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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West Alabama
Strategic Strategic ManagementManagementCompetitiveness and Globalization: Competitiveness and Globalization: Concepts and CasesConcepts and Cases Michael A. Hitt • R. Duane Ireland • Robert E. Hoskisson
2.2. Discuss the relationship between customers and Discuss the relationship between customers and business-level strategies in terms of who, what, and how.business-level strategies in terms of who, what, and how.
3.3. Explain the differences among business-level strategies.Explain the differences among business-level strategies.
4.4. Use the five forces of competition model to explain how Use the five forces of competition model to explain how above-average returns can be earned through each above-average returns can be earned through each business-level strategy.business-level strategy.
5.5. Describe the risks of using each of the business-level Describe the risks of using each of the business-level strategies.strategies.
Studying this chapter should provide you with the strategic management knowledge needed to:
• An integrated and coordinated set of An integrated and coordinated set of commitments and actions the firm uses to gain a commitments and actions the firm uses to gain a competitive advantage by exploiting core competitive advantage by exploiting core competencies in specific product markets.competencies in specific product markets.
Effectively Managing Relationships with Effectively Managing Relationships with CustomersCustomers• Firms must manage all aspects of their Firms must manage all aspects of their
relationship with customers.relationship with customers.
Reach:Reach: firm’s success and connection to customers firm’s success and connection to customers
Richness:Richness: depth and detail of two-way flow of depth and detail of two-way flow of information between the firm and the customerinformation between the firm and the customer
Affiliation:Affiliation: facilitation of useful interactions with facilitation of useful interactions with customerscustomers
Who:Who: Determining the Customers to Determining the Customers to ServeServe• Market segmentationMarket segmentation
A process used to cluster people with similar needs A process used to cluster people with similar needs into individual and identifiable groups.into individual and identifiable groups.
What:What: Determining Which Determining Which Customer Needs to SatisfyCustomer Needs to Satisfy
• Customer needs are related to a product’s Customer needs are related to a product’s benefits and features.benefits and features.
• Customer needs are neither right nor wrong, Customer needs are neither right nor wrong, good nor bad.good nor bad.
• Customer needs represent desires in terms of Customer needs represent desires in terms of features and performance capabilities.features and performance capabilities.
How:How: Determining Core Competencies Determining Core Competencies Necessary to Satisfy Customer Necessary to Satisfy Customer NeedsNeeds
• Firms use core competencies to implement value Firms use core competencies to implement value creating strategies that satisfy customers’ needs.creating strategies that satisfy customers’ needs.
• Only firms with capacity to continuously Only firms with capacity to continuously improve, improve, innovate and upgrade innovate and upgrade their competencies can their competencies can expect to meet and/or exceed customer expect to meet and/or exceed customer expectations across time.expectations across time.
The Purpose of a Business-Level The Purpose of a Business-Level StrategyStrategy• Business-Level StrategiesBusiness-Level Strategies
Are intended to create differences between the firm’s Are intended to create differences between the firm’s position relative to those of its rivals.position relative to those of its rivals.
• To position itself, the firm must decide whether it To position itself, the firm must decide whether it intends to:intends to:
Perform activities differently orPerform activities differently or
Perform different activities as compared to its rivals.Perform different activities as compared to its rivals.
Types of Potential Competitive Types of Potential Competitive AdvantageAdvantage• Achieving Achieving lower overall costslower overall costs than rivals than rivals
Performing activities differently (reducing process Performing activities differently (reducing process costs)costs)
• Possessing the capability Possessing the capability to differentiateto differentiate the the firm’s product or service and command a firm’s product or service and command a premium pricepremium price
Performing different (more highly valued) activities.Performing different (more highly valued) activities.
The firm competes in many The firm competes in many customer segments.customer segments.
• Narrow ScopeNarrow Scope
The firm selects a segment or The firm selects a segment or group of segments in the group of segments in the industry and tailors its strategy industry and tailors its strategy to serving them at the to serving them at the exclusion of others.exclusion of others.
• An integrated set of actions taken to produce An integrated set of actions taken to produce goods or services with features that are goods or services with features that are acceptable to customers at the lowest cost, acceptable to customers at the lowest cost, relative to that of competitors with features that relative to that of competitors with features that are acceptable to customers.are acceptable to customers.
FIGUREFIGURE 4.34.3 Examples of Value-Creating Activities Examples of Value-Creating Activities Associated with the Cost Leadership StrategyAssociated with the Cost Leadership Strategy
• Can mitigate buyers’ Can mitigate buyers’ power by:power by: Driving prices far below Driving prices far below
competitors, causing competitors, causing them to exit, thus them to exit, thus shifting power with shifting power with buyers back to the firm.buyers back to the firm.
• Can mitigate suppliers’ Can mitigate suppliers’ power by:power by:
Being able to absorb Being able to absorb cost increases due to cost increases due to low cost position.low cost position.
Being able to make very Being able to make very large purchases, large purchases, reducing chance of reducing chance of supplier using power.supplier using power.
Processes used to produce and distribute good or Processes used to produce and distribute good or service may become obsolete due to competitors’ service may become obsolete due to competitors’ innovations.innovations.
Focus on cost reductions may occur at expense of Focus on cost reductions may occur at expense of customers’ perceptions of differentiationcustomers’ perceptions of differentiation
Competitors, using their own core competencies, may Competitors, using their own core competencies, may successfully imitate the cost leader’s strategy.successfully imitate the cost leader’s strategy.
• An integrated set of actions taken to produce An integrated set of actions taken to produce goods or services (at an acceptable cost) that goods or services (at an acceptable cost) that customers perceive as being different in ways customers perceive as being different in ways that are important to them.that are important to them.
Focus is on nonstandardized productsFocus is on nonstandardized products
Appropriate when customers value differentiated Appropriate when customers value differentiated features more than they value low cost.features more than they value low cost.
FigureFigure 4.44.4 Examples of Value-Creating Activities Associated Examples of Value-Creating Activities Associated with the Differentiation Strategywith the Differentiation Strategy
• Defends against Defends against competitors because brand competitors because brand loyalty to differentiated loyalty to differentiated product offsets price product offsets price competition.competition.
• Can mitigate buyers’ power Can mitigate buyers’ power because well differentiated because well differentiated products reduce customer products reduce customer sensitivity to price increases.sensitivity to price increases.Threat of
• Can mitigate suppliers’ Can mitigate suppliers’ power by:power by:
Absorbing price increases Absorbing price increases due to higher margins.due to higher margins.
Passing along higher Passing along higher supplier prices because supplier prices because buyers are loyal to buyers are loyal to differentiated brand.differentiated brand.
Differentiation Strategy: Differentiation Strategy: New EntrantsNew Entrants
• Can defend against new Can defend against new entrants because:entrants because:
New products must surpass New products must surpass proven products.proven products.
New products must be at least New products must be at least equal to performance of proven equal to performance of proven products, but offered at lower products, but offered at lower prices.prices.
Threat of new
entrants
Bargaining power of suppliers
Rivalryamong
competing firms
Bargaining power of buyers
Threat of substitute products
The Threat of The Threat of Potential EntrantsPotential Entrants
• Well positioned relative to Well positioned relative to substitutes because:substitutes because:Brand loyalty to a Brand loyalty to a
differentiated product tends differentiated product tends to reduce customers’ testing to reduce customers’ testing of new products or switching of new products or switching brands.brands.
Competitive Risks of DifferentiationCompetitive Risks of Differentiation• The price differential between the differentiator’s product The price differential between the differentiator’s product
and the cost leader’s product becomes too large.and the cost leader’s product becomes too large.
• Differentiation ceases to provide value for which Differentiation ceases to provide value for which customers are willing to pay.customers are willing to pay.
• Experience narrows customers’ perceptions of the value Experience narrows customers’ perceptions of the value of differentiated features.of differentiated features.
• Counterfeit goods replicate differentiated features of the Counterfeit goods replicate differentiated features of the firm’s products.firm’s products.
• An integrated set of actions taken to produce An integrated set of actions taken to produce goods or services that serve the needs of a goods or services that serve the needs of a particular competitive segment.particular competitive segment.
Particular buyer groupParticular buyer group——youths or senior citizensyouths or senior citizens
Different segment of a product lineDifferent segment of a product line——professional professional craftsmen versus do-it-yourselferscraftsmen versus do-it-yourselfers
Different geographic marketsDifferent geographic markets——East coast versus East coast versus West coastWest coast
• Types of focused strategiesTypes of focused strategies Focused cost leadership strategyFocused cost leadership strategy Focused differentiation strategyFocused differentiation strategy
• To implement a focus strategy, firms must be To implement a focus strategy, firms must be able to:able to: Complete various primary and support activities in a Complete various primary and support activities in a
competitively superior manner, in order to develop competitively superior manner, in order to develop and sustain a competitive advantage and earn above-and sustain a competitive advantage and earn above-average returns.average returns.
Factors That Drive Focused StrategiesFactors That Drive Focused Strategies• Large firms may overlook small niches.Large firms may overlook small niches.
• A firm may lack the resources needed to compete in the A firm may lack the resources needed to compete in the broader market.broader market.
• A firm is able to serve a narrow market segment more A firm is able to serve a narrow market segment more effectively than can its larger industry-wide competitors.effectively than can its larger industry-wide competitors.
• Focusing allows the firm to direct its resources to certain Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage.value chain activities to build competitive advantage.
Competitive Risks of Focus StrategiesCompetitive Risks of Focus Strategies• A focusing firm may be “outfocused” by its competitors.A focusing firm may be “outfocused” by its competitors.
• A large competitor may set its sights on a firm’s niche A large competitor may set its sights on a firm’s niche market.market.
• Customer preferences in niche market may change to Customer preferences in niche market may change to more closely resemble those of the broader market.more closely resemble those of the broader market.
• A firm that successfully uses an integrated cost A firm that successfully uses an integrated cost leadership/differentiation strategy should be in a leadership/differentiation strategy should be in a better position to:better position to:
Adapt quickly to environmental changes.Adapt quickly to environmental changes.
Learn new skills and technologies more quickly.Learn new skills and technologies more quickly.
Effectively leverage its core competencies while Effectively leverage its core competencies while competing against its rivals.competing against its rivals.
• Commitment to strategic flexibility is necessary Commitment to strategic flexibility is necessary for implementation of integrated cost for implementation of integrated cost leadership/differentiation strategy.leadership/differentiation strategy.
Flexible manufacturing systems (FMS)Flexible manufacturing systems (FMS)
Information networksInformation networks
Total quality management (TQM) systemsTotal quality management (TQM) systems
Flexible Manufacturing SystemsFlexible Manufacturing Systems
• Computer-controlled processes used to produce Computer-controlled processes used to produce a variety of products in moderate, flexible a variety of products in moderate, flexible quantities with a minimum of manual quantities with a minimum of manual intervention.intervention.
Goal is to eliminate the “low-cost-versus-wide Goal is to eliminate the “low-cost-versus-wide product-variety” tradeoff.product-variety” tradeoff.
Allows firms to produce large variety of products at Allows firms to produce large variety of products at relatively low costs.relatively low costs.
• Link companies electronically with their Link companies electronically with their suppliers, distributors, and customers.suppliers, distributors, and customers.
Facilitate efforts to satisfy customer expectations in Facilitate efforts to satisfy customer expectations in terms of product quality and delivery speed.terms of product quality and delivery speed.
Improve flow of work among employees in the firm Improve flow of work among employees in the firm and their counterparts at suppliers and distributors.and their counterparts at suppliers and distributors.
Total Quality Management (Total Quality Management (TQMTQM) ) SystemsSystems• Emphasize total commitment to the customer Emphasize total commitment to the customer
through continuous improvement using:through continuous improvement using: Data-driven, problem-solving approachesData-driven, problem-solving approaches Empowerment of employee groups and teamsEmpowerment of employee groups and teams
• BenefitsBenefits Increased customer satisfactionIncreased customer satisfaction Lower costsLower costs Reduced time-to-market for innovative productsReduced time-to-market for innovative products
Risks of the Integrated Cost Risks of the Integrated Cost Leadership/ Differentiation StrategyLeadership/ Differentiation Strategy
• Often involves compromisesOften involves compromises Becoming neither the lowest cost nor the most Becoming neither the lowest cost nor the most
differentiated firm.differentiated firm.
• Becoming “stuck in the middle”Becoming “stuck in the middle” Lacking the strong commitment and expertise that Lacking the strong commitment and expertise that
accompanies firms following either a cost leadership accompanies firms following either a cost leadership or a differentiated strategy.or a differentiated strategy.