:. .92: _ .. :au n:o.m:aE.u . «Ea-Egan". E:...2.Eau a: so: _ _ . . . _ _ , . .2 gauge... _ _ 23...: .0 2:3. _ _ . _ . .I :. no.2: 6:23.... @225: . 52:3: .5 a. 3.1.: 3:333: .32: . 23:5: .525 9:. .c 5:25.... 0. 9.2.0:. .Qnucou _ .0 3.5.5.2: .:n:aaE. 2- .2.5 8.23 .5 as: 3:: _ :oEEoo 8: . . EzeEaam .5550 3.25 3.52.3... _ :55} .ub..m.~ IIIIIIIIIIIL 8...: 3.3.3.5 :5. u...me ...
View Full Document

This note was uploaded on 11/07/2011 for the course ECON 101 taught by Professor Johnson during the Spring '11 term at Sciences Po.

Page1 / 12

Define the Business - M WO‘ S'10 fflfifé5~7 234095...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online