TakeawaysTeam 2

Amy, Marlee, Jennifer, Corbin, Logan, & Josh

To sustain a competitive advantage in a constantly changing environment strategic managers need to consider and focus on…

◦ Guerrilla View

Takeaway 1

Guerrilla view focuses on◦ Concept that a firms competitive advantage is only

temporary, and that the environment is constantly changing

◦ Ex) The Technology, electronic, and computer industry is constantly changing- Apples competitive advantage now is the “user friendly” concept they incorporate into their products. Eventually everyone in the market will adapt to their competitive advantage and Apple will find a new direction.

Guerrilla View

Through the Guerrilla View..◦ A firm needs to be able to constantly adapt to

new changes in technology, market instabilities, and any other change that may affect their industry

◦ Ex) Apples industry is constantly changing through innovation and creativity- The must be able to stay up with the changes to stay ahead of the competition

Guerrilla View

Specific Environment is analyzed using Porter’s Five-Force’s Model◦ Current Rivalry, Potential Entrants, Bargaining

Power of Buyers, Bargaining Power of Suppliers, Substitute Products

General Environment includes the economic, demographic, sociocultural, political-legal, and technological sectors.◦ The trends in these sectors could have a positive

impact (opportunity) or a negative impact (threat) on the organization

Takeaway 2 Chapter 3: External Analysis

Current Rivalry among Existing Firms◦ Ex: Apple’s would be Dell, Toshiba, Hewlett-

Packard, etc. The rivalry among these competitor’s could be

considered intense or cut-throat Porter’s eight conditions that contribute to

intense rivalry: ◦ Numerous or equally balanced competitors; slow

industry growth; high fixed or storage costs; lack of differentiation or switching costs; addition of capacity in large increments; diverse competitors; high strategic stakes; high exit barriers

Specific Environment: Porter’s Five Forces

Threat to entry depends on Barriers to Entry◦ Obstacles to entering the industry◦ Low threat of entry is positive to the industry

because profitability won’t have to be divided up among more competitors

Porter’s seven major entry barriers◦ Economies of scale; cost disadvantages from

other than scale; product differentiation; capital requirements; switching costs; access to distribution channels; government policy

Potential Entrants

If buyers have a lot of bargaining power, they can drive down prices, bargain for higher quality or more services, or even play competitors against each other to get the best deal possible

What makes a buyer powerful?◦ Whether the buyer purchases large volumes of the seller’s

product; whether purchased products represent a large portion of their costs or purchases; whether purchased products are standard or undifferentiated; if buyer has low profits or income levels; if buyer has ability to manufacture product; if the industry’s product isn’t important to the quality of the buyer’s products or services; if they have full information about demand, prices and costs

Bargaining Power of Buyers

Suppliers include◦ Raw material sources; equipment manufacturers;

financial institutions; labor sources, etc.

Factors that lead to increased supplier power◦ Domination by a few companies and more

concentration than the industry; lack of substitute products; industry is not an important client; suppliers product is important to the industry; differentiated product is important or switching costs; supplier capability to provide what your industry offers

Bargaining Power of Suppliers

Could another industry satisfy the consumer need that our industry is satisfying?

Ex: Coca-Cola or Pepsi◦ Fruit drinks, energy drinks, alcoholic beverages or

milk, etc. could be substitute products

Substitute Products

Economic: Includes macroeconomic data such as interest rates and inflation rates, etc.◦ Look at current info as well as forecasted trends◦ Different industries affected differently by economic trends◦ Organization’s performance determined by how it responds

to the economic opportunities and threats

Demographics: businesses use this to make strategic decisions, understand customers, and target potential customers◦ Ex: Apple places retail stores in higher-end shopping areas

while also placing some of it’s lower-priced products in stores like Wal-Mart

General Environment

Sociocultural: what is a country’s culture like and how is it changing?◦ Ex: Some current trends include consumers

purchasing healthier foods

Political-Legal: Analyzes laws, regulations, judicial decisions and political forces in effect at the federal, state and local levels of government◦ Can have a big impact on companies’ financial

performance

General Environment, cont.

Technological: Scientific or technological innovations that create opportunities or threats

Two areas most affected by this sector are product research and development and organizational work processes◦ Faster production times and communication◦ Ex: Apple- technological advances can be an

opportunity to improve existing products or create new products, or it can be a threat if utilized by competitors

General Environment, cont.

The process of evaluating an organizations resources and capabilities, and core competencies

Three different approaches for doing an internal analysis◦ 1. Value Chain Analysis◦ 2. Internal Audit◦ 3.Capabilities Assessment Profile

Takeaway 3 Internal Analysis

A systematic way of examining all the organization’s functional activities and how well they create customer value

Value comes from 3 broad categories:◦ Product is unique and different◦ Product is low priced◦ Product meets the needs of a specific group of

customers quickly and efficiently

Value Chain Analysis

Activities in the Value Chain

Support Activities:o Procurement

o Technological development

o HR Management

o Firm Infrastructure

Primary Activities:o Inbound logistics

o Operations

o Outbound logistics

o Marketing and sale

o Customer service

A thorough examination of an organization’s internal areas

Begins with premises that every organization has functions it must perform, and strengths and weaknesses are based on how well they are performed

Looks at six organizational functional areas and measures the efficiency of each area

Internal Audit

Six organizational functional areas◦ Production and operations◦ Marketing◦ Research and Development◦ Financial and accounting◦ Management◦ Information systems and information technology

Organizational functional Areas

An in-depth evaluation of an organization’s capabilities

Assessing capabilities can be complex since they arise from the ways the resources are combines in the organization’s basic work processes and routines

Capabilities Assessment consists of two Phases:◦ Identifying distinctive capabilities◦ Developing and leveraging these distinctive

capabilities

Capabilities Assessment Profile

Takeaway 4 Chapter 5 An organization needs functional strategies,

which there are three functional concerns :

◦ The Product

◦ The People

◦ The Support Process

The Product◦ Is the product going to be new or use new

innovations or does it mimic others?◦ Will there be formal or informal process to

generate ideas?◦ What type of and how much research will be

involved?◦ Will there be extensive or limited use of product

prototypes, product tests, design reviews, and test markets?

Functional Strategies

The People-High Performance Work Practices◦ Self directed work teams◦ Problem solving groups◦ Attitude Surveys◦ Contingent pay◦ Job rotation◦ Information sharing◦ Top Quality Management programs

Functional Strategies cont.

The Support Process◦ Information systems

Information affects how effectively and efficiently organizational members can do their work.

“I.S.” –collecting, processing, storing any and all information needed to operate a business

◦ Financial Accounting Systems Provides strategic decision makers with information

about the organization’s financial transactions, accounts, and standing.

Functional Strategies cont.

Once there is a need for a functional strategy to emerge, you must implement it, evaluate it, and then make any necessary changes. This process is a continual process in the three functional areas of the product, the people, and the support process.

Functional Strategies

Porter’s Generic Competitive Strategies◦ Strategies can be pursued by any type/size of

organization in any type/size of industry

◦ Cost Leadership Strategy◦ Differentiation Strategy◦ Focus Strategy

*Competitive strategy should exploit the competitive advantages the organization has developed

Takeaway 5 Chapter 6

Organization strives to have the lowest costs in its industry and produce products for broad customer base

Allows better position if price war starts

To be successful:◦ Be efficient in all areas◦ Narrow product lines aimed at average customer◦ Have plain/effective establishments

Cost Leadership Strategy

Provide unique products with features that customers value and see as different, so they pay a premium for it

Offer wide product lines to create value for customer

Work to establish brand loyalty Unique resources and capabilities tend to

be in marketing and research & development

Differentiation Strategy

Organization pursues cost or differentiation advantage within a limited customer group

Focus on specific market niche Three broad ways to segment specialized

market niches:◦ Geographical- region◦ Type of customer-customer’s unique needs◦ Product line segment-specific & specialized

product line

Focus Strategy

Concentration

Vertical Integration

Horizontal Integration

Diversification

International

Takeaway 6Organizational Growth Strategies

Concentrates on its primary line of business and looks for more ways to meet its growth goals by expanding its core business

Product-Market Exploitation◦ Sales of current products in current markets

Product Development Exploitation◦ New products to current customers

Market Development◦ Sells current products in new markets

Concentration

Organization grows by gaining control of it inputs (backward), it outputs (forward) or both

Backward Vertical Integration◦ Control inputs/resources…become its own supplier◦ eBay created and owns its own online payment

business Forward Vertical Integration

◦ Control outputs, become your own distributor◦ Apple created retail stores to sell their products

Vertical Integration

Organization grows by combining operations with their competitors

Keeps organizations in same industry as well as expand market share…is it legal◦ Anti-Trust Laws◦ AT&T and T-Mobile Merger

Appropriate when◦ Enables the company to meet its growth needs◦ Can be strategically managed to attain a sustainable

competitive advantage◦ Satisfies legal and regulatory guidelines

Horizontal Integration

Organization grows by moving into a different industry

Related (Concentric) Diversification◦ Different industry but related some way to current

business◦ Apple:

IPod, IPhones, IPad, PCs, Laptops, online music Un-Related (Conglomerate) Diversification

◦ Diversify into a completely different industry not related to the current business

◦ May do this if there is no growth potential in current industry

◦ Fortune Brands: Jim Bean, Courvoisier cognac, Moen Faucets, cabinets, Titleist

golf balls, and Master padlocks

Diversification

Organizations may take advantage of potential opportunities offered by global markets or by protecting current markets from global competitors

May use any of the other strategies to expand globally

International