Chapter 6. Crafting Business Strategy for Dynamic Contexts . OBJECTIVES . 1. Identify the challenges to sustainable competitive advantage in dynamic contexts . 2. Understand the fundamental dynamics of competition. 3.
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.
Crafting Business Strategy for Dynamic Contexts
Source: Adapted from K.G. Smith, W.J. Ferrier, and C.M. Grimm, “King of the Hill: Dethroning the Industry Leader,” Academy of Management Executive 15:2 (2001), 59-70
“Any firm that invests in resources and capabilities that support retaliation to the exclusion of innovation and change may only be prolonging its inevitable demise”
Source: Adapted from S. Schnaars, Managing Imitation Strategies (New York Free Press, 1994), 37-43
Timken bundles commodity product with key components may simply give new product or service away as part of its larger bundle of offerings
Dell sells directly toconsumers
K-mart and KB Toys both reduced number of customers when they restructured
Hotels may charge extra forcable TV and computer hookupsSTRATEGIES FOR MANAGING COMMODITIZATION
Performance may simply give new product or service away as part of its larger bundle of offerings
TimeEFFECT OF TECHNOLOGICAL DISRUPTION
Eliminate may simply give new product or service away as part of its larger bundle of offerings
What factors that theindustry has taken forgranted should be eliminated?
What factors that the industry has never offered should be created or added?FOUR ACTIONS FRAMEWORK: KEY TO THE VALUE CURVE
The key to discovering a new value curve lies in answering four basic questions
What factors should be reduced well below the industry standard?
Creating new markets:
A new value curve
Cirque du Soleil example
What factors should be raised well above the industry standard?
Source: Adapted from W.C. Kim and R. Mauborgne, “Blue Ocean Strategy,” California Management Review 47:3 (2005), 105-121
High-end may simply give new product or service away as part of its larger bundle of offerings
Low-endHIGH AND LOW-END DISRUPTION
Strategy that may result in huge new markets in which new players redefine industry rules to unseat the largest incumbents
Strategy that appears at the low end of industry offerings, targeting the least desirable of incumbents’ customers
Emphasizes rivalry may simply give new product or service away as part of its larger bundle of offerings
Emphasizes substitutes across industries
Emphasizes competitive position within group and segments
Looks across groups and segments
Emphasizes better buyer service
Emphasizes redefinition of the buyer and buyer’s preferences
Emphasizes product or service value and offerings within industry definition
Emphasizes complementary products and services within and across industries and segments
Emphasizes efficient operation of the model
Emphasizes rethinking of the industry business model
Emphasizes adaptation and capa-bilities that support competitive retaliation
Emphasizes strategic intent-seeking to shape the external environment over timeCONVENTIONAL VS. NEW MARKET-CREATION STRATEGIC MINDSETS
Dimensions of competition
Strategic group andindustry segments
Product and service offerings
Atari grew from $50 million to $1.6billion over 5 years, doubling every year
Compaq grew from zero revenues to $ 1billionin 5 yearsSOME WELL-KNOWN DISRUPTIONS
Profit to Goliath
Seed options for future growth business
Drives growth in emerging new business
Defend and extend current business
TimeCREATING OPTIONS FOR FUTURE COMPETITIVE ADVANTAGE AND PROFITABILITY
Just as Jazz musicians can improvise when they play together because they follow a set of simple rules ...
... corporations can become more flexible by allowing improvisation under a set of simple rules
Tactical initiatives to Goliath
Merrill lynch discount initiative
Though some initia-tives failed, several enabled Charles Schwab to further differentiate itself from its bare-bones competition
E* TradeTACTICAL PROBING OPERATIONAL TACTICS CAN BECOME STRATEGICALLY IMPORTANT
“Five years is the maximum that you can go without refreshing the brand ... We did it (relaunched Club Europe Service) because we wanted to stay ahead so that we could continue to win customers”
“In each of the last three years we’ve introduced more than 100 major new products, which is about 70% above our pace of the early 1990s. We plan to maintain this rate and, overall, have targeted increasing new products to (equal) 35% of total sales”
The inventor of Moore’s Law stated that the power of the computer chip would double every 18 months. IBM builds a new manufacturing facility every nine months. “We build factories two years in advance of needing them, before we have the products to run in them, and before we know the industry is going to grow”
40% of Gillette’s sales every five years must come from entirely new products (prior to its acquisition by P&G). Gillette raises prices at a pace set to match price increases in a basket of market goods (which includes items such as a newspaper, a candy bar, and a can of soda). Gillette prices are never raised faster than the price of the market basket.
30% of sales must come from products that are fewer than 4 years old
Source: S. Brown and K. Eisenhardt, Competing on the Edge: Strategy as Structure Chaos (Boston: Harvard Business School Press, 1998)
Value ofreal options
Total busi-ness value
Source: L.E.K. Consulting LLC, Shareholder Value Added: Making Real Decisions with Real Options (Accessed September 12, 2005), www.lek.com/ideas/publications/sva 16.pdf.