Group Exercise For your Case Company: Are there examples of rivals that more closely follow CL, Diff, and Focus? Provide 5 different company examples (hypothetical is ok) of rivals deploying one of the named grand strategies.

Break Out Reporting Case: Industry: Company & Rival Generic Strategy Examples: Grand Strategy Examples:

Business Strategy:Building Sustainable Competitive Advantages Session 10 Business Strategy:Building Sustainable Competitive Advantages

Session Objectives: Three Items 1. Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage Evaluating Cost Leadership Opportunities Evaluating Differentiation Opportunities Evaluating Speed as a Competitive Advantage Evaluating Market Focus as a Way to Win Competitive Advantage 2. Selected Industry Environments and Business Strategy Choices Emerging Industries Growth Industries Mature Declining Industries Fragmented Industries Global Industries 3. Dominant Product/Service Businesses: Diversification to Build Value

Key Issues: Strategic Choice in Single Businesses 1. What strategies are most effective at building sustainable competitive advantages for single business units? 2. When should dominant-product/service businesses diversify to build value and competitive advantage? What grand strategies are most appropriate?

How should you choose among competitive advantage strategies?

Prominent Sources of Competitive Advantage Cost leadership Sources of competitive advantage Differentiation Speed Market focus

For Each of the Four: CL, Diff, Speed/RR, MF Skills and Resource Requirements Structural/Organizational Requirements Value Chain Examples Advantages Risks

Evaluating A Business’s Cost Leadership Opportunities A. Skills and Resources Fostering Cost Leadership Sustained capital investment and access to capital Process engineering skills Intense supervision of labor or core technical operations Products or services designed for ease of manufacture or delivery Low-cost distribution system B. Organizational Requirements Supporting Cost Leadership Tight cost control Frequent, detailed control reports Continuous improvement and benchmarking orientation Structured organization and responsibilities Incentives based on meeting strict, usually quantitative targets

Evaluating A Business’s Cost Leadership Opportunities -- C Evaluating A Business’s Cost Leadership Opportunities -- C. Examples of Ways Businesses Achieve Competitive Advantage Technology development Process innovations lowering production costs Product redesign to reduce number of components Global, online suppliers provide automatic restocking of orders based on sales Inbound logistics Operations Outbound logistics Marketing & sales Service Economy of scale in plant reduces equipment costs and depreciation Computerized routing lowers transportation expense Cooperative advertising with distributors creates local cost advantage in buying media space and time Subcontracted service technicians repair product correctly first time or bear costs Reduced levels of management cuts corporate overhead Computerized, integrated information system reduces errors and costs Safety training for all employees reduces absenteeism, downtime, and accidents Human resource management General administration Favorable long-term contracts; captive suppliers or key customer for supplier Procurement margin Profit 21

Advantages of a Cost Leadership Strategy Low-cost advantages reduce likelihood of pricing pressure from buyers Sustained low-cost advantages may push rivals into other areas, lessening price competition New entrants must face an entrenched cost leader without experience to replicate cost advantages Low-cost advantages should lessen attractiveness of substitutes Higher margins allow low-cost producers to withstand supplier cost increases

Key Risks of Cost Leadership Many cost-saving activities are easily duplicated Exclusive cost leadership can become a trap Obsessive cost cutting can shrink other competitive advantages involving key product attributes Cost differences often decline over time

Industry Environments and Strategy Choices Emerging Industries Growth Industries Mature Industries Declining Industries Fragmented Industries Global Industries

For each Industry Environment … Characteristics Strategic Options

Characteristics of Markets in Emerging Industries Proprietary technology and technological uncertainty Competitor uncertainty regarding inadequate information High initial cost structure Few entry barriers First-time buyers require initial inducement Inability to easily obtain raw materials and components Need for high-risk capital

Strategic Options for Emerging Industries 1. Ability to shape industry’s structure 2. Ability to rapidly improve product quality 3. Establish favorable relations with key suppliers 4. Ability to establish technology as dominant force 5. Acquire a core group of loyal customers 6. Ability to forecast future competitors

Grand Strategy Selection Matrix Overcome weaknesses Maximize strengths External (acquisition or merger for resource capability) Internal (redirected resources within the firm) Turnaround or retrenchment Divestiture Liquidation Vertical integration Conglomerate diversification Concentrated growth Market development Product development Innovation Horizontal integration Concentric diversification Joint venture I II IV III

Model of Grand Strategy Clusters Rapid market growth Slow market growth Weak competitive position Strong competitive position 1. Concentrated growth 2. Vertical integration 3. Concentric diversification 1. Reformulation of concentrated growth 2. Horizontal integration 3. Divestiture 4. Liquidation 1. Concentric diversification 2. Conglomerate diversification 3. Joint venture 1. Turnaround or retrenchment 2. Concentric diversification 3. Conglomerate diversification 4. Divestiture 5. Liquidation II I III IV

Conclusion: Selecting a Business Strategy to Achieve a Competitive Advantage Focusing on key sources of competitive advantage requiring total, consistent commitment Selection of appropriate business strategie(s) involves Weighing skills, resources, organizational requirements, and risks of each source of competitive advantage Considering unique effects of the generic industry environment on a firm’s value chain activities