Strategic Management BUSM 3200 These Lecture Slides summarize the key points covered in the respective chapters in your recommended text; these slides do NOT substitute, at all, the required reading of the assigned chapter from the text. These slides also may contain additional supplementary material extracted from other texts and sources outside your text book. 5-1 BUSM 3200- Strategic Management (Jan 2013) GDS
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Strategic Management BUSM 3200
These Lecture Slides summarize the key points covered in the respective chapters in your
recommended text; these slides do NOT substitute, at all, the required reading of the assigned
chapter from the text. These slides also may contain additional supplementary material extracted
from other texts and sources outside your text book.
Is very important part of the group assignment as Business Strategy is a key aspect of the discussion in the report
Section 5 of the report asks you to discuss the type of generic business strategy the firm (or SBU) implements by examining its strategy statement and/or its value chain activities.
Porter introduced the term ‘Generic Strategy’ to mean basic types of competitive strategy that hold across many kinds of business situations.
Competitive strategy is concerned with how a strategic business unit achieves competitive advantage in its domain of activity.
Competitive advantage is about how an SBU creates value for its users both greater than the costs of supplying them and superior to that of rival SBUs.
Figure 6.2 Three generic strategies Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance
Figure 6.5 Mapping differentiation in the US airline industry Source: Simplified from Figure 1, in D. Gursoy, M. Chen and H. Kim (2005), ‗The US airlines relative positioning‘, Tourism Management, 26, 5, 57–67: p. 62
♦ Relying on product attributes easily copied by rivals.
♦ Introducing product attributes that do not evoke an
enthusiastic buyer response.
♦ Eroding profitability by overspending on efforts to
differentiate the firm‘s product offering.
♦ Not opening up meaningful gaps in quality, service, or
performance features vis-à-vis the products of rivals.
♦ Adding frills and features such that the product
exceeds the needs and uses of most buyers.
♦ Charging too high a price premium.
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Focus strategies (1)
A focus strategy targets a narrow segment of domain of an activity and tailors its products or services to the needs of that specific segment to the exclusion of others.
Focus strategy may be based on either of the two advantages
Figure 6.2 Three generic strategies Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance
The Big Risk of a Best-Cost Provider Strategy—Getting Squeezed on Both Sides
High-End
Differentiators
Low-Cost
Providers
Best-Cost
Provider
Strategy
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Linking Business Strategy to other Porter Frameworks on Strategy
The Generic Business Strategies discussed by Professor Michael Porter is LINKED to the two frameworks we learnt in earlier lectures- the Five Forces Industry Model and the Value Chain
We need to ask two questions:
1. If a company pursues a given generic strategy, how would it impact its configuration of its “value chain”?
2. If a company pursues a given generic strategy, how does it help to mitigate or reduce the impact of threats as identified in the five forces model?
Make investments to be first to create substitutes.
Buy patents developed by potential substitutes.
Lower prices in order to maintain value position.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power of
buyers
Threat of
substitute
products
Product
Substitutes
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Cost Leadership Strategy: New Entrants
Can frighten off new entrants due to:
Their need to enter on a large scale in order to be cost competitive.
The time it takes to move down the learning curve.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power of
buyers
Threat of
substitute
products
The Threat of
Potential Entrants
5-71 5-71
5 - 72
Summary (cost leadership strategy): Improving
Competitive Position vis-à-vis the Five Forces
• An overall low-cost position
- Protects a firm against rivalry from competitors
- Protects a firm against powerful buyers
- Provides more flexibility to cope with demands
from powerful suppliers for input cost increases
- Provides substantial entry barriers from economies
of scale and cost advantages
- Puts the firm in a favorable position with respect to
substitute products
The Strategy Clock
Provides another way of approaching the generic strategies
The Strategy Clock has two distinctive features:
1. More Market- focused: focuses on price to customers rather than costs to organization
2. The circular design of the clock allows for more continuous choices rather than the discrete options offered in the Porter model; there is a full range of incremental adjustments that can be made
low perceived product benefits focusing on price sensitive market segments – a ‘no frills’ strategy typified by low cost airlines like Ryanair.
lower price than competitors while offering similar product benefits – aimed at increasing market share typified by Asda /Walmart in grocery retailing.
D‘Aveni argues that ‘…frequency, boldness and aggressiveness of dynamic movement by players creates constant disequilibrium and rapid change, often involving unexpected new players and radical redefinitions of an industry.’
This situation is called ‗hypercompetition‘
In hypercompetition traditional strategic concepts and long-term sustainable advantage are perceived to be inappropriate
Not all industries experience hypercompetition
Different levels of competition can exist across industries
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Interactive price and quality strategies
Figure 6.7 Interactive price and quality strategies Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Hypercompetition: Managing the Dynamics of Strategic Manoeuvring by Richard
Game theory encourages managers to consider how a ‘game’ can be transformed from ‘lose–lose’ competition to ‘win–win’ cooperation.
Four principles:
Ensure repetition.
Signalling.
Deterrence.
Commitment.
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Read page 221
BUSM 3200- Strategic Management (Jan 2013) GDS
Summary (1)
Business strategy is concerned with seeking competitive advantage in markets at the business rather than corporate level.
Business strategy needs to be considered and defined in terms of strategic business units (SBUs).
Different generic strategies can be defined in terms of cost-leadership, differentiation and focus.
Managers need to consider how business strategies can be sustained through strategic capabilities and/or the ability to achieve a ‘lock-in’ position with buyers.
In hypercompetitive conditions sustainable competitive advantage is difficult to achieve. Competitors need to be able to cannibalise, make small moves, be unpredictable and mislead their rivals.
Cooperative strategies may offer alternatives to competitive strategies or may run in parallel.
Game theory encourages managers to get in the mind of competitors and think forwards and reason backwards.
These questions are provided for your reference only – they are only INDICATIVE of the standard of questions you might expect in the final exam.
DO NOT use these questions to “spot”
The RMIT examiner will post advice on the exam on the Learning Hub closer to the exam; you are required to pay attention to that advise
The questions here show the range of topics that could be tested from this lecture; they are NOT exhaustive
To score a high grade it is important to LINK the theory to applications and examples. Where from?
You have been assigned specific cases to read from the text. Each case study will show you the kinds of strategic decisions the case company needs to make. You can draw from these examples.
You have selected a case company for your project; you may use examples from there.
You are supposed to read widely from the business press about local, regional and international companies strategies. You can use examples from there as well.
3. Examine the advantages and disadvantages for a firm to reply on the value chain to achieve sustainable competitive advantage with a cost leadership strategy.
Use examples from the ___ case to illustrate your answer.
4. Briefly discuss each of Porter’s three generic strategies. In your opinion, how can cost-based advantages be sustained? Give examples to support your arguments.
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Note: the student should read this question and also consider that it is possible that in future any of the other TWO strategies could be tested. That is how would you answer this question if we substituted focus or differentiation strategy instead?
BUSM 3200- Strategic Management (Jan 2013) GDS
Sample essay question
5. Strategy of an enterprise is defined by answers to two questions
a) Where does the firm compete? (Domain selection)
b) How does it compete (Domain navigation)
Explain this statement from the perspective of corporate and business level strategy with examples.
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Note: this question covers a wide range of topics that also includes the next topic on Corporate Strategy. In this question you need to discuss Ansoff Matrix, Porter 3 Generic Strategies framework and the topic on Corporate Strategy that includes the concept of Diversification.
BUSM 3200- Strategic Management (Jan 2013) GDS
Sample essay question
6. Singapore Airline has implemented its differentiation strategy since its establishment. In doing so, it has offered a high quality of customer services, maintained a very good safety record, and procured new aircrafts, including Airbus 380. At the same time, it attempts to reduce its overall costs through lowering its back-office costs and administrative overhead. Do you think these activities are contradictory or complementary in implementing Singapore Airline’s differentiation strategy? Why? (Hint: You can address these issues based on your understanding of the concept of value, value chain analysis, and business strategy).