5 IDENTIFYING STRATEGIC BUSINESS UNITS Distinct external market for goods or services that is different from another SBU.If each product and each geographical branch is considered to be an independent SBU such immense variety of competitive strategies for a single organization would create a lack of focus and inefficiency.The concept of the SBU is important in properly reﬂecting the diversity of products and markets that actually exist
6 IDENTIFYING STRATEGIC BUSINESS UNITS Following two broad criteria which can help in avoiding these two pitfallsExternal criteriaTwo parts of an organization should only be regarded as the same SBU if they are targeting the same customer types, through the same sorts of channels and facing similar competitors.Internal criteriaTwo parts of an organization should only be regarded as the same SBU if they have similar products/services built on similar technologies and sharing a similar set of strategic capabilityKodak-film based and digital products
7 BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’ Assuming that there are a number of providers customers will choose which offering to accept on their perception of value-for-money.This consists of the combination of price and customer-perceived product/service beneﬁts of each offering.
8 The strategy clock: competitive strategy options
9 BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’ 1. Price-based strategies (routes 1 and 2)Route 1 : A ‘no frills’ strategy combines a low price, low perceived product/service beneﬁts.Customers do not value differences in the offering of different suppliers. So price becomes the key competitive issue.Emphasis on functionality over service or more aesthetic issues such as design or packagingfocus on a price-sensitive market segmentThe customers have low switching costs so building customer loyalty is difficult.
10 BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’ Route 2: A low-price strategy seeks to achieve a lower price than competitors whilst trying to maintain similar perceived product or service beneﬁts to those offered by competitorsPotential pitfalls when competing on price:Margin reductionInability to reinvestIn the long run, a low-price strategy cannot be pursued without a low-cost base.
11 BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’ 2. Differentiation strategies (route 4) seek to provide products or services beneﬁts that are different from those of competitors and that are widely valued by buyers.Success depends on:Has the organization clearly identiﬁed who is the strategic customer? What is valued ?It is important to be clear who are the competitors. Broad based market serving masses or narrow market? Automobile mass market – reliability key issue
12 BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’ 3. The hybrid strategy (route 3) :seeks simultaneously to achieve differentiation and a price lower than that of competitors.The success of the strategy depends on the ability to deliver enhanced beneﬁts to customers together with low prices whilst achieving sufficient margins for reinvestment to maintain and develop the bases ofThe hybrid strategy could be advantageous in the following circumstances:lf much greater volumes can be achieved than competitors then margins may still be better because of a low cost baseIf an organization is clear about the activities on which differentiation can be built (i.e. potential core competences) it may then be able to reduce costs on other activities.
13 BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’ As an entry strategy in a market with established competitors, to fill strategy gaps – poorly captured global marketsThe overall cost base is such that low margins can be sustainedA clear follow-through strategy has been considered after entry has been achieved
14 BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK 4. Focused differentiation (route 5) : seeks to provide high perceived product / service beneﬁts justifying a substantial price premium, usually to a selected market segment (niche)Focused differentiation raises some important issuesPursuing a focus strategy may be difficult when it is only part of an organization's overall strategyThe market situation may change such that differences between segments may be eroded, customers not for price premium
15 BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK 5. Failure strategies (routes 6, 7 and 8) : that do not provide perceived value-for-money in terms of product features, price or both.Route 6 suggests increasing price without increasing product/service beneﬁts to the customer – if competitors do not follow risk of loss in shareRoute 7 involves the reduction in product/service beneﬁts whilst increasing relative price – Monopoly situationsRoute 8 is categorized by reduction in beneﬁts whilst maintaining price, is also dangerous, though ﬁrms have tried to follow it – loss of share
17 SUSTAINING COMPETITIVE ADVANTAGE 1.Sustaining price based advantageOrganization must accept reduced marginAn organization may be prepared to sustain and win a price war with competitors from deep pockets to sustain short term losses or low cost base.An organization has cost advantages through organizationally speciﬁc capabilities driving down cost throughout the value chain.Low cost raw materialEfficiency in processesLow cost labor locationsDistribution cost advantagesLow cost by outsourcingInnovation in cost reduction – Mcdonald’s and Easy jet
18 SUSTAINING COMPETITIVE ADVANTAGE 2. Sustaining differentiation-based advantageConditions to sustain advantage through differentiation include the followingCreate difficulties of imitationImperfect mobility of the resources and/or competencesBrand and reputationLower cost position - reinvest to sustain – kallog’s and Mars
19 SUSTAINING COMPETITIVE ADVANTAGE 3. The delta model and lock-in (Hax and Wilde): An organization becomes an industry standardThe achievement of lock-in:Size or market dominance in the eyes of othersfirst mover advantagesOnce this position is achieved, it may be self-reinforcing and escalating – more firms come on boardMicrosoft industry standard though not best product
20 COMPETITIVE STRATEGY IN HYPERCOMPETITIVE CONDITIONS Hypercompetitive environment :turbulent, fast-changing, uncertain business environments and increased levels of competition.In slower-moving environments competitive strategy may be primarily concerned with building and sustaining competitive advantages that are difficult to imitate.In hyper-competitive environments organizations advantage will be temporary.
22 Integration Strategies Forward IntegrationGaining ownership or increased control over distributors or retailers
23 Integration Strategies Guidelines for Forward IntegrationPresent distributors are expensive, unreliable, or incapable of meeting firm’s needsAvailability of quality distributors is limitedWhen firm competes in an industry that is expected to grow markedlyOrganization has both capital and human resources needed to manage new business of distributionAdvantages of stable production are highPresent distributors have high profit margins
24 Integration Strategies Backward IntegrationSeeking ownership or increased control of a firm’s suppliers
25 Integration Strategies Guidelines for Backward IntegrationSuppliers are expensiveNumber of suppliers is small and number of competitors largeHigh growth in industry sectorCapital and human resources to manage new businessAdvantages of stable prices are importantPresent supplies have high profit margins
26 Integration Strategies Horizontal IntegrationSeeking ownership or increased control over competitors
27 Integration Strategies Guidelines for Horizontal IntegrationFirm can gain monopolistic characteristics without being challenged by federal governmentCompetes in growing industryIncreased economies of scale provide major competitive advantages
28 Intensive Strategies Market Penetration Market Development Product DevelopmentIntensive Strategies
29 Intensive Strategies Intensive strategies Require intensive efforts to improve a firm’s competitive position with existing /new products and markets
30 Intensive Strategies Build/Protect Consolidation Part of restructuring processAllows companies to reduce operations to meet lower consumer demand, liquidate certain operations that do generate sales or to avoid bankruptcy.
31 Intensive Strategies Guidelines for Market Penetration Seeking increased market share for present products or services in present markets through greater marketing effortsGuidelines for Market PenetrationCurrent markets not saturatedUsage rate of present customersIncreased economies of scale provide major competitive advantages
32 Intensive Strategies Market Development Introducing present products or services into new geographic area
33 Intensive Strategies Guidelines for Market Development New channels of distribution that are reliable, inexpensive, and good qualityFirm is very successful at what it doesUntapped or unsaturated marketsCapital and human resources necessary to manage expanded operationsBasic industry rapidly becoming global
34 Intensive Strategies Product Development Seeking increased sales by improving present products or services or developing new ones
35 Intensive Strategies Guidelines for Product Development Products in maturity stage of life cycleCompetes in industry characterized by rapid technological developmentsMajor competitors offer better-quality products at comparable pricesCompete in high-growth industryStrong research and development capabilities
37 Diversification Strategies Becoming less popular as organizations are finding it more difficult to manage diverse business activities
38 Diversification Strategies Related DiversificationAdding new, but related, products or servicesP&G and Unilever range of consumer goodsForward and backward integration to diversifyDiversify within strategic capabilities and value networkCar manufacturers forward integrated to repairs and service but failedSynergies may be harder to identify – built around economies of scope
39 Diversification Strategies Ownership of more activitiesNo guarantee of enhanced performanceGood relationships with distributors and retailers may be more beneficial
40 Diversification Strategies Guidelines for Related DiversificationCompetes in no- or slow-growth industryAdding new & related products increases sales of current productsNew & related products offered at competitive pricesCurrent products are in decline stage of the product life cycleStrong management team
41 Diversification Strategies Unrelated DiversificationAdding new, unrelated products or services
42 Diversification Strategies Guidelines for Conglomerate DiversificationDeclining annual sales and profitsCapital and managerial talent to compete successfully in a new industryExiting markets for present products are saturated