7. 1. What businesses should the corporation/enterprise be in? 2. How should the corporate/G.O. office manage the array of business units (GBU’s/SBU’s/ Wholly owed subsidiaries) Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts Key Questions of Corporate/Firm-level Strategies
8. 21 st Century Organization Strategies for Growth and Profitability Multi-International: One Consumer Products Company (Corporate Level) Driving Growth (8) Funding Growth (5) Creating the Best Place To Work (10) Global Scope Consumer Promotion 360 0 Marketing Superior Knowledge of Customers/Consumers Strong Alliances/ Partnerships with Customers Coverage of Trade Acquisitions/JV’s Focus on Product Quality Innovative New Products/Services Vision Direction : Guiding Core Values, Philosophies, Principles, Mission, & Others Regionalization With Local Control Lean & Flat Structures Shared Leadership, Coaching & Feedback Horizontal, Structures, Systems, & Processes: Integration/communication/coordination Empower People Stimulating Careers Streamline and obtain A Seamless Supply Chain/ Demand Side (Value Chain) Integration Use of Technologies to create Cost Savings IS/SAP/ Consolidated Partnership Move to “Global” And “Local” Regional Business HPWS Community Involvement Recognition & Financial Rewards Demand Side Strategies: Supply Chain Strategies: Source: Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
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10. Future Work Trends How does it fit together? Globalization (External Growth) Year 2009 Success Factors Strategic Alliances (External and/or Internal Growth) Improvement in the four Capabilities via Core Competencies along Value Chain Business Imperatives: Capabilities: Vision Direction and Strategies: Barry A. Macy, Successful Strategic Change , Berrett-Koehler Publishers, San Francisco, CA. (forthcoming) Vision Direction External and Internal Strategies (Corporate & Business) 1st 2nd 3rd
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14. Concentration Customers Product(s) Product/Market Diversification Market Focused Development Product Development Product-Market Exploitation
22. Another Way: Diversification Related Diversification Product Similarities Distribution Channels Value Chain Capabilities/ Core Competencies Customer Use Similar Technology
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31. Levels and Types of Diversification Low Levels of Diversification Moderate to High Levels of Diversification Very High Levels of Diversification Related linked (mixed) < 70% of revenues from dominant business, and only limited links exist A B C Single business > 95% of revenues from a single business unit A Dominant business Between 70% and 95% of revenues from a single business unit B A Unrelated-Diversified Business units not closely related A B C < 70% of revenues from dominant business; all businesses share product, technological and distribution linkages Related constrained A B C
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34. Assumptions: Sharing Activities Alternative Diversification Strategies Strong sense of corporate identity Clear corporate mission that emphasizes the importance of integrating business units Incentive system that rewards more than just business unit performance (balanced scorecard)
35. Alternative Diversification Strategies Related Diversification Strategies Unrelated Diversification Strategies Sharing Activities (Shared Global Services) Transferring Core Competencies Efficient Internal Capital Market Allocation Restructuring
36. Key Characteristics: Example: Using a common physical distribution system and sales force such as Procter & Gamble’s disposable diaper and paper towel divisions Example: General Electric’s costs to advertise, sell and service major appliances are spread over many different products Sharing Activities Alternative Diversification Strategies Achieves economies of scale Boosts efficiency of utilization Helps move more rapidly down Learning Curve Sharing Activities often lowers costs or raises differentiation Sharing Activities can lower costs if it:
37. Example: Shared order processing system may allow new features customers value or make more advanced remote sensing technology available Example: Procter & Gamble’s sharing of sales and physical distribution for disposable diapers and paper towels is effective because these items are so bulky and costly to ship Key Characteristics: Sharing Activities Alternative Diversification Strategies Sharing Activities can enhance potential for or reduce the cost of differentiation Must involve activities that are crucial to competitive advantage
38. Key Characteristics: Transferring Core Competencies Alternative Diversification Strategies Identify ability to transfer skills or expertise among similar value chains Exploit ability to transfer activities Exploits Interrelationships among divisions Start with Value Chain analysis
39. Summary Model of the Relationship Between Firm Performance and Diversification Resources Incentives Managerial Motives Capital Market Intervention and Market for Managerial Talent Diversification Strategy Strategy Implementation Firm Performance
40. Performance Level of Diversification Diversification and Firm Performance Dominant Business Unrelated Business Related Constrained
41. Future Work Trends How does it fit together? Globalization (External Growth) Year 2009 Success Factors Strategic Alliances (External and/or Internal Growth) Improvement in the four Capabilities via Core Competencies along Value Chain Business Imperatives: Capabilities: Vision Direction and Strategies: Barry A. Macy, Successful Strategic Change , Berrett-Koehler Publishers, San Francisco, CA. (forthcoming) Vision Direction External and Internal Strategies (Corporate & Business) 1st 2nd 3rd
43. An organization’s size affects the likelihood that it will take competitive actions as well as the types of action it will take and their timing. Small firms are more likely to launch competitive actions and tend to be quicker in doing so. 5-10 Strategic Actions and Organizational Size - 1
44. Large firms are likely to initiate more competitive actions as well as strategic actions during a given time period. Thus, the competitive actions a firm will likely ecounter from larger competitors will be different than the competitive actions it will encounter from smaller firms. 5-10 Strategic Actions and Organizational Size - 2
45. Large organizations often have the slack resources required to launch a larger number of total competitive actions, and thus do. However, smaller firms have the flexibility needed to launch a greater variety of competitive actions. 5-10 Strategic Actions and Organizational Size - 3
46. Declining emphasis on single, domestic markets and increasing emphasis on global markets Advances in communication technology make coordination easier across multiple markets Advances in technology and innovation have increased competitiveness of small and medium sized firms National barriers are falling due to the number and scope of trade agreements (GATT, NAFTA, EEC) Factors Leading to More Complex Rivalry
47. Competitive Dynamics Results from a series of competitive actions and competitive responses among firms competing within a particular industry Competitive Rivalry Exists when two or more firms jockey with one another in the pursuit of better market position
48. Actions and responses shape the competitive positions of each firm’s business level strategy Actions taken by one firm elicit responses from competitors A firm’s strategic conduct is dynamic in nature Competitive responses lead to additional actions from the firm that acted originally Competitive Dynamics
49. Drivers of Competitive Behavior Motivation Capability Awareness Model of Interfirm Rivalry: Likelihood of Attack and Response Do managers understand the key characteristics of competitors? Awareness
50. Does the firm have appropriate incentives to attack or respond? Drivers of Competitive Behavior Motivation Capability Awareness Model of Interfirm Rivalry: Likelihood of Attack and Response
51. Does the firm have the necessary resources to attack or respond? Drivers of Competitive Behavior Motivation Capability Awareness Model of Interfirm Rivalry: Likelihood of Attack and Response
52. Competitor Analysis Resource Similarity Market Commonality Model of Interfirm Rivalry: Likelihood of Attack and Response Do firms compete with each other in multiple markets? Market Commonality
53. Competitor Analysis Resource Similarity Market Commonality Multipoint competition tends to reduce competitive interactions, but increases the likelihood of response where interaction occurs For example, airlines price flights similarly but respond quickly when competitors introduce promotional prices Model of Interfirm Rivalry: Likelihood of Attack and Response
54. Competitor Analysis Resource Similarity Do competitors possess similar types or amounts of resources? Market Commonality Model of Interfirm Rivalry: Likelihood of Attack and Response
55. Competitor Analysis Resource Similarity Market Commonality Firms are less inclined to attack a firm that is likely to retaliate Firms with dissimilar resources are more likely to attack Firms with similar resources are more likely to be aware of each other’s competitive moves Model of Interfirm Rivalry: Likelihood of Attack and Response
56. Interfirm Rivalry: Attack & Response Likelihood of Attack First Mover Incentives Likelihood of Response Type of Competitive Action Dependence on the Market Resource Availability Actor’s Reputation Model of Interfirm Rivalry: Likelihood of Attack and Response Likelihood of Attack First Mover Incentives First Mover advantage can be substantial
57. First Mover Firms that take an initial competitive action Generally possess the resources and capabilities that enable them to be pioneers in new products, new markets or new technologies Can earn above average profits until competitors respond Gain customer loyalty, helping to create a barrier to entry by competitors Advantage depends upon difficulty of imitation
58. Second Mover Firms that respond to a First Mover’s actions Second Movers frequently imitate First Movers Speed of response often dictates success Should evaluate customers’ response before moving “ Fast” Second Movers can capture some of initial customers and develop some brand loyalty Avoid some of the risks associated with First Move Must possess necessary capabilities to imitate
59. Types of Competitive Actions Tactical Actions Major Acquisition Example Strategic Actions Price cut Example Significant commitments of specific and distinctive organizational resources Difficult to implement Difficult to reverse Relatively easy to implement Relatively easy to reverse Undertaken to “fine tune” strategy
60. Relative Size Quality Innovation Speed Ability for Action and Response Model of Interfirm Rivalry: Likelihood of Attack and Response Relative Size Firm size can have opposing effects on competitive dynamics
61. Quality Speed Large firms may exert market power over rivals and erect barriers to entry against smaller competitors However, smaller competitors may be more nimble and innovative Ability for Action and Response Relative Size Innovation Model of Interfirm Rivalry: Likelihood of Attack and Response “ Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.” -- Herb Kelleher, CEO, Southwest Airlines
62. Relative Size Quality Innovation Speed Quick response is crucial to both the first mover and the fast second mover Ability for Action and Response Model of Interfirm Rivalry: Likelihood of Attack and Response
63. Consistent innovation is required for market leadership in many dynamic industries Ability for Action and Response Relative Size Quality Innovation Speed Model of Interfirm Rivalry: Likelihood of Attack and Response
64. Exceeding customer expectations is a necessity to compete in the 21st century Ability for Action and Response Relative Size Quality Innovation Speed Model of Interfirm Rivalry: Likelihood of Attack and Response
65. Outcomes Evolutionary Actions Growth-Oriented Actions Market-Power Actions Evolutionary Outcomes Sustained Competitive Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage Model of Interfirm Rivalry: Likelihood of Attack and Response Slow cycle markets are frequently shielded by monopoly power or very strong brand loyalties This market outcome and lack of interfirm rivalry may lead to sustained competitive advantage Sustained Competitive Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage
66. Outcomes Evolutionary Actions Growth-Oriented Actions Market-Power Actions Evolutionary Outcomes Sustained competitive advantage is a possible outcome in this instance Standard cycle markets often lead to highly competitive pressures despite world class products Firms with multimarket competition may dampen rivalry somewhat Sustained Competitive Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage Model of Interfirm Rivalry: Likelihood of Attack and Response
67. Sustained Competitive Outcomes Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage Evolutionary Actions Growth-Oriented Actions Market-Power Actions Fast cycle markets are intensely dynamic and a first mover advantage is often unsustainable Evolutionary Outcomes Firms may cannibalize older generation products while introducing new innovative premium products Sustainable competitive advantage is unilkely Model of Interfirm Rivalry: Likelihood of Attack and Response