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© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.

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Presentation on theme: "© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner."— Presentation transcript:

1 © 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

2 Chapter 6 Defining the Organization's Strategic Direction

3 Genzymes Focus on Orphan Drugs Genzyme was founded in 1981 by scientists studying genetically inherited enzyme diseases Adopted a very unusual strategy of developing drugs for rare diseases rather than blockbuster drugs. Smaller markets, but fewer competitors Requires less advertising, smaller sales force In 1983, the FDA established the Orphan Drug Act, giving seven years market exclusivity to developers of drugs for rare (<200,000 patients) diseases. Also chose unusual strategy of doing its own manufacturing and sales rather than licensing to a pharmaceutical company. Diversified into side businesses to fund its R&D. By 2012, the company (now a fully-owned subsidiary of Sanofi) was one of the worlds leading biotech companies with 25 products sold in 90 countries. 6-3

4 Genzymes Focus on Orphan Drugs Discussion Questions: 1.How does Genzymes focus on orphan drugs affect the degree of competition it faces? How does it affect the bargaining power of customers? 2.How does focusing on orphan drugs affect the types of resources and capabilities a biotech firm needs to be successful? 3.Does Genzymes focus on orphan drugs make sense? Do you think Genzyme has a long-term strategic intent? 4.Why do you think Genzyme has diversified into other areas of medicine? What are the advantages and disadvantages of this? 5.What recommendations would you offer Genzyme for the future? 6-4

5 Overview A coherent technological innovation strategy leverages the firms existing competitive position and provides direction for future development of the firm. Formulating this strategy requires: Appraising the firms environment, Appraising the firms strengths, weaknesses, competitive advantages, and core competencies, Articulating an ambitious strategic intent. 6-5

6 Assessing the Firms Current Position External Analysis Two common methods are Porters Five- Force Model and Stakeholder Analysis. Porters Five-Force Model 1.Degree of existing rivalry. Determined by number of firms, relative size, degree of differentiation between firms, demand conditions, exit barriers. 2.Threat of potential entrants. Determined by attractiveness of industry, height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.) 3.Bargaining power of suppliers. Determined by number of suppliers and their degree of differentiation, the portion of a firms inputs obtained from a particular supplier, the portion of a suppliers sales sold to a particular firm, switching costs, and potential for vertical integration. 6-6

7 Assessing the Firms Current Position 4.Bargaining power of buyers. Determined by number of buyers, the firms degree of differentiation, the portion of a firms inputs sold to a particular buyer, the portion of a buyers purchases bought from a particular firm, switching costs, and potential for vertical integration. 5.Threat of substitutes. Determined by number of potential substitutes, their closeness in function and relative price. Recently Porter has acknowledged the role of complements. Must consider: a)how important complements are in the industry, b)whether complements are differentially available for the products of various rivals (impacting the attractiveness of their goods), and c)who captures the value offered by the complements. 6-7

8 Assessing the Firms Current Position Five-Force Model 6-8

9 Assessing the Firms Current Position Stakeholder Analysis 1.Who are the stakeholders. 2.What does each stakeholder want. 3.What resources do they contribute to the organization. 4.What claims are they likely to make on the organization. 6-9

10 Assessing the Firms Current Position Internal Analysis 1.Identify the firms strengths and weaknesses. Helpful to consider each element of value chain. 6-10

11 2. Assess which strengths have potential to be sustainable competitive advantage Rare Valuable Durable Inimitable Resources are difficult (or impossible) to imitate when they are: Tacit Path dependent Socially complex Causally ambiguous Assessing the Firms Current Position Competitive Advantage Sustainable Competitive Advantage 6-11

12 Identifying Core Competencies and Capabilities Core Competencies: A set of integrated and harmonized abilities that distinguish the firm in the marketplace. Competencies typically combine multiple kinds of abilities. Several core competencies may underlie a business unit. Several business units may draw from same competency. Core competencies should: Be a significant source of competitive differentiation Cover a range of businesses Be hard for competitors to imitate 6-12

13 Identifying Core Competencies and Capabilities 6-13

14 Research Brief Identifying the Firms Core Competencies Gallon, Stillman and Coates offer a step-by-step program for identifying core competencies. Module 1 -- Assemble a steering committee, appoint a program manager, and communicate the overall goals of the project to all members of the firm. Module 2 -- Constructing an inventory of capabilities categorized by type. Assess their strength, importance, and criticality. Module 3 – Organize capabilities by both their criticality and the current level of expertise within the firm for each. Module 4 – Distill competencies into possible candidates for the firm to focus on. No options should be thrown out yet. Module 5 -- Testing the candidate core competencies against Prahalad and Hamel's original criteria. Module 6 -- Evaluate the firms position in the core competency. 6-14

15 Risk of Core Rigidities When firms excel at an activity, they can become over committed to it and rigid. Incentives and culture may reward current competencies while thwarting development of new competencies. Dynamic capabilities are competencies that enable the firm to quickly respond to change. E.g., firm may develop a set of abilities that enable it to rapidly deploy new product development teams for a new opportunity; firm may develop competency in working with alliance partners to gain needed resources quickly. 6-15

16 Strategic Intent A long-term goal that is ambitious, builds upon and stretches firms core competencies, and draws from all levels of the organization. Typically looks years ahead, establishes clear milestones Firm should identify resources and capabilities needed to close gap between strategic intent and current position. 6-16

17 Theory In Action The Balanced Scorecard Kaplan and Norton argue that effective performance measurement should incorporate: Financial perspective Customer perspective Internal perspective Innovation and learning 6-17

18 Discussion Questions 1.What is the difference between a strength, a competitive advantage, and a sustainable competitive advantage? 2.What makes an ability (or set of abilities) a core competency? 3.Why is it necessary to perform an external and internal analysis before the firm can identify its true core competencies? 4.Pick a company you are familiar with. Can you identify some of its core competencies? 5.How is the idea of strategic intent different from models of strategy that emphasize achieving a fit between the firms strategies and its current strengths, weaknesses, opportunities and threats (SWOT)? 6.Can a strategic intent be too ambitious? 6-18


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