Lecture 8/9 - Content of Strategy, Business Level Strategy & Strategic Positioning Flashcards
What are the 2 main criteria for SBU formation?
Market-based criteria: Targeting specific customer types (or location) through the same channels and facing similar competitors.
Capabilities-based criteria: Similar strategic capabilities
Name 4 Generic SBU business strategies
Cost leadership
Differentiation
Focus
The Strategy Clock
Name 3 Interactive SBU business strategies
Hyper competitive strategy
Cooperation
Game theory
What is cost-leadership strategy?
Becoming the lowest-cost organisation in a domain of activity
Name the 4 key cost drivers that can help deliver cost leadership:
1) Lower Input Costs
2) Economies of Scale
3) Economies of Learning
4) Production Techniques and Design
What is the economies of learning? (experience curve)
As a firm gains experience in building a product, its costs in real terms will decline in predictable rate
Name 2 factors that contribute to economies of learning
Labour efficiency - Workers become physically more dexterous, mentally more confident and spend less time hesitating, learning, experimenting, or making mistakes
Technology improvements – Experience provides opportunity to improve firm’s production and operations. As processes, parts, and products become more standardized, efficiency tends to increase.
Which analytical tool could be used to locate cost drivers?
VALUE CHAIN ANALYSIS
Differentiation requires/involves:
Uniqueness along some dimension that is sufficiently valued by customers to allow a price premium
Tangible (size, colour, material, packaging, complementary services)
Intangible (style, image, excellence, identity)
Innovation
What are the 3 key issues in Strategy and Differentiation Advantage?
The strategic customer on whose needs the differentiation is based.
(Think: application industry – who is the strategic customer?)
Key competitors – who are the rivals and who may become a rival.
Key drivers of Uniqueness
Name 9 drivers of uniqueness
Product service features and performance.
Complementary services.
Intensity of marketing activities.
Technology embedded in design and manufacture.
The quality of purchased inputs.
Quality control, frequency of visits to customers
Skills, experience and expertise of employees
Location
Vertical integration and supply chain management
What does a focus strategy entail?
Targets a narrow segment or domain of an activity and tailors its products/services to the needs of that specific segment to the exclusion of others.
Name 2 types of focus strategy
Cost-focus
Differentiation
Successful focus strategies depend on at least 1 of 3 key factors:
Distinct segment needs
Distinct segment value chains
Viable segment economics
What does Porter’s ‘Stuck in the Middle’ theory argue?
It is best to choose which generic strategy to adopt and then stick rigorously to it.
Failure to do this leads to a danger of being ‘stuck in the middle’ i.e. doing no strategy well.
The argument FOR pure generic strategies is…
Controversial
What are the key features of the Strategy Clock?
Market-focused: focused on prices rather than costs
Allows for continuous choices with incremental adjustments between each section
What is strategic lock-in?
Where users become dependent on a supplier and are unable to use another supplier without substantial switching costs
A strategic lock-in can be achieved through:
Controlling complementary products or services.
E.g. printers that only work with particular ink cartridges
Creating a proprietary industry standard.
E.g. Microsoft with its Windows operating system.
Enjoy size & market dominance OR have a first mover dominance
What are red oceans?
Industries that are already well defined and rivalry is intense
What are blue oceans?
New market spaces where competition is minimised
Blue ocean thinking encourages…
Entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served
What is a strategy canvas?
Compares competitors according to their performance on key success factors in order to develop strategies based on creating new market spaces
NO benchmarking against competitors
Kim and Mauborgne, 2005
Value Innovation Critique
Value Innovation Critique
Kim and Mauborgne, 2005
What does do Kim and Mauborgne contest?
VALUE INNOVATION CRITIQUE
Challenging acceptance assumptions about industry definitions,
Looking across existing industries boundaries or the strategic groups, redefine buyers, etc.
Tapping on existing technology whilst providing simultaneously better value for better prices.
Red Ocean Strategy (5 points)
Compete in existing market space
Beat the competition
Exploit existing demand
Make the value-cost trade off
Align strategic choice of differentiation or low cost strategy
Blue Ocean Strategy (5 points)
Create uncontested market space
Make the competition irrelevant
Create / Capture new demand
Break the value-cost trade off
Simultaneously pursuit of differentiation and low cost strategy
Game Theory
…encourages an organisation to consider competitors’ likely moves and the implications of these moves for its own strategy.
Game theorists…
… consider the competitor response and the strategic signals to make their decisions
Game theory is relevant where:
competitors are interdependent.
Interdependency exists where the outcomes of choices made by one competitor is dependent on the choices made by other competitors.
