Description
The ppt is explaining about strategy and competitive advantage.
Strategy and Competitive Advantage
Strategy
?
A firm’s strategy is found in its investments in resources and capabilities that 1) determine its market position and 2) defend this position from competitors
?
Benefits of an effective strategy
Relates the firm’s resources and capabilities to its markets ? Provides a framework for integrating activities within the firm ? Acts as a guide for decisions regarding management and organization
?
?
Businesses achieve competitive advantage by emphasizing cost, value to the customer, or both.
Framework for Understanding Strategy
?
?
Attention to customers is prior to attention to competitors Two parts of a transaction
?
?
Value to the customer minus price – which is what determines demand for the product Price minus cost to the firm – which defines the firm’s profit
Protecting Market Positions from Competitors
?
The firm’s market position is defended by
?
Retaining customers
?
High switching costs
?
Ensuring that competition for customers is low
High costs of imitation ? High entry barriers
?
What Determines Firm Profitability?
?
Macroeconomic factors
?
?
National and global economic policies and financial trends Industry growth Competitive rivalry Entry barriers\New entrants Technological innovation Customer tastes
Characteristics of the business
? ?
?
Industry factors
? ? ? ? ? ?
?
?
Market position Overall competitive capability Defense from competition Productivity through efficient and effective resource allocation Adaptability to changing market conditions
Strategy Formulation and Implementation
? Strategy
?
formulation
Information gathering and identification of resources and capabilities ? Deciding which strategy the firm should follow
? Strategy
?
implementation
Taking action necessary for the strategy to be successful
Strategy Execution
?
Entails continuous development, maintenance and improvement of resources and capabilities
?
Elements of execution:
Incentives and compensation ? Control and coordination systems ? Degree of consistency among a firm’s activities ? Firm’s culture and human resource systems
?
?
?
Effective execution requires each element to reinforce the others Not the same as strategic planning
Strategic Planning
?
?
Details the process for developing business strategies and links them to operational programs and investments Details the logic behind cash flow forecasts
?
Provides process for:
Development of the firm’s mission ? Goal setting ? Identification of strategic initiatives ? Program development, scheduling and accountability ? Problem solving and innovation
?
Strategy in Single Business Firms
?
Single business strategy
?
Focuses on achieving superior performance in both domestic and global product markets
Maintain a superior position ? Discourage new entrants ? Organize activities to support goals
?
Strategy in Multibusiness Firms
?
Multibusiness strategy
?
Managing a portfolio of businesses so that they perform better together than independently.
Provide resources—capital, technology, materials, and know how ? Furnish management or entrepreneurial skills
? ?
Establish inter-unit relationships
What is Competitive Advantage?
?
? ?
?
The goal of strategic thinking The focus of entrepreneurial action The motivation for top management’s vision for the firm’s future A focus on economic fundamentals and performance
What Determines Sustained Competitive Advantage?
?
A strong offense to attain market superiority
?
Creates a higher economic contribution
?
Contribution = Value - Cost
?
A strong defense of the sources of the market position against rivals
?
?
Customer retention Defending against imitation
?
Both are necessary and neither is sufficient.
Value-Cost Framework
?
Value
?
Willingness to pay: The highest price a customer would be willing to pay for a product in absence of a competing product and in context of other purchasing opportunities. Marginal cost to produce a unit of the product.
?
Cost
?
?
Effective competitive positioning
?
Offering more value per unit cost than competitors, consistently over time
Economic Contribution Distributed between Buyer and Supplier
Figure 2.1
Generic Strategies
?
Differentiator
?
Invests in higher value (raising costs)
?
Cost leader
?
Invests in lower costs (reducing value)
Value and Cost: Substitutes or Complements
Figure 2.2
Firms in the Middle
?
Two assumptions behind the belief that SIM firms perform poorly
?
?
SIM firm cannot compete on value with the Differentiator or on cost with the cost leader SIM firm’s customer base prevents it from improving its competitive position Gross margins over revenues is close to that of high value firms - JCPenney Operating costs per revenue dollar is closer to low cost firm – Wal-Mart
?
Counter example: Target Corporation
? ?
Profitable Firm in Middle: Target
JC Penney Target
Value Value Competitors’ Wal-Mart Value-Cost Value Profile Cost Target’s Added Productivity Cost
Cost
Figure 2.4
Value versus Cost Advantage
?
Pursue value investments when:
? ?
A large number of customers are value-sensitive Returns on increasing value are higher than returns on reducing costs
Value versus Cost Advantage (cont’d)
?
Pursue cost reductions when:
? ?
Marginal customers are price-sensitive Value improvements are costly, difficult, or easily duplicated by competitors
Value and Cost Drivers
Figure 2.5
Examples of Value Drivers
?
Technology
?
?
Breadth of line
?
Functionality, features
?
Quality
?
Durability, reliability, aesthetics
?
Potential benefits: onestop shopping, interchangeable parts, interface compatibility and cross-selling Responsiveness, problem solving
?
Delivery
?
Service
?
Just-in-time production systems
Examples of Value Drivers (cont’d)
?
Customization
?
?
Network externalities
?
Customers determine product design Location, scope Warranties Signals of price or quality
?
?
Geography
?
Common communications standard Sustainable practices DVD players and disks
Environmental policies
?
?
Risk assumption
?
?
Complements
?
?
Brand/ Reputation
?
Examples of Cost Drivers
?
Scale economies
?
Average cost declines as volume increases based on high sunk costs or high recurring fixed costs Cost of producing two products together is lower than the cost of producing them separately
?
Scope economies
?
?
Learning curve
?
Cost declines with cumulative volume increases as learning takes place and practices improve
Examples of Cost Drivers (cont’d)
?
Low input costs
?
Firms with lower cost inputs are better positioned to take advantage of industry opportunities and absorb changes For tasks that are specialized to the firm, coordination costs are lower within the firm than with a market supplier
?
Vertical integration
?
?
Organizational practices
?
Firms develop process innovations to lower costs or improve value in specific activities
Defending Against Competitors
?
Isolating mechanisms
?
?
Mechanisms that prevent competitors from eating up the firm’s profits Factors that:
Increase customer retention ? Reduce imitation by competitors
?
Resource and Capabilities
?
Resource
?
A relatively stable, observable, tradable asset owned by the firm that contributes to its performance
?
Examples: a brand, a geographical location
?
Capability
?
A set of activities and policies involving the firm’s organization and people executing tasks at a high level of expertise continuously over time
?
Examples: practices leading to superior quality, customer service or pricing
Barriers to Imitation
?
Property rights
?
Patents, trademarks, asset ownership Exclusive distribution channels or suppliers ? Tie-up or lock-in Created by sunk costs, complementary practices within the firm, and history-dependent capabilities ? Time-compression diseconomy Difficulty in copying a capability because it cannot be modeled effectively ? Barrier to improvement for poor performing firms ? Shields a firm with a superior market position against imitation
?
Dedicated assets
?
?
Learning and development costs
?
?
Casual ambiguity
?
Increasing Customer Retention
?
Increase switching costs
?
Search costs
?
High for products whose value is apparent only after experiencing the product – experience goods Costs associated shifting from old equipment or practices to new
? ?
Transition costs
? ?
Learning costs
Costs incurred in learning a new process
Building Competitive Advantage
Value Drivers
Cost Drivers
Resources Capabilities
Retaining Customers
Preventing Imitation
Superior Market Position
Defendable Market Position
Sustainable Competitive Advantage Figure 2.7
doc_663825933.ppt
The ppt is explaining about strategy and competitive advantage.
Strategy and Competitive Advantage
Strategy
?
A firm’s strategy is found in its investments in resources and capabilities that 1) determine its market position and 2) defend this position from competitors
?
Benefits of an effective strategy
Relates the firm’s resources and capabilities to its markets ? Provides a framework for integrating activities within the firm ? Acts as a guide for decisions regarding management and organization
?
?
Businesses achieve competitive advantage by emphasizing cost, value to the customer, or both.
Framework for Understanding Strategy
?
?
Attention to customers is prior to attention to competitors Two parts of a transaction
?
?
Value to the customer minus price – which is what determines demand for the product Price minus cost to the firm – which defines the firm’s profit
Protecting Market Positions from Competitors
?
The firm’s market position is defended by
?
Retaining customers
?
High switching costs
?
Ensuring that competition for customers is low
High costs of imitation ? High entry barriers
?
What Determines Firm Profitability?
?
Macroeconomic factors
?
?
National and global economic policies and financial trends Industry growth Competitive rivalry Entry barriers\New entrants Technological innovation Customer tastes
Characteristics of the business
? ?
?
Industry factors
? ? ? ? ? ?
?
?
Market position Overall competitive capability Defense from competition Productivity through efficient and effective resource allocation Adaptability to changing market conditions
Strategy Formulation and Implementation
? Strategy
?
formulation
Information gathering and identification of resources and capabilities ? Deciding which strategy the firm should follow
? Strategy
?
implementation
Taking action necessary for the strategy to be successful
Strategy Execution
?
Entails continuous development, maintenance and improvement of resources and capabilities
?
Elements of execution:
Incentives and compensation ? Control and coordination systems ? Degree of consistency among a firm’s activities ? Firm’s culture and human resource systems
?
?
?
Effective execution requires each element to reinforce the others Not the same as strategic planning
Strategic Planning
?
?
Details the process for developing business strategies and links them to operational programs and investments Details the logic behind cash flow forecasts
?
Provides process for:
Development of the firm’s mission ? Goal setting ? Identification of strategic initiatives ? Program development, scheduling and accountability ? Problem solving and innovation
?
Strategy in Single Business Firms
?
Single business strategy
?
Focuses on achieving superior performance in both domestic and global product markets
Maintain a superior position ? Discourage new entrants ? Organize activities to support goals
?
Strategy in Multibusiness Firms
?
Multibusiness strategy
?
Managing a portfolio of businesses so that they perform better together than independently.
Provide resources—capital, technology, materials, and know how ? Furnish management or entrepreneurial skills
? ?
Establish inter-unit relationships
What is Competitive Advantage?
?
? ?
?
The goal of strategic thinking The focus of entrepreneurial action The motivation for top management’s vision for the firm’s future A focus on economic fundamentals and performance
What Determines Sustained Competitive Advantage?
?
A strong offense to attain market superiority
?
Creates a higher economic contribution
?
Contribution = Value - Cost
?
A strong defense of the sources of the market position against rivals
?
?
Customer retention Defending against imitation
?
Both are necessary and neither is sufficient.
Value-Cost Framework
?
Value
?
Willingness to pay: The highest price a customer would be willing to pay for a product in absence of a competing product and in context of other purchasing opportunities. Marginal cost to produce a unit of the product.
?
Cost
?
?
Effective competitive positioning
?
Offering more value per unit cost than competitors, consistently over time
Economic Contribution Distributed between Buyer and Supplier
Figure 2.1
Generic Strategies
?
Differentiator
?
Invests in higher value (raising costs)
?
Cost leader
?
Invests in lower costs (reducing value)
Value and Cost: Substitutes or Complements
Figure 2.2
Firms in the Middle
?
Two assumptions behind the belief that SIM firms perform poorly
?
?
SIM firm cannot compete on value with the Differentiator or on cost with the cost leader SIM firm’s customer base prevents it from improving its competitive position Gross margins over revenues is close to that of high value firms - JCPenney Operating costs per revenue dollar is closer to low cost firm – Wal-Mart
?
Counter example: Target Corporation
? ?
Profitable Firm in Middle: Target
JC Penney Target
Value Value Competitors’ Wal-Mart Value-Cost Value Profile Cost Target’s Added Productivity Cost
Cost
Figure 2.4
Value versus Cost Advantage
?
Pursue value investments when:
? ?
A large number of customers are value-sensitive Returns on increasing value are higher than returns on reducing costs
Value versus Cost Advantage (cont’d)
?
Pursue cost reductions when:
? ?
Marginal customers are price-sensitive Value improvements are costly, difficult, or easily duplicated by competitors
Value and Cost Drivers
Figure 2.5
Examples of Value Drivers
?
Technology
?
?
Breadth of line
?
Functionality, features
?
Quality
?
Durability, reliability, aesthetics
?
Potential benefits: onestop shopping, interchangeable parts, interface compatibility and cross-selling Responsiveness, problem solving
?
Delivery
?
Service
?
Just-in-time production systems
Examples of Value Drivers (cont’d)
?
Customization
?
?
Network externalities
?
Customers determine product design Location, scope Warranties Signals of price or quality
?
?
Geography
?
Common communications standard Sustainable practices DVD players and disks
Environmental policies
?
?
Risk assumption
?
?
Complements
?
?
Brand/ Reputation
?
Examples of Cost Drivers
?
Scale economies
?
Average cost declines as volume increases based on high sunk costs or high recurring fixed costs Cost of producing two products together is lower than the cost of producing them separately
?
Scope economies
?
?
Learning curve
?
Cost declines with cumulative volume increases as learning takes place and practices improve
Examples of Cost Drivers (cont’d)
?
Low input costs
?
Firms with lower cost inputs are better positioned to take advantage of industry opportunities and absorb changes For tasks that are specialized to the firm, coordination costs are lower within the firm than with a market supplier
?
Vertical integration
?
?
Organizational practices
?
Firms develop process innovations to lower costs or improve value in specific activities
Defending Against Competitors
?
Isolating mechanisms
?
?
Mechanisms that prevent competitors from eating up the firm’s profits Factors that:
Increase customer retention ? Reduce imitation by competitors
?
Resource and Capabilities
?
Resource
?
A relatively stable, observable, tradable asset owned by the firm that contributes to its performance
?
Examples: a brand, a geographical location
?
Capability
?
A set of activities and policies involving the firm’s organization and people executing tasks at a high level of expertise continuously over time
?
Examples: practices leading to superior quality, customer service or pricing
Barriers to Imitation
?
Property rights
?
Patents, trademarks, asset ownership Exclusive distribution channels or suppliers ? Tie-up or lock-in Created by sunk costs, complementary practices within the firm, and history-dependent capabilities ? Time-compression diseconomy Difficulty in copying a capability because it cannot be modeled effectively ? Barrier to improvement for poor performing firms ? Shields a firm with a superior market position against imitation
?
Dedicated assets
?
?
Learning and development costs
?
?
Casual ambiguity
?
Increasing Customer Retention
?
Increase switching costs
?
Search costs
?
High for products whose value is apparent only after experiencing the product – experience goods Costs associated shifting from old equipment or practices to new
? ?
Transition costs
? ?
Learning costs
Costs incurred in learning a new process
Building Competitive Advantage
Value Drivers
Cost Drivers
Resources Capabilities
Retaining Customers
Preventing Imitation
Superior Market Position
Defendable Market Position
Sustainable Competitive Advantage Figure 2.7
doc_663825933.ppt