1. Chapter 2: Business Strategy and Global Competivevess

2. Chapter 2 Business Strategy and Global Competitiveness Chapter 2: Business Strategy and Global Competivevess

3. Introduction Chapter 2: Business Strategy and Global Competivevess

4. Manor Care • Operates “Sleep Inns” • Labor shortage • Designed rooms to minimize housekeeping staff needed • Attached nightstands to walls • No doors on closets • Rounded shower stalls • Advanced security system Chapter 2: Business Strategy and Global Competivevess

5. Manor Care Results • Rooms can be cleaned in 20 minutes versus 30 minute industry standard • 92-room hotel operated with equivalent of 11 full-time workers Chapter 2: Business Strategy and Global Competivevess

6. American Steel Industry • Foreign competition posed major threat to industry in early 1980s. • In 1982, US producers needed 10.59 labor hours to produce one metric ton compared with 10.01 hours in Japan. • US closed plants, modernized others, and reduced payrolls. Chapter 2: Business Strategy and Global Competivevess

7. American Steel Industry continued • By middle of 1991, US steelmakers able to produce a metric ton with 5.4 hours compared to 5.6 hours for Japanese. • At the same time, quality also improved. Chapter 2: Business Strategy and Global Competivevess

8. American Steel Industry continued • In early 80s, Ford rejected 8% of domestic steel shipments and 20% were late. • By early 1990s, steel rejects reduced to 1% and 99% of shipments were on time. Chapter 2: Business Strategy and Global Competivevess

9. Technology Examples • Kansas City Power & Light using automatic meter readers which broadcasts data on electricity usage and eliminates $15/hour human meter readers. • Coca-Cola is installing similar technology in its vending machines. • This will allow Coke to better schedule deliveries and evaluate ad campaigns. Chapter 2: Business Strategy and Global Competivevess

10. Examples Illustrate • Shortage of employees often necessitates need to improve productivity. • Increased competition (especially foreign competition) another reason why companies seek to improve their productivity. • Improving productivity is often dependent on new technologies. Chapter 2: Business Strategy and Global Competivevess

11. Top Management • Responsible for making and keeping organization competitive. • Develops business strategy • provides direction and vision • guides short- and long-term decisions • must consider international competition • All functional areas and business processes must support the business strategy. Chapter 2: Business Strategy and Global Competivevess

12. Business Strategy A set of objectives, plans, and policies for the organization to successfully compete in its markets. • Long range (3 to 5 years) • It specifies what organization’s competitive advantage will be • Focuses on few key areas • The pattern of decisions made over time is in fact an organization’s business strategy.

13. Formulating the Business Strategy Chapter 2: Business Strategy and Global Competivevess

14. Strategy Formulation

15. Vision and Mission Statements • Vision statements used to express organization’s values and aspirations. • Mission statements express organization’s purpose or reason for existence. Chapter 2: Business Strategy and Global Competivevess

16. Core Competencies • Collective knowledge and skills an organization has that distinguish it from the competition. • Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services. • Building blocks of core capabilities. Chapter 2: Business Strategy and Global Competivevess

17. Core Competencies continued • Are basis on which new outputs are developed. • Better to think of organization in terms of its portfolio of core competencies than as a portfolio of products. • Identifying and developing core competencies is one of top management’s most important roles. Chapter 2: Business Strategy and Global Competivevess

18. Core Capabilities • Organization practices and business processes Chapter 2: Business Strategy and Global Competivevess

19. Examples of Core Competencies • Sony - miniaturization • 3M- knowledge of substrates, coatings and adhesives • Black and Decker - small electrical motors and industrial design • Honda - engines and power trains Chapter 2: Business Strategy and Global Competivevess

20. Core Competencies Used to Gain Access to Markets • Cannon • core competencies in optics, imaging, and electronic controls • Products include copiers, laser printers, cameras, and image scanners. • Boeing • integrating large scale systems • commercial jetliners, space stations, missiles Chapter 2: Business Strategy and Global Competivevess

21. Key Characteristics of Core Competencies/Capabilities • Should be used to gain access to a variety of markets • Should be strongly related to key benefits provides by products or services • Should be difficult to imitate Chapter 2: Business Strategy and Global Competivevess

22. Outsourcing • Subcontracting out production of parts or performance of activities • Activities and parts fall on a continuum ranging from strategically unimportant to strategically important • Activities not strategically important are candidates to be outsourced Chapter 2: Business Strategy and Global Competivevess

23. Strategically Important Parts or Activities • Strongly related to what customers perceive to be key product characteristics. • Require highly specialized skill and knowledge. • Require highly specialized physical assets • The organization has the technological lead or is likely to obtain it. Chapter 2: Business Strategy and Global Competivevess

24. Hollowed Out • The extent that most of a firm’s complex parts and production are outsourced • Often when complex parts outsourced, engineering talent follows • Supplier may become competitor Chapter 2: Business Strategy and Global Competivevess

25. Creeping Breakeven Phenomenon • Vicious cycle where products appear to become more expensive to produce in-house as others are outsourced. • Result from way overhead allocated • Logical conclusion is organization ends up producing no outputs. Chapter 2: Business Strategy and Global Competivevess

26. Business Strategy and the Product Life Cycle Chapter 2: Business Strategy and Global Competivevess

27. The Life-Cycle Curve Chapter 2: Business Strategy and Global Competivevess

28. Product Life Cycle • Strategies often tied to product life cycle • Length of life cycles shrinking • Business strategy should match life cycles stages Chapter 2: Business Strategy and Global Competivevess

29. Categories of Business Strategies Chapter 2: Business Strategy and Global Competivevess

30. First-to-Market Strategy • Products available before competition • Strong applied research capability needed • Can set high price to skim market or set lower price to gain market share Chapter 2: Business Strategy and Global Competivevess

31. Second-to-Market Strategy • Quick imitation of first-to-market companies • Less emphasis on applied research and more emphasis on development • Learn from first-to-market’s mistakes Chapter 2: Business Strategy and Global Competivevess

32. Cost Minimization or Late-to-Market Strategy • Wait until market becomes standardized and large volumes demanded • Compete on basis of costs instead of product features • Research efforts focus on process development versus product development Chapter 2: Business Strategy and Global Competivevess

33. Market Segmentation • Serving niche markets • Applied engineering skills and flexible manufacturing processes needed Chapter 2: Business Strategy and Global Competivevess

34. The Balanced Scorecard • Helps translate mission and strategy into appropriate performance measures. • Traditionally organizations relied primarily on financial measures. • No single set of measures can provide information needed in all critical areas of the business. • Purpose of balanced scorecard the development of a set of measures that provides a comprehensive view of the organization. Chapter 2: Business Strategy and Global Competivevess

35. Benefits of Using Balanced Scorecard • Clarify and gain consensus of strategy • Mechanism for communicating strategy • Mechanism for aligning departmental and personal goals to the strategy • Help ensure strategic objectives are linked to annual budget • Timely feedback related to improving the strategy Chapter 2: Business Strategy and Global Competivevess

36. Performance Measured inFour Areas • Financial performance • Customer performance • Internal business process performance • Organizational learning and growth Chapter 2: Business Strategy and Global Competivevess

37. Developing a Balanced Scorecard • Top management translates mission and strategy into specific customer and financial objectives. • Measures for internal business processes developed on basis of customer and financial objectives. • Investments in employee training and information technology linked to customer, financial, and internal business process objectives. Chapter 2: Business Strategy and Global Competivevess

38. Focus • Goal of business strategy is to establish and maintain a unique strength, or focus that leads to a sustainable competitive advantage. • Two successful competitive positions • lowest cost • outstanding strength Chapter 2: Business Strategy and Global Competivevess

39. Innovation Customization Product/service flexibility Volume flexibility Performance Quality Product/service reliability Delivery reliability Response After-sale service Price Common Areas of Focus Chapter 2: Business Strategy and Global Competivevess

40. Order Qualifiers and Winners • Order qualifiers are characteristics that are the ante to enter the market • Order winners are characteristics that win the customer’s purchase Chapter 2: Business Strategy and Global Competivevess

41. Loss of Focus • New outputs • New attributes • New tasks • Departmental professionalism • Ignorance and noncommunication • Life cycle changes Chapter 2: Business Strategy and Global Competivevess

42. Product Life Cycle Stages and Emphasis Chapter 2: Business Strategy and Global Competivevess

43. Strategic Frameworks Chapter 2: Business Strategy and Global Competivevess

44. The Sand Cone Model Chapter 2: Business Strategy and Global Competivevess

45. Example Performance Frontier Chapter 2: Business Strategy and Global Competivevess

46. New Technology Results inShift of Performance Frontier Chapter 2: Business Strategy and Global Competivevess

47. Stages of Operational Effectiveness • Internally Neutral • Externally Neutral • Internally Supportive • Externally Supportive Chapter 2: Business Strategy and Global Competivevess

48. Global Competitiveness • Long-term viability of a firm • Short-term success in terms of market share or profitability • Since 1970s, imports to the US have grown faster than exports from the US • US is biggest debtor nation in world Chapter 2: Business Strategy and Global Competivevess

49. The United States’Merchandise Trade Chapter 2: Business Strategy and Global Competivevess

50. Exchange Rates • US competitiveness reflected in value of dollar relative to other currencies • As US increases its imports relative to its exports, a surplus of US dollars accumulates abroad reducing the desirability of holding US dollars • Price adjusted broad dollar index Chapter 2: Business Strategy and Global Competivevess