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The Strategy Design Process. Strategic Analysis. Strategic Choice. Strategy Implementation and Evaluation. Identify Sustainable Competitive Advantage. Select Sustainable Competitive Advantage. Create Sustainable Competitive Advantage. Understand Industry Context and Competition. - PowerPoint PPT Presentation
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The Strategy Design ProcessThe Strategy Design Process
Strategic Analysis Strategic Choice Strategy Implementationand Evaluation
Evaluate The Current
Situation
Evaluate theStrategies
Results
Implement theStrategy
Craft Changes in Structure
and Processes
Develop Action Plans, Programs,
and Processes
Analyze Resources and Internal Capabilities
IdentifySustainableCompetitiveAdvantage
Craft and Communicate
Vision and Mission
Evaluate andSelect Strategy
Establish the Basis for Sustainable
Competitive Advantage
Generate FeasibleAlternativeStrategies
CreateSustainableCompetitiveAdvantage
Feedback and Rethinking
SelectSustainableCompetitiveAdvantage
Develop a Strategic Control System
Understand and Critique Current Strategy
Analyze Industry and External Environment
Understand Industry Context and Competition
Develop Strategic Goals and Specific Long Term Objectives
Situation AnalysisSituation Analysis
IdentifyStrategic Optionsfor the
Company
Select the Best Strategyfor the
Company
A strategic group is a group of firms in an industry following the same or similar strategy.
Identifying strategic groups:• Identify principal strategic variables that distinguish firms.• Position each firm in relation to these variables.• Identify clusters.
Question 4: Which Companies are in Strongest / Weakest Positions?
Strategic Groups Within the World Strategic Groups Within the World Petroleum IndustryPetroleum Industry
Geographical Scope
0 10 20 30 40 50 60 70 80
Vert
ical
Bal
ance
00.
51.
01.
52.
0
INTERNATIONALDOWNSTREAM OIL COMPANIES
PRODUCTION COMPANIES
INTEGRATED INTERNATIONAL MAJORS
NATIONALLY-FOCUSEDDOWNSTREAM COMPANIES
INTEGRATED DOMESTICOIL COMPANIES
Neste Petrofina
ChevronShell
TotalMobil
Exxon
Statoil
PDVSA Kuwait
Unocal Arco
Petrobras ENI
Repsol
NipponSun
BP
Texaco
Elf
Phillips
Amoco
Indian Oil
ElfENI
DIVERSIFIED MAJORS
How to Start a How to Start a RevolutionRevolution
Re-conceive your product or service◦ Radically improve the value equation◦ Separate form and function◦ Achieve joy of use
Re-define the market space◦ Push the bounds of universality◦ Strive for individuality◦ Increase accessibility to your products
Re-draw industry boundaries◦ Rescale the industry◦ Compress the supply chain◦ Drive convergence between industries
What is a competitive advantage?How do you know if you have one (or not)?
How can you create one?
Sources of Competitive Sources of Competitive AdvantageAdvantage
COST ADVANTAGE
DIFFERENTIATIONADVANTAGE
COMPETITIVEADVANTAGE
Similar product
at lower cost
Price premium
from unique product
The Porter Value The Porter Value ChainChain
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
INBOUND OPERATIONS OUTBOUND MARKETING SERVICE
LOGISTICS LOGISTICS & SALES
PRIMARY ACTIVITIES
SUPPORTACTIVITIES
Using the Value Chain to Identify Using the Value Chain to Identify Differentiation Potential on the Differentiation Potential on the Supply SideSupply Side
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
INBOUND OPERATIONS OUTBOUND MARKETING SERVICE
LOGISTICS LOGISTICS & SALES
IS that supports fast response
capabilities
Training to support customer service
excellence
Unique product features. Fast new product
development
Quality of components &
materials
Defect free products.
Wide variety
Fast delivery. Efficient order
processing
Building brand reputation
Customer technical support. Consumer credit. Availability of
spares
Creating Competitive AdvantageCreating Competitive Advantage
Industry structure matters, but success does not come just from industry attractiveness
Value = difference between buyer’s willingness to pay and seller’s opportunity cost
Added value = marginal value created by the firm
(value that would be lost by its absence)The larger the added value, the larger the
potential profit for the sellerCA is achieved by driving a wedge between buyer
willingness to pay and value added by the firm (scarcity)
Ghemawat & Rivkin, 2006
Activity Analysis of Value CreationActivity Analysis of Value Creation
1. Catalog activities (along the value chain)2. Use activities to analyze relative costs and cost
drivers3. Use activities to analyze relative willingness of
customers to pay• Who is the real buyer?• What do buyers want and what are they willing to pay
for?• What is the relative success of our firm and competitors
in fulfilling customer needs• Relate success back to activities – are the activities
customers need the ones we are good at?4. Explore options and make choices
• Understand competitors, their likely reactions, the bundle of benefits to customers, and the role of scope and scale
Ghemawat & Rivkin, 2006
Value NetworksValue NetworksA non-linear model of value creationA non-linear model of value creation
Porter’s Generic Porter’s Generic StrategiesStrategies
SOURCE OF COMPETITIVE ADVANTAGE
Low cost Differentiation
Industry-wide COST DIFFERENTIATIONCOMPETITIVE LEADERSHIP SCOPE
Single Segment
FOCUS
The Evolution of Competitive The Evolution of Competitive AdvantageAdvantage
How does competitive
advantage evolve?
External sources ofchange e.g.:•Changing customer demand•Changing prices•Technological change
Internal sources
of change
Resource heterogeneity
among firms means differential impact
Some firms faster and more effective in exploiting change
Some firmshave greater creative
and innovativecapability
Drivers of Cost AdvantageDrivers of Cost Advantage
PRODUCTION TECHNIQUES
PRODUCT DESIGN
INPUT COSTS
CAPACITY UTILIZATION
MANAGERIAL/ ORGANIZATIONALEFFICIENCY
ECONOMIES OF LEARNING
ECONOMIES OF SCALE
• Organizational slack
• Ratio of fixed to variable costs• Costs of installing and closing capacity
• Location advantages• Ownership of low-cost inputs • Bargaining power• Supplier cooperation
• Design for automation• Designs to economize on materials
• Mechanization and automation• Efficient utilization of materials• Increased precision
• Increased dexterity• Improved coordination/ organization
• Indivisibilities• Specialization and division of labor
Identifying Differentiation Potential: The Identifying Differentiation Potential: The Demand SideDemand Side
THE PRODUCT
THE CUSTOMER
What needs does it satisfy?
By what criteria do
they choose?
What motivat
es them?
What are key attributes?
Relate patterns of customer
preferences to product
attributesWhat price premiums do
product attributes command?What are
demographic, sociological, psychological correlates of
customer behavior?
FORMULATE DIFFERENTIATION STRATEGY• Select product positioning in relation to product attributes• Select target customer group• Ensure customer / product compatibility• Evaluate costs and benefits of differentiation
The Evolution of Honda: The Evolution of Honda: A Strategy Based on Resources and A Strategy Based on Resources and CapabilitiesCapabilities
1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2005
Founding ofHonda motor
company
50cc 2-cycle engine
4 cycle engines
405ccmotorcycle
Related products:ground tillers, marineengines, generators,pumps, chainsaws
First product: clip-on engine
for bicycles
The 50ccsuper-cub
N360 minicar
1000ccGoldwing
touringmotor cycle
Acura Cardivision
InsightHybrid
““Core” Competence – Three TestsCore” Competence – Three Tests
Provides potential access to a wide variety of markets and products
Makes a significant contribution to perceived customer benefits of the end product
Is difficult for competitors to imitate
Strategic IntentStrategic IntentGlobal leadership over a long time horizonAn obsession with winning at all levels of the firmA sustained, challenging, focused BHAG
◦ Stable over time◦ Attracts personal effort and commitment◦ Guide for resource development and allocation
Avoiding “recipes” for imitationCreating competitive advantages faster than
competitors can imitate them, creating “new space”
Layers of competitive advantageChanging the terms of engagement
The Relationships Between Resources, The Relationships Between Resources, Capabilities and Competitive AdvantageCapabilities and Competitive Advantage
STRATEGYINDUSTRY KEY
SUCCESS FACTORSCOMPETITIVEADVANTAGE
ORGANIZATIONALCAPABILITIES
RESOURCESTANGIBLE INTANGIBLE HUMAN
•Financial•Physical
•Technology•Reputation•Culture
•Specialized skillsand knowledge•Communication & interactive abilities•Motivation
The Profit Potential of Resources and The Profit Potential of Resources and CapabilitiesCapabilities
Scarcity
Relevance
Durability
Transferability
Replicability
Property rights
Relative bargaining power
Embeddedness of resources
THE EXTENT OF THE COMPETITIVE ADVANTAGE
ESTABLISHED
SUSTAINABILITY OF THE
COMPETITIVE ADVANTAGE
APPROPRIABILITY OF RETURNS
THE PROFITEARNING POTENTIALOF A RESOURCE OR
CAPABILITY
Preparing forPreparing for the Future: The Role of Scenario the Future: The Role of Scenario AnalysisAnalysis
Stages in undertaking multiple Scenario Analyses: Identify major forces driving industry change Predict possible impacts of each force on the industry
environment Identify interactions between different external forces Among range of outcomes, identify 2-4 most likely/
most interesting scenarios: configurations of change forces and outcomes
Consider implications of each scenario for the company Identify key signposts pointing toward the emergence
of each scenario Prepare contingency plan
Perspectives on Strategic PlanningPerspectives on Strategic Planning “The essence of strategic planning is the systematic
identification of opportunities and threats that like in the future [to] provide a basis for making better current decisions” (George Steiner)
“There are significant benefits to gain through an explicit process of formulating strategy to insure that at least the policies (if not the actions of functional departments) are coordinated and directed at some common set of goals” (Michael Porter)
“Planning is the substitution of error for chaos” (Anonymous)
“Most corporate planning is like a ritual rain dance: It has no effect on the weather that follows, but it makes those who engage in it feel they are in control” (Russell Ackoff)