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BUS 189, CHAPTER 5

BUS 189, CHAPTER 5. DR. MARK FRUIN FEB. 26 & 27, 2013 COB, SJSU. WHAT IS BUS-LEVEL STRATEGY?. FIRM-SPECIFIC PLAN OF ACTION FOR GAINING COMPETITIVE ADVANTAGE IN A MARKET OR INDUSTRY (TO TAKE AWAY BUSINESS FROM RIVALS)

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BUS 189, CHAPTER 5

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  1. BUS 189, CHAPTER 5 DR. MARK FRUIN FEB. 26 & 27, 2013 COB, SJSU

  2. WHAT IS BUS-LEVEL STRATEGY? • FIRM-SPECIFIC PLAN OF ACTION FOR GAINING COMPETITIVE ADVANTAGE IN A MARKET OR INDUSTRY (TO TAKE AWAY BUSINESS FROM RIVALS) • TO IMPLEMENT B-L STRATEGIES MAKE FULL USE OF FUNCTIONAL LEVEL STRATEGIES & BE CORRECTLY POSITIONED IN PRODUCT/MARKET SEGMENTS • INDUSTRIES = ARRAYS OF PRODUCT/MARKET SEGMENTS • HAVING DISTINCTIVE COMPETENCES • FOLLOWING PORTER, COST LEADERSHIP OR DIFFERENTIATION ADVANTAGES/THESE ARE PRODUCT-LEVEL STRAT • OR SUPERIOR PRODUCT DEVELOPMENT CAPABILITIES; SUPERIOR MARKET RESEARCH & ANALYSIS CAPABILITIES: R-C-C STRATEGIES • BASED ON • PRODUCT DIFFERENCES/FEATURES • CUSTOMER GROUPS OR MARKET SEGMENTS • LOCATION (SEGMENTS OFTEN DIFFER BY LOCATION)

  3. BL & FL STRATEGIES • DISTINGUISH BETWEEN BUSINESS LEVEL & FUNCTIONAL LEVEL STRATEGIES • IS ONE MORE APPROPRIATE AT CERTAIN TIMES & STAGES? • CAN BOTH BE PURSUED SIMULTANEOUSLY? • IS THE COMPETITION BETWEEN TOYOTA & GM (AND NOW BETWEEN VW & FIAT) TO BE THE LARGEST AUTO MAKER IN THE WORLD, A BL OR FL COMPETITON?

  4. COMPETITIVE POSITIONING • TO HAVE A COMPETITIVE ADVANTAGE, FIRMS MUST MAKE CHOICES • PURSUE COST LEADERSHIP OR DIFFERENTIATION! • WHAT PRODUCT FEATURES? • WHAT CUSTOMER CHARACTERISTICS OR CUSTOMER GROUPINGS? • WHERE (WHEN & HOW)? • WILL PRODUCT BE COMPETITIVELY POSITIONED ACCORDING TO (WHAT IT TAKES TO SUCCEED WITH ONE IS VERY DIFFERENT FROM THE OTHER) • COST LEADERSHIP? • DIFFERENTIATION?

  5. SEGMENTATION STRATEGIES • FIGURE 5.2 (SEE FIGURE 5.1 AS WELL) • APPLY TO YOGURT INDUSTRY, including Chobani, Yoplait, Mountain High, Fage, Dannon, Stonyfield Farm • 3 MAIN APPROACHES • NO MARKET SEGMENTATION - THE ENTIRE MARKET TAKEN AS AN UNDIFFERENTIATED WHOLE • HIGH MARKET SEGMENTATION - LOTS OF DIFFERENT PRODUCT/MARKET SEGMENTS • DIFF PRODUCTS FOR DIFF MKTS • FOCUSED MARKET SEGMENTATION - A FEW SEGMENTS ARE SELECTIVELY TARGETED • LOTS OF OTHERS ARE IGNORED (FOR NOW)

  6. SEGMENTATION AND THE BUSINESS MODEL • CHAPTER TALKS A LOT ABOUT BUSINESS MODELS RATHER THAN STRATEGIES • WHAT’S THE DIFFERENCE AGAIN? • BM IS HOW ARE WE GOING TO MAKE MONEY • STRATEGY IS HOW ARE WE GOING TO IMPLEMENT/EFFECT/PUT INTO PLACE BM • BUSINESS MODELS ARE EASY TO IMAGINE AND OFTEN HARD TO EFFECT • NOTE WELL HOW THIS APPLIES TO STAPLES! • OUR EMPHASIS IS ON STRATEGIES, NOT MODELS

  7. FIGURES 5.4, 5.5 & 5.6 • ILLUSTRATE WHAT WE HAVE JUST SAID • BUSINESS-LEVEL STRATEGIES REQUIRE • TARGET SEGMENTS (MAKE CHOICES) • CARRY OUT FUNCTIONAL LEVEL STRATEGIES (STRATEGY STACK IN ACTION) • MAKE CHOICES/PLANS • IMPLEMENT CHOICES: REQUIRES INVESTMENTS, ACTIONS • DEVELOP (MOBILIZE) ACTIVITIES/CAPABILITIES THAT IMPLEMENT TARGETED SEGMENTS • MAKE CHOICES • EXCEL IN ONE OR ANOTHER GENERIC COMPETITIVE STRATEGY (MAKE CHOICES; R-C-C MODEL IN ACTION) • AND BE EXCELLENT IN AT LEAST ONE FUNCTIONAL LEVEL STRATEGY AND PROBABLY MORE THAN ONE

  8. GENERIC STRATEGIES • COST LEADERSHIP (VALUE PROPOSITION STRATEGY) • BROAD • NARROW • DIFFERENTIATION (PRICE PREMIUM STRATEGY) • BROAD • NARROW (FOCUS DIFFERENTIATION)

  9. CUSTOMER GROUPS & MARKET SEGMENTATION • HOW MUCH ARE CUSTOMERS WILLING TO PAY VERSUS WHICH CUSTOMERS ARE BEING SERVED? • THREE ALTERNATIVE STRATEGIES • FOCUS ON “AVERAGE” CUSTOMER • SEGMENT (DIVIDE) MARKET INTO MANY DIFFERENT CONSTITUENCIES/CLUSTERS • CONCENTRATE ON “NICHES” ONLY • WHY DO THIS?

  10. WILL COME UP LATER IN TEXT I’LL BRING IT UP NOW: YOU CAN BE TOO EARLY OR TOO LATE TO THE SEGMENTATION PARTY AFFECTING YOUR ABILITY TO IMPLEMENT EITHER A CL OR DIFFERENTIATION STRATEGY WHAT KIND OF CUSTOMERS ARE LIKELY TO ENTER MARKETS WHEN/AT WHAT TIMES? • INNOVATORS (1%) • EARLY ADOPTERS (5%) • EARLY MAJORITY (24%) • LATE MAJORITY (45%) • LAGGARDS (24%)

  11. CAN A FIRM OFFER TOO MANY PRODUCTS? • HOW MANY PRODUCTS ARE THE “RIGHT” NUMBER OF PRODUCTS? • INDUSTRY CYCLE EFFECTS • MACROECONOMIC EFFECTS • SIGNALS & SIGNS OF TOO FEW OR TOO MANY PRODUCTS? • HOW MANY MODELS DO BOEING AND AIRBUS OFFER? • TOO MANY/TOO FEW & WHY? • RECENTLY GM REDUCED GREATLY THE NUMBER OF MODELS OFFERED WHILE TOYOTA & HYUNDAI ARE OFFERING MORE • A GOOD MOVE OR NOT & WHY? FOR GM & HYUNDAI?

  12. ADVANTAGES & DISADVANTAGES OF C.L. • ADVANTAGES • USING 5 FORCES MODEL: COST LEADER HAS • MORE POWER RELATIVE TO SUPPLIERS • MORE POWER RELATIVE TO BUYERS • BETTER ABLE TO DETER ENTRY OF NEW COMPETITORS & BATTLE SUBSTITUTE PRODUCTS (BY LOWERING PRICES) • DISADVANTAGES OF CL • MORE LIKELY STUCK IN PARTICULAR TECH/SEGMNT • WHY? • MORE LIKELY TO BE IMITATED • WHY? • MORE LIKELY STUCK IN C.L. STRATEGY (AND POSSIBLY LOSE SIGHT OF CHANGING CUSTOMER TASTES) • DISTRUPTIVE/DISCONTINUOUS INNOVATION (C. CHRISTENSEN)

  13. ADVANTAGES & DISADVAN-TAGES OF DIFFERENTIATION • ADVANTAGES • DIFFERENTIATORS TRY TO DIFFERENTIATE IN MANY DIFFERENT WAYS • HARD TO IMITATE (IF DONE WELL) • BRAND LOYALTY HIGH IF CONVINCE BUYERS OF “UNIQUENESS,” “UNUSUALNESS,” & “SPECIALNESS” • DISADVANTAGES • DIFFERENTIATION IS EXPENSIVE • MANY DIFFERENTIATION FACTORS ARE EASILY IMITATED • FOR HOW LONG CAN “UNIQUENESS” BE SUSTAINED/PROTECTED • IN GENERAL, CLAIMS OF “UNIQUENESS” ARE OVERBLOWN

  14. FOCUSED DIFFERENTIATION • FD MEANS CONCENTRATING ON • A PARTICULAR AREA (GEOGRAPHICALLY) • A PARTICULAR CUSTOMER (WELL EDUCATED, PART. HOUSEHOLD INCOME, ETC. • PARTICULAR MARKET SEGMENT, SUCH AS DESIGNER CLOTHES, FAST CARS, SMALL FOOTPRINT APPLIANCES, ETC.

  15. GENERIC COMPETITIVE STRATEGIES • ONE OF SEVERAL B-L STRATEGIES • REQUIRE CAREFUL ATTENTION TO PRODUCT/TECH/MARKET CHOICES • IT’S ALL ABOUT SEGMENTATION • LOOKING FOR THE SWEET SPOTS • CAN PROTECT FIRMS FROM 5 FORCES RIVALRIES - WHY? • REQUIRE CONTINUOUS UPGRADING OF INVESMENT CHOICES - WHY? • CREATE STRATEGIC GROUPINGS (FIRMS FOLLOWING SAME B-L STRATEGIES) – WHY?

  16. STRATEGIC GROUPS • WITHIN MOST INDUSTRIES, STRATEGIC GROUP EMERGE • A STRATEGIC GROUP IS DEFINED AS COMPANIES PURSUING THE SAME GENERIC STRATEGY WITHIN INDUSTRY • MOBILITY BARRIERS INHIBIT THE MOVEMENT OF COMPANIES FROM ONE STRATEGIC GROUP TO ANOTHER

  17. COMPETITIVE ADVANTAGE & INVESTMENT STRATEGY • WHAT TYPE OF INVESTMENTS MUST FIRMS MAKE TO SUSTAIN COMPETITIVE ADVANTAGE? • OBVIOUS • HUMAN RESOURCES, IT INVESTMENTS • FUNCTIONAL-LEVEL STRATEGIES • PURSUIT OF FINANCIAL ADVANTAGE • GLOBALIZATION & OUTSOURCING • NOT SO OBVIOUS? • INTANGIBLE RESOURCES • TACIT CAPABILITIES • SOCIAL PROCESSES • HIGHER LEVEL HR INVESTMENTS

  18. BUSINESS LEVEL INVESTMENT STRATEGIES • COMPETITIVE POSITION BASED ON • MARKET SHARE • STRENGTH OF DISTINCTIVE COMPETENCIES • (PRODUCT) LIFE CYCLE EFFECTS • GROW, MATURE, DECLINE • INDUSTRY CYCLE EFFECTS • EMBRYONIC, GROWTH, MATURE, DECLINE

  19. INDUSTRIES NOT GOVERNED BY 5 FORCES & POSSIBLY LIFE-CYCLE EFFECTS? • WHERE THERE ARE NO ECONOMIES OF SCALE AND SCOPE • NO INDUSTRY CONCENTRATION • CONCENTRATION RATIOS IN MATURE INDUSTRIES IS OFTEN HIGH • FOR EXAMPLE, OFFICE PRODUCTS INDUSTRY • WHAT SHARE OF INDUSTRY SALES DO STAPLES, OFFICE MAX AND OFFICE DEPOT REPRESENT? • SO-CALLED FRAGMENTED “INDUSTRIES” • HAIRCUT, DRY CLEAN, NAIL SALON, SALOON, POSSIBLY OTHER CONVENIENCE & SERVICE- ORIENTED BUSINESSES

  20. CYCLE CONFUSION • EMBRYONIC MAY INCLUDE EMBRYONIC AND VERY EARLY GROWTH/EMERGING • GROWTH MAY INCLUDE PLAIN OLD GROWTH (SOMETIMES CALLED EMERGING) AND SHAKEOUT GROWTH; PRE- AND POST-SHAKEOUT • MATURE MAY INCLUDE PRODUCT DIFFERENTIATION & PROLIFERATION • DECLINE ALSO INCLUDES CONSOLIDATION, CONCENTRATION & HARVEST (INCLUDE CASH COW STRATEGY) • ALSO, ANDY GROVE’S “CROSSING THE CHASM”

  21. INVESTMENT STRATEGY TYPES (MATCHED TO LIFE CYLE MODEL) • STRATEGIES PURSUED AT DIFFERENT STAGES OF ILC = DIFFERENT STRATEGIES FOR DIFFERENT STAGES • GROWTH • SHARE BUILDING • GROWTH • SHARE INCREASING • MATURE • HOLD-AND-MAINTAIN • PROFIT • MARKET CONCENTRATION • DECLINING • ASSET REDUCTION • HARVEST • TURNAROUND • LIQUIDATE • DIVESTITURE

  22. QUESTIONS • IN WHAT WAYS ARE FL & BL STRATS RELATED? • # OF MODELS? • PRODUCT DEVELOPMENT LEAD TIMES? • AM’T OF VERTICAL INTEGRATION & OUTSOURCING? • OTHER?? • WHY DOES EACH GENERIC STRATEGY REQUIRE DIFFERENT SETS OF PRODUCT/MARKET/ DISTINCTIVE COMPETENCY CHOICES? • EXAMPLES OF FIRM PAIRS MAKING DIFFERENT CHOICES; ARE THEY IN SAME STRATEGIC GROUP? • HONDA VS. TOYOTA • FORD VS GM • HOW SHOULD INVESTMENT CHOICES VARY IF YOU ARE IN STRONG OR WEAK COMPETITIVE POSITION WHEN PURSUING C.L. & DIFF STRATS

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