Purpose • Business is about an idea/strategy to make money. • Cash flow is a measurement of the effectiveness of your idea/strategy. • Approaches to developing effective strategies.
Which of the following is the best business opportunity and why • Developing a software/spyware program that monitors internet usage for advertising purposes. • Starting a formal wear rental business in Ames • Starting a college selection advising service. It includes guidance in financial aid. • Starting a national chain of cemeteries. • Starting a brokerage firm for life insurance policies. Matching corporate buyers and corporate sellers of large personal or group life insurance policies.
Discuss in groups. • What were reasons for rejecting or selecting different ideas/strategies for making money?
Boeing VS airbus • Head to head competition especially in larger planes. Airbus assumes no new gates and as demand increases on major routes need new planes. • Airbus wins market share for larger planes. • What will Boeing do?
Strategic planning • Relevant for new markets • Relevant for entire corporations • Need to look at the whole industrial sector and assess how to enter and compete with existing firms in an industrial sector.
Key words • Competitive advantage—the ability of the firm to win consistently over the long term. • Sustainability. • Think in military terms—What made the US so competitive with Military? What do we have that others do not have? • Same is true in business.
Examples of competitive advantage • Wal Mart and logistics • Patents • Honda and motors (knowledge/patents) • Microsoft—near monopoly (note its slowly eroding). • Hickory Park
How these provide competitive advantage • Superiority/value—What you choose to do, you need to be best at it. Its not directly price—its how you do it. If you do it well, price will be low or customers will be attracted to quality. Wal Mart is great example.
Inimitability– difficult for others to copy. If easy then not sustainable. • Software programs and competitive advantage • Patents • Hickory Park
Durability—related to imitability. • How long can one sustain it.
Non-substitutable—can what you do be replaced by other products/services. How competitive is your industry? • Trains. • Records/CDs/Ipod.
Appropriability • Cash flow high • Supernormal returns Nokia 80% of market share on cell phones. • Profit margins. Think about Microsoft. What should it charge for windows?
Economic theory suggests • No profits in true competition. Airlines since deregulation. • Need to find ways to minimize true competition. Gain competitive advantage. • Strategizing. No different than military. Better strategy usually wins. Strategy entails more than troop movements in both business and military.
How do we develop a competitive advantage • Strategic Planning Process.
Step 1 • SWOT Analysis; Strengths, Weaknesses, Opportunities, Threats.
Internal analysis • What are your strengths and weaknesses.
It helps to look at the value chain. • What functions do you do well or do poorly.
Primary activities—production /service • Inbound logistics • Operations • Outbound logistics • Marketing/sales • After sale service
Support activities • Procurement—global connections. • Technology • Human Resources—Employees and culture pp 100-101. • Infrastructure (miscellaneous such as finance, legal, government relations, etc). • Enron—Skilling and George Bush. • OR GE and Finance
Strength is how you choose to compete. • What is your core competency? What do you do significantly better than your competitors? Provides Value. • Weakness— Achilles heel? Outsource to someone who can do better than you. Example, small drug company partners with Merck to distribute drug. Strength is research program. Or can take cash flow to minimize weakness.
Focus on Boeing; Wells Fargo, Hickory Park. • Strengths.
Environmental analysis • In terms of opportunities and threats.
Focus on Task environment—forces affecting organizational performance on an immediate or short term basis. Commonly an industry analysis. What are your competitors doing?
Value line examples. • Number of competitors. (opportunity or threat?)
Entry barriers and switching costs. • Entry barriers—capital investment. • Switching costs—contractual relationships or capital investment (Software).
Substitutes—Book gives transportation • Energy and Oil. Are there substitutes for Oil?
Customers • Of course its very important. • Consider Numbers, fragmentation, segmentation, product knowledge, etc. • Example Coke and growth to a global soft drink provider.
Strategic Partners/Alliances • Perhaps input perhaps industry relationships and outsourcing (threat or opportunity).
Labor • Supply and demand. Critical in tight labor markets.
General environment • Forces that influence the task environment and indirectly the organization. Longer term trends.
Sociocultural • Demographics and changing societal values.
Technology • Product • Process (includes information technology)
Economic forces • Conditions, cyles, structural changes
Political and legal forces • Influences the regulators—but changes more slowly.
Global forces • World trade, strength of the dollar, terrorism.
Generic Strategies to consider—how to focus against competition • Cost leadership. Low expenses. Wages, Inventory management, use of raw materials (less expensive), technological investments (lower labor costs).
Differentiation • Distinguish your products from competitors in some manner. Quality, Branded Image, bells and whistles. • Nike, Toyota, electronics, patents.
Scope • General or focused. • General—all purpose. Advantages in that large market. • Focused—niche market. Limited scope or breadth of focus. Geographic, customer segment. Advantage, less competitive but smaller market share. • Take a movie like the incredibles vs the grudge. • Similar with firms.
Putting it all together is the greatest challenge. • Current situation and future. Strategic plan is long term. Unexpected changes will always happen. New markets, new technology etc. Do your best to plan for all of these. • Most firms start off with differentiation or niche strategy focus.
Step 5 • Mission statement/strategic intent • Statement of company philosophy • Identity • Primary products services • Customers/markets • Geographic focus • Obligations to shareholder/employees. • Does not need to include all of these.
Examples Boeing • People working together as a global enterprise for areospace leadership • Competencies are detailed customer knowledge and focus • Large scale systems integration • Lean enterprise
Wells fargo • The Vision & Values of Wells Fargo • Our product: SERVICE. Our value-added: FINANCIAL ADVICE. Our competitive advantage: OUR PEOPLE