Technology organisational change
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Technology & Organisational Change. Business Level Strategy Week 4. Outline. Customers, Who, What and How? Types of business level strategy Cost leadership Differentiation Focused cost leadership Focused Differentiation Cost leadership\differentiation. Strategic Competitiveness.

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Technology organisational change

Technology & Organisational Change

Business Level Strategy

Week 4


Outline

Outline

  • Customers, Who, What and How?

  • Types of business level strategy

    • Cost leadership

    • Differentiation

    • Focused cost leadership

    • Focused Differentiation

    • Cost leadership\differentiation


Strategic competitiveness

Strategic Competitiveness

To achieve strategic competitiveness, firms must:

  • Identify who their customers are

  • Determine customer needs/preferences

  • Focus on satisfying the needs of some group of customers

  • Select a strategy that enables them to satisfy customer needs


Internet competitive advantage

Internet Competitive Advantage

In the Internet age, firms can maintain competitive

advantage by:

  • Thinking continuously about accessing & connecting with customers (reach)

  • Maintaining info with depth & detail for and from customers (richness)

  • Determining how to build relationships with customers (relationship)


Determining which customers to serve

Determining which customers to serve

  • Need to identify customers on basis of needs or preferences

  • Firm must determine whether differences in needs/preferences are significant

  • If not, can offer a standardised product.


Basis for customer segmentation

Basis for Customer Segmentation

  • Customer Markets

    • Demographic factors

    • Socio-economic factors

    • Geographic factors

    • Psychological factors

    • Consumption patterns

    • Perceptual factors


Basis for customer segmentation cont

Basis for Customer Segmentation (cont.)

  • Industrial Markets

    • End-use segments

    • Product segments

    • Geographic segments

    • Common buying factor segments

    • Customer Size segments


Standardised product

Standardised Product

When would a firm offer a standardised product?

  • When it can’t easily be customised or differentiated

  • Or when firm’s core competencies are best suited to producing standardised products.

  • Typically offer them at lowest competitive price as they follow a cost leadership strategy.


Increasing segmentation of markets

Increasing segmentation of markets

  • Availability of sophisticated info processing technologies allows firms to identify unique bundles of customer characteristics and needs

  • Competitors are becoming adept at identifying small but strategically relevant differences in customer needs

  • Trend towards smaller and smaller segments


Determining what needs to satisfy

Determining what needs to satisfy

  • Customers want needs satisfied and they want value

  • Need to identify key customer groups, needs and preferences.

  • Thus customer knowledge must be a priority for top level managers since they determine policy, technology etc


Customer knowledge

Customer knowledge

  • Becomes more important as firms attempt to perpetuate or sustain competitive advantage. By listening to customers, firms can correctly anticipate their future needs and create product innovations ahead of competitors- first mover advantage


Core competencies

Core Competencies

Determining core Competencies to satisfy

customer needs

  • Need to decide how to bundle resources & core competencies to satisfy customer needs to by implementing value creating strategies


Core competencies1

Core Competencies

This means that:

  • Firms must improve their ability to convert innovation and new technologies into commercial products

  • New products should be based on core competencies or technology

  • New products must meet present or future needs


Generic strategies

Generic Strategies

  • Now look at 4 generic strategies, and how they relate to the 5 competitive forces, the applicability of the value chain, risks associated with each

  • A firms position in an industry relative to competitors and to the 5 forces of competition

    • Rivalry with existing competitors

    • Bargaining power of suppliers

    • Bargaining power of buyers

    • Potential entrants

    • Product substitutes


Technology organisational change

Generic Business-Level Strategies

Source of Competitive Advantage

Cost

Uniqueness

Cost

Leadership

Differen-

tiation

Broad

Target

Market

Breadth of Competitive Scope

Focused Differen-

tiation

Focused Low Cost

Narrow

Target

Market


Generic strategy cost leadership

Generic strategy: Cost-leadership

  • Offers relatively standardised product – minimum differentiation at lowest competitive price

  • Reducing price is not necessarily a cost leadership strategy- need to give consumer value- includes quality


Cost reduction strategies

Cost reduction strategies

  • Building efficient scale facilities

  • Tight control of production & overhead costs

  • Minimising costs of sales, R&D and service

  • State of the art manufacturing technologies


Critical focus

Critical focus

  • Efficiency

  • Cost reduction

  • Still can’t ignore sources of differentiation that customers value- e.g. styling, minimal levels of service, quality


Strategy 1 cost leadership

Strategy 1:Cost Leadership

  • Even when competitive forces are strong, a firm that has cost leadership can still earn above average profits.


Rivalry with existing competitors

Rivalry with existing competitors

  • Achieving the lowest cost position means that competitors will hesitate to compete on basis of price because in a price war, the low cost firm will continue to earn profits after competitors have competed away their profits


Bargaining power of buyers

Bargaining power of buyers

  • Achieving low cost position provides some protection against powerful customers who attempt to drive down prices

  • If customers drive prices below the cost of the next most efficient firm, the firm might choose to exit the market, leaving the low cost firm in a monopoly position


Bargaining power of suppliers

Bargaining power of suppliers

  • Cost leadership strategy enables a firm to absorb greater amount of cost increases fro powerful suppliers before it must raise prices

  • If has dominant market share, might be able to force suppliers to lower prices


Potential entrants

Potential Entrants

  • Firms generally must produce & sell in large volumes to have cost leadership- this acts as a barrier to entry why?


Product substitutes

Product substitutes

  • To retain customers the low cost leader can more easily reduce prices to maintain the price-value relationship and maintain customers


Cost leadership

Cost Leadership

Competitive risks of the cost leadership strategy:

  • Tech innovations by competitors could eliminate advantage

  • Over focus on efficiency might cause lack of focus on consumer preferences

  • Competitors might imitate low cost leaders value chain configuration


Strategy 2 differentiation

Strategy 2: Differentiation

  • Value is provided through the unique features of the product

  • Can charge premium price

  • Price charged must exceed the cost of the differentiation

  • Focus on product innovation and product features


Means of differentiation

Means of differentiation

  • Superior quality

  • Unusual or unique features

  • More responsive customer service

  • Rapid product innovation

  • Advanced technological features

  • Engineering design

  • Additional features

  • Image of prestige


Achieving above average returns

Achieving above average returns

  • Even when competitive forces are strong


Rivalry with existing competitors1

Rivalry with existing competitors

  • Brand loyalty means that customers will be less sensitive to price increases. As long as the firm satisfies the differential needs of customers it may be insulated from price base competition


Bargaining power of buyers1

Bargaining power of buyers

  • Product considered unique

  • Reduces customer sensitivity to price


Bargaining power of suppliers1

Bargaining power of suppliers

  • Differentiator can absorb a greater level of cost increase from powerful suppliers through its higher margins


Potential entrants1

Potential entrants

  • Principal barrier is customers loyalty


Product substitutes1

Product substitutes

  • Brand loyalty insulates differentiated products


Differentiation strategy

Differentiation Strategy

Competitive risks of differentiation strategy:

  • Customers may decide the cost of uniqueness is too high

  • Firms means of differentiation no longer of value to customers

  • Customer learning may influence customer perception of value

  • counterfeiting


Strategy 3 focus

Strategy 3: focus

  • Firms focus on small segments or niches

  • Why follow a focus strategy?

    • Able to serve niche more effectively

    • Needs are so special that industry wide competitors choose not to meet them

    • Can be based on cost leadership or differentiation


Focused cost leadership strategy

Focused cost leadership strategy

  • Generally targets the smallest buyers in the industry


Focused differentiation strategy

Focused differentiation strategy

  • Customised products for small segments

  • Successful when quantities involved are too small for industry wide competitors, or when the degree of customisation requested is beyond capabilities of the industry wide differentiator


Competitive risks of focus strategies

Competitive risks of focus strategies

  • Competitors may successfully focus on an even smaller segment of the market

  • Industry-wide competitor may recognise the attractiveness of the segment

  • Preferences of the narrow segment may become similar to those of the wider market


Integrated cost leadership differentiation

Integrated cost-leadership/differentiation

  • Integrating generic strategies may enable them to:

    • Adapt quickly to environmental change

    • Learn new skills and technology

    • More effectively leverage core competencies across business units and product lines

    • Produce differentiated products at a relatively low cost


Integrated cost leadership differentiation1

Integrated cost leadership/differentiation

Benefits

  • Differentiation enables firm to charge premium price

  • Cost leadership allows firm to charge lowest price


Integrated cost leadership differentiation2

Integrated cost leadership/differentiation

Products from integrated cost

leadership/differentiation strategy are:

  • Less differentiated than if firm pursued just a differentiation strategy and

  • Costs not as low as if pursued cost leadership strategy


Integrated cost leadership differentiation3

Integrated cost leadership/differentiation

To overcome Competitive Risks must be able to:

  • Focus consistently on reducing costs

  • Add differentiated features that customers value and for which they are willing to pay a higher price

  • Avoid becoming ‘stuck in the middle’ by failing to consistently pay attention to the competitive requirements of either or both generic strategies.


Competitive dynamics

Competitive dynamics


Outline1

Outline

  • Increased rivalry

  • Model of competitive dynamics & rivalry

  • Likelihood of attack

  • Likelihood of response

  • Firms abilities to take action and respond

  • Outcomes of inter-firm rivalry


New ways of competing

New ways of competing

  • Bring new products to the market more quickly

  • Use of new technology

  • Diversifying product line

  • Shifting product emphasis

  • Consolidation of industries

  • Combining on-line selling with traditional


Changing competitive environment

Changing Competitive Environment

Reasons for changing competitive environment

  • Attention on global market

  • Advances in ICTs- more info, faster decision making

  • Innovation

  • Cooperation between former competitors in development of new technology or formation of strategic alliances


Competitive dynamics1

Competitive dynamics

  • When one firm takes action, so do others


Model of competitive dynamics rivalry

Model of competitive dynamics & rivalry

  • Competitive rivalry exists when firms jockey with one another in pursuit of advantageous market position

  • Exists because of competitive asymmetry- i.e. firms differ in terms of resources, capabilities, core competencies & the opportunities and threats in their environments

  • Competition results in mutual interdependence


Technology organisational change

A firm’s

strategic conduct is dynamic in nature

Actions taken by one firm elicit responses from competitors

Competitive responses lead to additional actions from the firm that acted originally

Competitive Dynamics

Actions and responses shape the competitive positions of each firm’s business-level strategy


Model of inter firm rivalry

Model of Inter-firm Rivalry

  • Awareness- whether the attacking/responding firm is aware of a potential attacker or respondent.

  • Motivation- incentives that firm has to attack/respond when attacked

  • Market commonality- extent to which firms compete in same market


Multipoint competition

Multipoint competition

  • When firms overlap in several markets (geographic or product)

  • High levels of commonality reduce the likelihood of competitive interaction- see Strategic Focus- airlines p163


Resource similarity

Resource similarity

  • Intensity of competition often based on potential for response- attackers are generally not motivated to target a rival that is likely to retaliate

  • Firms with dissimilar resources are more likely to attack


Likelihood of attack

Likelihood of attack

  • The model tells us that the firm’s motivation and awareness are developed from competitor analysis of market commonality and resource dissimilarity.

  • First mover

    • Take an initial competitive action

    • Have the resources, capabilities & core competencies that to Gain competitive advantage through innovative and entrepreneurial actions


First mover

First Mover

First mover hopes to:

  • Gain sustainable competitive advantage

  • Earn above average returns until competitors respond effectively

  • Gain customer loyalty


First mover1

First Mover

Disadvantage of first mover

  • Inability to predict success of the action

  • Second movers through imitation can avoid high development costs


Second movers

Second Movers

  • Firms that respond to first movers competitive action

  • Quick response may allow second mover to:

    • Capture some of the initial customers and gain a degree of brand loyalty

    • Avoid some of the risks of the first mover

    • Learn from mistakes and successes

    • Avoid market development costs


Late movers

Late movers

  • Respond to competitive action after considerable time

  • Performance generally suffers


Technology organisational change

Market

Commonality

Resource

Similarity

Model of Interfirm Rivalry:

Likelihood of Attack and Response

Drivers of Competitive Behaviour

Outcomes

Ability for Action and Response

Interfirm Rivalry:

Attack & Response

Competitive

Market Types

Awareness

Slow, Standard

Motivation

Relative Size

or Fast Cycle

Likelihood of Attack

Capability

First Mover Incentives

Speed

Competitive

Innovation

Outcomes

Likelihood of Response

Sustained

Quality

Type of Competitive

Competitive

Competitor Analysis

Action

Advantage

Actor’s Reputation

Temporary

Dependence on the

Advantage

Market

Evolutionary

Resource Availability

Outcomes

Entrepreneurial

Growth-Oriented

Feedback

or Market-Power

Actions


Likelihood of response

Likelihood of response

  • Depends on

    • Type of action

    • Reputation of competitor taking the action

    • Competitors resource availability


Firm s ability to take action and respond

Firm’s ability to take action and respond

  • Relative size of the firm within market

  • Speed of competitive actions and responses

  • Extent of innovation by firms in the industry

  • Quality of firms products


Outcomes of inter firm rivalry

Outcomes of inter-firm rivalry

  • Slow cycle markets-strongly shielded resource positions (monopoly)

  • Standard cycle- more closely associated with Porter-oligopoly

  • Fast cycle- largely impossible to achieve sustained competitive advantage


Technology organisational change

Competitive dynamics and industry evolution outcomes

Key Task

Key Task

Key Task

Key Task

Firm Resource & Market Strength

Renewal

Maintenance

Decline

Exploiting

Open Niches

(Blind Spots) & Competitive Uncertainty

Exploiting Factors of Production

Exploiting Market Position

Growth-oriented

Actions

Market-power

Actions

Renewal

Actions

Entrepreneurial

Actions

Emerging Stage

Growth Stage

Mature Stage

Elaboration Stage

Time


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