Management Chapter 10

competitive advantage
ability to use resources so well that it performs better than competition. something you do that makes you better than competition
sources of competitive advantage
technology, cost and quality, knowledge and speed, barriers to entry, financial resources
technological competitive advantage
you use technology to gain operating efficiencies, market exposure, and customer loyalty
cost and quality competitive advantage
you operate with greater efficiency and your product or service is better quality
knowledge and speed competitive advantage
you are innovative and quickly deliver new ideas to the market
financial resources competitive advantage
you have better investments or loss absorption potential than competitors
comprehensive plan guiding resource allocation to achieve long-term goals. as an organization, what do we do, where are we going, and how can we do it to have a competitive advantage?
sustainable competitive advantage
goal of strategic planning. means a long run competitive advantage. ability to outperform rivals in ways that are difficult or costly to imitate.
how to have sustainable competitive advantage
1. customer sees value in your service or product they don’t see somewhere else
2. something about you that can’t be duplicated
3. you leave other organizations catching up to you while you’re on to the next thing
4. develop your core competencies (innovation is a big one today)
5. satisfies market place desire
strategic intent
resources/energies applied in a way that accomplishes long term goals. time, money, and people are not being wasted
environmental factors
external forces affecting organization: economic, sociocultural, technological, natural, legal-political. SWOT comes from these by analyzing environmental opportunities and threats
economic environment
economic growth, unemployment rate, disposable income
sociocultural environment
population demographics, education system, health/nutrition values
technological environment
IT systems/infrastructure, broadband Internet access
natural environment
green values, recycling infrastructure
legal-poilitcal environment
laws a regulations, business forms, political trends
internal assessment
strengths and weaknesses of the organization
external assessment
opportunities and threats of the environment
examples of opportunities
possible new markets, strong economy, weak market rivals, emerging technologies, growth of existing market
examples of threats
new competitors, shortage of resources, changing market tastes, new regulations, substitute products
examples of strengths
manufacturing efficiency, skilled workforce, good market share, strong financing, superior reputation
examples of weaknesses
outdated facilities, inadequate research and development, obsolete technologies, weak management, past planning failures
five forces of the industry structure
tool for strategic analysis in competitive industries
1. level of competition/rivalry among firms
2. bargaining power of suppliers
3. bargaining power of customers
4. threat of new entrants to industry
5. threat of substitute products
specific environments close to the organization
all impact how you make your strategy. closest: employees, stockholders. close: competitors, suppliers, customers, labor unions. less close: educational institutions, court and legal institutions, financial institutions, public-interest groups, political parties, federal state local governments
BCG Matrix
asks managers to analyze business and product strategies based on (1) market growth rate for the industry and (2) market share held by the firm. sorted into dogs, stars, question marks, and cash cows
high growth and share. produce large profits in expanding markets. strategy: grow them and invest more. ex: apple iPad
cash cows
low growth, high shares. good profits and strong cash flow but little upside potential. strategy: modest/stable growth. “milk” the business. ex: iPhone (yesterday’s star)
question marks
high growth, low shares. not much profit now but alot of upside potential from growing market. strategy: grow the most promising, retrench less promising. ex: apple TV
low share and low growth. little profit and low potential for improvement. strategy: retrenchment. ex: iPod
aims to reduce size or diversity of organization. cut expenditures to become more financially stable
growth strategy
involves expansion of the organization’s current operations. increase revenue, product or service lines, and operating locations
growth strategy keywords
acquisition, merger, global expansion
expansion trap
you think growth means effectiveness so growth outruns your capacity to manage it and spending outruns revenues. ex: facebook
expanding in the same business area. expand on one product, grow through making one thing larger.
examples of concentration
McDonalds adds new locations while concentrating on its primary business. Mcdonalds expands with new restaurants around the world to find new customers and push sales growth
expanding by acquiring or investing in new and different business areas
related diversification
you acquire a new business or enter a business area similar to what you do. ex: starbucks purchases Evolution Fresh fruit company, adds juices to its stores, opens separate Evolution Fresh stores. does this to gain more nutritious conscious customers
unrelated diversification
you acquire a business or enter a business area different from what you do. ex: India’s Tata Group owns 98 companies in diverse industries like steel, communications, hotels, energy, and consumer products
vertical integration
business grows by acquiring its suppliers or distributors. ex: apple computer buys its chip manufacturer. ex: coca-cola buys its bottler
horizontal integration
business grows by acquiring or merging with a competitor in the same industry value chain. ex: Disney merges with Pixar
retrenchment and restructuring strategies
pursue radical changes to solve problems
extreme restructuring strategy, U.S. law gives firm chapter 11 protection so they can reorganize and restore solvency. ex: Chrysler during the economic crisis
extreme retrenchment strategy. insolvent firm closes and assets are sold to pay creditors
restructuring by decreasing size of operations (often by reducing workforce). most successful when cutbacks are selective and made with specific performance objectives
sell of parts of the organization to refocus remainder of attention on core competencies, cutting costs, and improving operational efficiency. ex: eBay bought Skype but later sold it after realizing it was a bad, costly idea that does not synergize with eBay
globalization strategy
firm views the world as one large market. decisions made from corporate headquarters. try to standardize products and advertising for use everywhere. ex: Gillette razors will be sold and advertised similarly around the world
strategic alliance
cooperative strategy where two ore more organizations partner together to pursue an idea of mutual interest. cooperate for common gains
strategic alliance examples
purchasing IT services from another company; establishing good relationship with supplier to get supplies on time; two firms join together to sell/distribute products or services
strategic alliances among competitors. work with rivals on projects of mutual benefit. cooperating while competing
co-opetition examples
United Airlines and Lufthansa “Star Alliance” partnership allows customers code sharing on flights and frequent flyer programs. New auto technologies are expensive so Daimler works with BMW to co-develop new motro components for hybrid cars
information and communication technology is used to enhance business. any process a business conducts over a computer mediated network
B2B e-business
companies do business with each other. ex: manufacturer sells to distributor, wholesaler sells to retailer
B2C e-business
businesses sell to the general public using catalogs and shopping cart software.
collective intelligence gathered from the public is used to complete business-related tasks
statement expressing organization’s reason for existence in society. analysis of this begins the strategic management process. want it to be clear and distinctive to inspire support and respect from stakeholders
specific results that organizations try to accomplish
typical operating objectives
profitability, sustainability, social responsibility, financial health, cost efficiency, customer service, product quality, market share, human talent, innovation
attractive industry competition
few competitors
unattractive industry competition
many competitors
attractive industry barriers to entry
high barriers to entry
unattractive industry barriers to entry
low barriers to entry
attractive industry suppliers
low supplier power
unattractive industry suppliers
high supplier power
attractive industry customers
low bargaining power of customers
unattractive industry customers
high bargaining power of customers
market scope
how broad or narrow your market or target market is
source of competitive advantage
competitive advantage derived primarily from either low price or product uniqueness
business-level strategy
tries to find best way to compete for customers in your market with your products and services
seeks competitive advantage through uniqueness. develop goods/services clearly different from competition. want customers to lose interest in competitors and stay loyal to you. ex: coke and pepsi spend tons on marketing to make you perceive their products as different
cost leadership strategy
seeks competitive advantage by operating at low costs for low product prices competitors cant match. want to always improve efficiency. ex: Walmart
focus strategy
concentrates on serving a unique market segment better than anyone else
focused differentiation strategy
unique product offered to special market segment. ex: NetJets private luxury travel for celebrities
focused cost leadership strategy
seeks lowest costs of operations within a special market segment. ex: Ryan Air offers low prices to budget travelers