slide1 n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Chapter Five Crafting Business Strategy PowerPoint Presentation
Download Presentation
Chapter Five Crafting Business Strategy

Loading in 2 Seconds...

play fullscreen
1 / 25

Chapter Five Crafting Business Strategy - PowerPoint PPT Presentation


  • 99 Views
  • Uploaded on

Chapter Five Crafting Business Strategy. OBJECTIVES. Define generic strategies and show how they relate to a firm’s strategic position. 1. Describe the drivers of low-cost, differentiation, and focus strategic positions . 2.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Chapter Five Crafting Business Strategy' - courtney


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

Chapter Five

Crafting Business Strategy

objectives
OBJECTIVES

Define generic strategies and show how they relate to a firm’s strategic position

1

Describe the drivers of low-cost, differentiation, and focus strategic positions

2

Identify and explain the risks associated with each generic strategy position

3

Show how different positions fit with various stages of the industry life cycle

4

5

Evaluate the quality of the firm’s strategy

strategic positioning should improve profitability
STRATEGIC POSITIONING SHOULD IMPROVE PROFITABILITY

Definition

Where managers of a company situate that company relative to it’s rivals along important competitive dimensions

Purpose

To reduce the effects of rivalry and thereby improve profitability

a firm s choice of position depends on two factors

1

Firm’s resources and capabilities

2

Industry structure

A FIRM’S CHOICE OF POSITION DEPENDS ON TWO FACTORS
a firm can gain advantage over rivals in two ways
A FIRM CAN GAIN ADVANTAGE OVER RIVALS IN TWO WAYS

Description

No advantage overrivals

Advantage over rivals

Produce a differentiated product and charge suffici-ently higher prices to more than off-set the added costs of differentiation

Differentiation

Produce an essentially equivalent product at a lower cost

Low-cost

the strategic positioning model
THE STRATEGIC POSITIONING MODEL

Broad(i.e., industry wide)

Broad low-costleadership

Broaddifferentiation

Strategictarget

Narrow(i.e., particular segment only)

Focused costleadership

Focuseddifferentiation

Low-cost

Differentiation

Strategic advantage

Adapted from poster, M.1980. Competitive strategy, 1980.

low cost leadership and differentiation offer greater market share and or profits

Low-cost leadership

Differentiation

  • Capture market share by offering lower-price or
  • Earn higher by maintaining price parity
  • Capture market share by offering higher quality at same price or
  • Earn higher margins by raising prices over competitors

Benefits

  • Pacific Cycle
  • Gallo Wines
  • Wal-Mart
  • Southwest Airlines
  • Home Depot
  • Trek Bicycles
  • Coca-Cola and Pepsi
  • Mercedez Benz
  • Honda, Yamaha, and Suzuki motorcycles
  • Stouffers (frozen foods)

Examples

LOW-COST LEADERSHIP AND DIFFERENTIATION OFFER GREATER MARKET SHARE AND/OR PROFITS
strategic positioning examples
STRATEGIC POSITIONING EXAMPLES
  • Wal-Mart
  • Gallo Wines
  • Trek Bicycles
  • Coca-cola

Broad

Strategictarget

  • Montague
  • Mercedes Benz (in US)

Narrow

  • Jet Blue

Low-cost

Differentiation

Strategic advantage

low cost and differentiation can generate high margins

2

Product cost

Producer’s margin

Buyer’s cost*

LOW-COST AND DIFFERENTIATION CAN GENERATE HIGH MARGINS

Price

Hyundai has a cost advantage

Hyundai Elantra

Price

Chevy Cavalier

Price

Honda has a differentiation advantage

Honda Civic

* Including maintenance and other intangibles

results of differentiated low cost and integrated positions

40

RESULTS OF DIFFERENTIATED, LOW-COST, AND INTEGRATED POSITIONS

Industry average price

Industry average cost

Industry average competitor

Successful differentiated competitor

Successful low-cost competitor

Competitor with both advantages (integrated)

Price

Cost

key drivers of cost advantage
KEY DRIVERS OF COST ADVANTAGE
  • Economies of scale
  • Learning
  • Product technology
  • Product design
  • Location advantages for sourcing inputs
diseconomies of scale size does not ensure economies of scale
DISECONOMIES OF SCALE – SIZE DOES NOT ENSURE ECONOMIES OF SCALE

Economiesof scale

  • Economies of scale exist during a period of time if the average total cost for a unit of production is lower at higher levels of output
  • You must review cost to assess whether economies of scale exist:
    • Fixed costs remain the same for different levels of production
    • Variable costs are the costs of variable inputs (such as raw materials and labor) and vary directly with output
    • Marginal cost is the cost of the last unit of production
    • Total cost is the sum of all production costs and always increases as output goes up
    • Average cost is the mean cost of total production during a given period (say, a year)

Learning

Economiesof scope

Productiontechnology

Productdesign

Location

diseconomies of scale size does not ensure economies of scale1

Some sourcesof economies

Some sourcesof diseconomies

  • R&D spend
  • Advertising spend
  • Specialization of specific production processes
  • Superior inventory management
  • Purchasing power
  • Bureaucracy
  • High labor costs
  • Inefficient operations
DISECONOMIES OF SCALE – SIZE DOES NOT ENSURE ECONOMIES OF SCALE

Economiesof scale

Learning

Economiesof scope

Productiontechnology

Productdesign

Location

minimum efficient scale mes
MINIMUM EFFICIENT SCALE (MES)

Average cost

Economiesof scale

Minimum efficient scale: The minimum scale needed to achieve maximum cost savings (i.e., minimum costs)

Learning

Economiesof scope

Productiontechnology

Productdesign

Scale of operations

Location

Economiesof scale

Diseconomies of scale

learning curve as a source of cost advantage

Costs decrease …

Economiesof scale

as the scale of operation increases during any given period of time

Learning curve

with the cumulative level of production since the production of the first unit

LEARNING CURVE AS A SOURCE OF COST ADVANTAGE

Economiesof scale

How Learning Differs from Scale

Learning

Economiesof scope

Productiontechnology

Productdesign

Location

learning curve continued
LEARNING CURVE (continued)

Step 1: Measure

Economiesof scale

Step 2: Calibrate

No. of bikes produced

Hours spent on last bike

1

2

4

8

16

32

64

128

30.00 actual

27.00 actual

24.30 actual

21.87 est.

19.68 est.

17.71 est.

15.92 est.

14.34 est.

Learning

Economiesof scope

Productiontechnology

Productdesign

Step 3: Project

Location

economies of scope as a source of cost advantage
ECONOMIES OF SCOPE AS A SOURCE OF COST ADVANTAGE

Economiesof scale

If a firm produces two or more products and can share resources among two or more of these (e.g., share manufacturing machines) – thereby lowering the costs of each product – it benefits from economies of scope

Learning

Economiesof scope

Productiontechnology

Productdesign

Location

production technology as a source of cost advantage
PRODUCTION TECHNOLOGY AS A SOURCE OF COST ADVANTAGE

Economiesof scale

Often, a new entrant who wants to compete against industry incumbents with significant scale and experience advantages, tries to match or beat incumbents’ costs by introducing a production technology that is subject to different economics (e.g., Jet Blue, Nucor Steel)

Learning

Economiesof scope

Productiontechnology

Productdesign

Location

production design as a source of cost advantage
PRODUCTION DESIGN AS A SOURCE OF COST ADVANTAGE

Economiesof scale

Learning

Product design can sometimes be altered to lower a firm’s production costs (e.g., Canon vs. Xerox)

Economiesof scope

Productiontechnology

Productdesign

Location

location as a source of cost advantage
LOCATION AS A SOURCE OF COST ADVANTAGE

Economiesof scale

Sometimes firms try to attain lower production costs by locating their operations in cheaper labor markets (e.g., Pacific Cycle manufactures in China and Taiwan to achieve lower costs than Trek who manufactures in the US)

Learning

Economiesof scope

Productiontechnology

Productdesign

Location

key drivers of differentiation advantages

To drive up customer’s willingness to pay and generate demand sufficient to

  • Premium brand image
  • Customization
  • Unique styling
  • Speed
  • More convenient access
  • Unusually high-quality
  • Recoup added costs and
  • Generate enough profits to make strategy worthwhile
KEY DRIVERS OF DIFFERENTIATION ADVANTAGES

Key Drivers

Purpose

drivers and threats to differentiation and low cost advantage

Drivers

Threats

  • Economies of scale
  • Learning
  • Economies of scope
  • Superior technology
  • Product design
  • Location
  • New technology
  • Too low-quality
  • Social, political, and economic risks of outsourcing

Low-cost

  • Premium brand image
  • Customization
  • Unique styling
  • Speed
  • Convenient access
  • Unusually high-quality
  • Failure to increase buyer’s willingness to pay higher prices
  • Under estimating cost of differentiation
  • Over fulfillment of buyer’s needs
  • Lower cost imitation

Differentiation

DRIVERS AND THREATS TO DIFFERENTIATION AND LOW-COST ADVANTAGE
strategies for different phases of the industry life cycle
STRATEGIES FOR DIFFERENT PHASES OF THE INDUSTRY LIFE CYCLE

Phases of industry life cycle

Embryonic

Growth

Mature

Decline

summary

1

Define generic strategies and show how they relate to a firm’s strategic position

2

Describe the drivers of low-cost, differen-tiation, and focus strategic positions

3

Identify and explain the risks associated with each generic strategy position

4

Show how different positions fit with various stages of the industry life cycle

5

Evaluate the quality of the firm’s strategy

SUMMARY