MGMT 4500 Ch 8

Low-cost Strategies
Business strategies that seek to establish long-term competitive advantages by emphasizing and perfecting value-chain activities that can be achieved at costs substantially below what competitors are able to match on a sustained basis. This allows the firm, in turn, to compete primarily by charging a price lower than competitors can match and still stay in business.
Differentiation
A business strategy that seeks to build competitive advantage with its product or service by having it be “different” from other available competitive products based on features, performance, or other factors not directly related to cost and price. The difference would be one that would be hard to create and/or difficult to copy or imitate
Speed-Based Strategies
Business strategies built around functional capabilities and activities that allow the company to meet customer needs directly or indirectly more rapidly than its main competitors.
Market Focus
This is a generic strategy that applies a differentiation strategy approach, or a low-cost strategy approach, or a combination – and does so solely in a narrow (or “focused”) market niche rather than trying to do so across the broader market. The narrow focus may be geographically defined or defined by product type features, or target customer type, or some combination of these.
Emerging Industry
An industry that has growing sales across all the companies in the industry based on growing demand for the relatively new products, technologies, and/or services made available by the firms participating in this industry
Growth Industry Strategies
Business strategies that may be more advantageous for firms participating in rapidly growing industries and markets
Mature Industry Strategies
Strategies used by firms competing in markets where the growth rate of that market from year to year has reached or is close to zero
Declining Industry
An industry in which the trend of total sales as an indicator of total demand for an industry’s products or services among all the participants in the industry have started to drop from the last several years with the likelihood being that such a trend will continue indefinitely.
Fragmented Industry
An industry in which there are numerous competitors (providers of the same or similar products or services the industry involves) such that no single firm or small group of firms controls any significant share of the overall industry sales
Global Industry
Industry in which competition crosses national borders
Grand Strategy Selection Matrix
A four-cell guide to strategies based upon whether the business is (1) operating from a position of strength or weakness and (2) rely on its own resources versus having to acquire resources via merger or acquisition
Retrenchment
Cutting back on products, markets, operations because the firm’s overall competitive and financial situation cannot support commitments needed to sustain or build its operations.
Divestiture
The sale of a firm or a major component
Liquidation
Closing down the operations of a business and selling its assets and operations to pay its debts and distribute any gains to stockholders
Concentrated Growth
Aggressive market penetration where a firm’s strong position and favorable market growth allow it to “control” resources and effort for focused growth
Strategic Alliances
Partnerships that are distinguished from joint ventures because the companies involved do not take an equity position in one another
Grand Strategy Clusters
Strategies that may be more advantageous for firms to choose under one of four sets of conditions defined by market growth rate and the strength of the firm’s competitive position.
Identify the two most prominent sources of competitive advantage
cost structure
ability to differentiate the business from competitors
cost leadership strategy
-Skills and Resources that foster cost leadership

– Organizational requirements to support and sustain cost leadership activities

Skills and Resources that foster 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
Organizational requirements to support and sustain cost leadership activities
– Tight and control
– Frequent, detailed control reports
– continuous improvement and benchmarking orientations
– Structured organization and responsibilities
– Incentives based on meeting strict, usually quantitative targets
Key Risks to cost leadership strategy
o Many cost-saving activities are easily duplicated
o Exclusive cost leadership can be a trap
o Obsessive cost cutting can shrink other competitive advantages
o Cost differences often decline over time
what it takes to successfully pursue a differentiation strategy
1. Skills and resources that foster Differentiation
2. Organizational requirements to support and sustain differentiation activities
Skills and resources that foster Differentiation
– Strong marketing abilities
– Product engineering
– Creative talent and flair
– Strong capabilities in basic research
– Corporate reputation for quality or technical leadership
– Long tradition in an industry or unique combination of skills drawn from other businesses
– Strong cooperation from channels
– Strong cooperation from suppliers of major components of the product or service
Organizational requirements to support and sustain differentiation activities
– Strong coordination amont functions in R&D, product developement, and marketing
– Subjective measurement and incentives instead of quantitative measures
– Amenities to attract highly skilled labor, scientists, and creative people
– Tradition of closeness to key customers
– Some personnel skilled in sales and operations–technical and marketing
Skills and Resources that Foster Speed
– Process engineering skills
– Excellent inbound and outbound logistics
– Technical people in sales and customer service
– High levels of automation
– Corporate reputation for quality or technical leadership
– Flexible manufacturing capabilities
– Strong downstream partners
– Strong cooperation from suppliers of major components of the product or service
Organizational requirements to support and sustain Rapid Response Activities
– Strong coordination among functions in R&D, product development, and marketing
– Major emphasis on customer satisfaction in incentive programs
– Strong delegation to operating personnel
– Tradition of closeness to key customers
– Some personnel skilled in sales and operations–technical and marketing
– Empowered customer service personnel
Explain how rapid response capabilities create competitive advantages
o Technology Development
-Use companywide technology sharing activities and autonomous product development teams to speed new product development
o Human Resource Management
-Develop self-managed work teams and decision making at the lowest levels to increase responsiveness
o General Administration
-Develop highly automated and integrated information processing system. Include major buyers in the “system” on a real-time basis.
o Procurement
-Integrate preapproved online suppliers into production
o Inbound logistics: work very closely with suppliers to include their choice of warehouse location to minimize delivery time
o Operations: Standardize dies, components, and production equipment to allow quick changeover to new or special orders
o Outbound logistics: ensure very rapid delivery with JIT delivery plus partnering with express mail services
o Marketing and Sales: use of laptops linked directly to operations to speed the order process and shorten the sales cycle
o Service: Locate service technicians at customer facilities that are geographically close
Key risks of speed-based competitive advantages
o Speeding up activities that haven’t been conducted in a fashion that prioritizes rapid response should only be done after considerable attention to training, reorganization, and/or reengineering
o Some industries may not offer much advantage to the firm that introduces some forms of rapid response
o Customers in such settings may prefer the slower pace or the lower costs currently available, or they may have long time frames in purchasing
How to succeed in an emerging industry
o The ability to shape the industry’s structure
o The ability to rapidly improve product quality and performance features
o Advantageous relationships with key suppliers and promising distribution channels
o The ability to establish the firm’s technology as the dominant one
o The early acquisition of a core group of loyal customers and then the expansion of that customer base
o The ability to forecast future competitors
· Rapid growth brings new competitors into the industry
How to succeed in a growth industry
o The ability to establish strong brand recognition
o The ability and resources to scale up to meet increasing demand
-Strong product design skills to be able to adapt products and services
-The ability to differentiate the firm’s product(s) from competitors entering the market
-R&D resources and skills to create product variations
-The ability to build repeat buying from established customers
-Strong capabilities in sales and marketing
How to succeed in a mature industry
o Product line pricing
o Emphasis on process innovation that permits low-cost product design, manufacturing methods, and distribution synergy
o Emphasis on cost reduction
o Careful buyer selection to focus on buyers who are less aggressive, more closely tied to the firm, and able to buy more from the firm
o Horizontal integration to acquire rival firms whose weaknesses can be used to gain a bargain price
o International expansion to markets where attractive growth and limited competition still exist
Themes of a Declining industry
Those that make products or services for which demand is growing slower than demand in the economy as a whole or is actually declining
Focus on higher growth or a higher return
Emphasize product innovation and quality improvement
Emphasize production and distribution efficiency
Gradually harvest the business
Fragmented Industry themes
§ Tightly managed decentralization
§ “Formula” facilities
§ Increased value added
§ Specialization
§ Bare bones/ no frills
Examples: Retail, medical services