Transcript Competitive Strategy

BA460-Week #2:
Strategic
Planning
“If you don’t know
where you are going
any route will get you
there.”
Chris Bartlett,
Harvard Business School
Strategic Thinking :
The Big-3 Questions:
1.Where do we want
to go?
–
–
–
–
What business(es) should be in
Market positions to stake out?
Consumer needs & segments
serve?
Outcomes to achieve?
2.Where are we now?
3.How do we get
there?
You have begun …
Situation & SWOT Analysis
Company
Consumers
Competitors
Conditions
Internal
Strengths
&
Weaknesses
External
Opportunities
& Threats
You are finding answers re:
How the market is segmented & the
Consumers
Competitors
relevant criteria that influence
consumers use in their purchasing
decisions
The nature & magnitude of the
competition
Existing & emerging Economic &
Conditions
Technological trends that will impact
demand, pricing, product design &
positioning
After- SWOT analysis of the situation… the next & most critical
step in strategy development…oddly enough is –thinking–
Specifically-thinking about the way things have been & are
now… AND- the way things could/should be
Need to start thinking abt:
Where you
want to go?
*Your Mission
& Vision
We will produce
outstanding financial
returns by providing
totally reliable,
competitively
superior, global, airground transportation
of high-priority goods
and documents that
require rapid, timecertain delivery."
Mission or Purpose is a precise
description of what an organization does.
It should describe the business the
organization is in. It is a definition of
“why” the organization exists
A vision is a statement about what your
organization wants to become …
A compelling description of the state and
function of the organization once it has
implemented and achieved the strategic
plan…
http://www.bplans.com/dp/missionstatement.cfm
Valuable
Strategies & Mission Statements
http://www.bplans.com/dp/missionstatement.cfm
>Strategy & Vision Statements
Then decide--
How you will
get there?
*Growth,
Competitive &
Functional
Strategies
3 Levels of Strategy
Corporate-Level : In what business do we compete?
Corporation
Business-Level : How do we compete?
Sensors Unit
Nano-Tech Unit
Cons.Elec. Unit
Functional-Level : How do we coordinate?
Finance
HR / R&D
Production
Marketing
Corporate
Growth Strategy
Business Unit
Competitive Strategy
Functional Strategies
R&D
Marketing
Positioning
Finance
Production
Human
Resources
Level 1-Corporate Strategy
In which businesses do we compete?
Corporation
Corporation
STRATEGIC
BUSINESS
UNIT #1
MARKET
COMPETITOR
A
COMPETITOR
B
STRATEGIC
BUSINESS
UNIT #3
STRATEGIC
BUSINESS
UNIT #2
COMPETITOR
C
COMPETITOR
D
COMPETITOR
E
?
MARKET
MARKET
COMPETITOR
F
COMPETITOR
G
COMPETITOR
H
COMPETITOR
I
Growth Strategy
Deciding on what
Products &
Markets to
compete with &
in…
Growth Strategies
PRODUCT
Present
Present
Market
Penetration
New
Product
Development
MARKET
New
Market
Development
Diversification
Concentrate on your primary line of
business & look for ways to meet growth
objectives thru increasing your level of
operation in your primary business
Market
Penetration
Increase market share among
existing customers.
Market
Development
Attract new customers
to existing products
Product
Development
Create new products
for present markets
Level 2: Business Unit Strategy
How do we compete?
STRATEGIC
BUSINESS
UNIT
Focus?
Quality?
Price?
MARKET
COMPETITOR
A
COMPETITOR
B
COMPETITOR
C
Also need to decide-- how you are
going to compete…
w/ what Competitive
Advantage
Thru Cost Advantage•Offer same benefit as
competitor but at lower cost
Thru Differential
Advantage•Offer benefits which exceed
competitors
w/in which Market
Segments
All market segments
Niche segments
Evolving segments
 Competitive
Strategy is the
creation of a unique
& valuable position-
The position is based on– Performing
the
same activities as
competitors, but
differently
--or performing a
different set of
activities
• Porters Generic Strategies
•Strategies & Mission Statements
You can also Formulate Strategy by
what dimension you compete on:
Cost:
Design, produce,
market more
efficiently than
competitors
Differentiation:
Deliver unique &
superior value in
terms of product
quality, features,
service
You can Formulate Strategy by
theNumber & nature of segments
compete w/inUndifferentiated
 Differentiated
 Niche Strategy

& You can Formulate Strategy byRiding A Products Life Cycle

Adjust
Marketing Mix
according to
natural Drift of
products w/in
segments-
Put them all together &…
1.
2.
3.
Cost/Quality
Differentiation
Number & nature of
segments compete
w/in
Riding the Product
Life Cycle
Competitive Strategy
Matrix:
#2
Compete
on:
Cost
#1
Broad Market
Niche Mrkt
Number & nature of
segments
compete w/in
Product
Quality
Cost/Quality Differentiation
Riding Product
Life Cycle
#3
Evolving Mrkt
Competitive
Strategies
Product
Life-Cycle
Competitive Strategy Matrix
Broad Mrkt
Compete
on:
Cost
Product
Quality
Niche Mrkt
Evolving Mrkt
Overall Cost Cost LeaderLo -Tech
Leader
Cost Leader -
Differentiator- Differentiator
Differentiator-
Focus
Hi- End Focus
PLC
Lo+Trad+Hi
PLC
Lo+Trad+Hi
Cost Leadership
Strategic Choices
A cost leader does not
try to be industry
innovator
 A cost leader positions
products to appeal to
mainstream customers
 The overriding goal isincreased efficiency &
lower costs relative to
rivals

Generic Business-Level
Strategy:Cost Leadership
 Advantages
If rivals charge
similar prices, a cost
leader achieves
superior profitability
– A cost leader is able
to charge a lower
price than
competitors
–
Overall Cost Cost LeaderLo -Tech
Leader
Focus


Cost Leader -
PLC
Lo+Trad+Hi
An overall cost leader will
attempt to be low-cost
producer in every segment
of the market.
will have good profit margins
on all sales while keeping
prices low for price-sensitive
customers.
Overall Cost Cost LeaderLo -Tech
Leader
Focus

Cost Leader -
PLC
Lo+Trad+Hi
-- seeks to dominate the price
sensitive market segments.
 --sets prices below all
competitors — and still be
profitable
Overall Cost Cost LeaderLo -Tech
Leader
Focus


Cost Leader -
PLC
Lo+Trad+Hi
-- Will seek to minimize costs in
marketing & production
Products will be allowed to age
& change in appeal from High
End, to Traditional, and
eventually Low End buyers.
Competitive Strategy Matrix
Broad Mrkt
Compete
on:
Cost
Product
Quality
Niche Mrkt
Evolving Mrkt
Overall Cost Cost LeaderLo -Tech
Leader
Cost Leader -
Differentiator- Differentiator
Differentiator-
Focus
Hi- End Focus
PLC
Lo+Trad+Hi
PLC
Lo+Trad+Hi
Generic Business-Level Strategy:
Differentiation
 Create a
product that
customers perceive as
different or distinct in an
important way

Advantages
– Premium price
– Increased revenues =
superior profitability
Differentiator

A differentiator will seek to
create maximum
awareness & brand equity.

Wants to be well known as
maker of high quality/highly
desirable products
Differentiation
Advantages
 Customers develop brand
loyalty:
The greater the
loyalty.. The less the price
sensitivity…
Differentiators can pass price
increases on to customers
 Differentiation and brand
loyalty are barriers to entry

Differentiation:
Disadvantages
Difficulty in maintaining long-term
distinction in customers’ eyes
– Agile competitors can quickly
imitate
– Patents & first-mover advantages
are limited
 Difficulty/expense of maintaining
premium pricing– requires
greater marketing costs

DIFFERENTIATOR w/
HIGH-TECH FOCUS
A high-tech
differentiator seeks
to be top producer of
best performing
leading-edge
products
Competitive Strategies;
Focused Differentiation:
 Focus
on particular
group or geographic
market
–
–
Seek differentiation
in targeted market
segment
Serve special needs
of narrow target
market
DIFFERENTIATOR w/
PRODUCT LIFE-CYCLE FOCUS
A product life-cycle
differentiator seeks to
be well-known as a
top producer of good
performing products
in each of the
targeted segments.
Level 3- Functional Strategy
How do we coordinate?
STRATEGIC BUSINESS UNIT
FINANCE
R&D
PRODUCTION
PURCHASING
INVENTORY
MARKETING
/SALES
What makes a decision strategic?
 Multi-functional in
scope &
consequences
 Requires choice &
trade-offs,
integration &
alignment
R&D
Prdtn
Mrktg
In order to execute & achieve selected growth &
competitive strategies--Need to coordinate decisions
across all Functional domains
Production
R&D
Marketing
Finance
HR
Functional Integration
& Strategic Alignment
Getting In-Sync w/
Functional Planning
The goal of
functional
planning
is to achieve a state
of Internal
Strategic
Alignment
FINANCE
PRODUCTION
MARKETING
INTERNAL STRATEGIC
ALIGNMENT
Achieved when :
All Decisions made by &
within all functional
areas are in sync w/
one another,
As well as with the
overall strategic
direction of the firm
FINANCE
PRODUCTION
MARKETING
Functional Planning
Matrices
Examples of:
internal
strategic
alignment
Functional Alignment: In Achieving Cost Efficiency
Functional Alignment: Implementing Differentiation Strategy
Functional Alignment: In Achieving Superior Innovation
Functional Alignment: Superior Customer Rlshps
When all decisions made by &
within all functional areas are
in sync w/ one another,
As well as w/ your overall strategic
direction -- you achieve…
Distinctive
Distinctive
Competencies
Competencies
Distinct competencies needed to
achieve selected competitive
strategy
Distinctive
Competencies
Competitive
Advantage*
*Achieved when you sustain
profits above Industry
Average
Areas in which you can develop
“Distinct Competencies”




MARKETING: Awareness &
Accessibility
R&D: Product innovation & design
PRODUCTION: Plant Automation &
utilization
Human Resources: Worker Expertise
& Training
Distinct Competencies
Competencies in
automation &
human
resources could
lead to a
competitive
advantage in
cost leadership.
Achieving Competitive Advantage thru
Cost-Focused Strategy

Allows for good profit margins on
sales while keeping prices low
especially in price-sensitive
segments…
Functional Alignment
Automation - pursued early &
Production 
aggressively
Capacity improvements unlikely
Marketing
(may run overtime instead)
Spend moderately on promotion &
sales
R&D
Spend minimally on R&D
Distinct Competencies
Competencies in
awareness,
accessibility &
design could
lead to a
competitive
advantage built
upon
differentiation
Differentiator


Seeks to create maximum awareness & brand
equity.
Wants to be well known as a maker of high
quality/highly desirable products
Production
Functional Alignment
Less likely to invest in increased automation or
production capacity
Marketing
Spend heavy on advertising & sales to create
maximum awareness & accessibility
Prices tend to be higher
R&D
High R&D spending - keep products fresh
Virtually all tactical
mistakes that are made
when implementing
strategy
are a consequence of the
lack of synchronization of
decisions made in at least
two functional areas

You develop a
new product
but forget to
buy plant &
equipment for
it…the year
before it is to
be launched…
R&D and
Production
breakdown

The
company
takes an
emergency
loan
because
inventory
levels
increase…
Marketing,
Production &
Finance out of
sync

You reposition a
product from the
High End to the
Traditional
segment, but do
not address
their material &
labor costs…
Marketing,
R&D, and
Production
out of sync

Financial
decisions are
made before
knowing the
budget demands
of all R&D,
Marketing and
Production
decisions…
Everybody
is out of
sync!
Functional alignment- decisions matrix
Competitive
Strategy:______
Marketing
R&D
Production
HR
Finance
Strategic
Objectives
Brand Tactics
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2
3
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EXAMPLE: Functional alignmentdecisions matrix
BRAND:_new
Competitive Strategy:
Niche
Differentiation
Marketing
R&D
Production
HR
Finance
Strategic Tactics Tactics
Objectives Rnd1 Rnd2
Competitive
Strategy:ND
Strategic Objectives
Marketing Spend aggressively in promotion & sales in Hitech segments…. make our
products easy for customers to find. .. price at a premium. In the low tech
segments we”ll exit gracefully, … as they exit the Low End
R&D
We will keep our existing HiTech products (HI, PRF, & SIZE), phase out TRAD
and LO, and introduce a new brand in the High End segment. Our goal is to offer
technology oriented customers products that match their ideal criteria for
positioning, age, and reliability
Production Grow capacity to meet demand … avoid overtime After products well positioned,
investigate modest increases in automation levels to improve margins, but keep
ability to reposition products
HR
Spend aggressively on recruitment, training; minimize labor T/O w/ +wage &
benefit packages; Focus TQM & Process initiatives on reducing labor & material
costs, R&D time and enhancing effectiveness of promo & sales budgets…
Finance
We”ll finance investments primarily thru stock issues, retained earnings,
supplement w/ bond offerings as needed .. When our cash position allows- issue
dividends & retire stock.-We are adverse to debt & prefer to avoid interest
payments. We’ll keep assets/equity (leverage) betw. 1.5 - 2.0. We measure
performance w/ ROS, Asset T/O,& ROA.
EXAMPLE: Functional alignmentdecisions matrix
Competitive Strategy:
Niche
Differentiation
Marketing
R&D
Production
HR
Finance
Strategic Tactics Tactics
Objectives Rnd1 Rnd2
Competitive
Strategy:ND
Marketing
Tactics Year 1
TRAD – increase price, make modest cuts in promotion and sales budget.
Forecast a modest reduction in unit sales compared to last year.
Example: price $28.50, promotion budget $600, sales budget $600, and
sales forecast 1000.
LO – increase price, make modest cuts in promotion and sales budget.
Forecast a modest reduction in unit sales compared to last year.
Example: $23.50, promotion budget $600, sales $800, and sales
forecast 1400.
HI – increase price, promotion budget and sales budget. Forecast flat unit
sales. Example: $39.50, promotion budget $1900, sales $1900, sales
forecast 400.
PRF – increase price, promotion budget and sales budget. Forecast flat unit
sales. Example: $34.50, promotion budget $1900, sales $1900, sales
forecast 440.
SIZ –increase price, promotion budget and sales budget. Forecast flat unit
sales. Example: $34.50, promotion budget $1700, sales $1700, sales
forecast 390.
New HI – no action required because the product will not emerge from R&D
until next year.
Competitive
Strategy:ND
R&D
Tactics Year 1
TRAD – tweak positioning to reduce age. Reduce reliability to reduce
material cost. Example: Increase Performance by 0.1 and reduce
MTBF by 1000 hours.
LO – leave positioning alone, allowing the product to age further. Reduce
reliability to reduce material cost. Example: reduce MTBF by 1000
hours..
HI– improve positioning and reduce age. Hold reliability (MTBF) steady.
Example: reduce Size by 1.2, and increase Performance by 1.2.
PRF – improve positioning and reduce age. Improve reliability to enhance
demand. Example: Increase Performance by 1.4, reduce Size by 0.5,
and increase MTBF by 1000 hours.
SIZE – improve positioning and reduce age. Hold reliability (MTBF) steady.
Example: Reduce Size by 1.4, and increase Performance by 0.5.
New HI – Launch a new High End product, with a project length of 20 to 23
months (no later than December of next year.) Example: positioned
at leading edge of High End segment, -- Performance 10.2, Size 9.8.
Set MTBF in the middle of the High End reliability range: MTBF
23,000.
TACTICS -Example: decision matrix- to
add a new High End product…
What= A New product- Size coordinate = 10.
Performance coordinate = 11. MTBF = 25,000
R&D
hours. When Due out in 2007
Competitively Price @ $35. Target 68% Awareness
(50% @intro +18% will cost=$2M promo budgetMARKETING allocate web, email & Trade Shows) maintain hilevel Distribution w/ Sales budget = $1.4M…w/
appropo allocations- When 2007.
What Produce 75,000 units at automation level of 3.
PRODUCTION When Ready by second month of 2007. How
Purchase capacity in 2006.
What Investments in Concurrent Engineering &
Quality Deployment- to reduce R&D Times When &
HR
How Much $2M-2005; $1.5M-2006;$1M-2007
What Finance $11M. When NOW. How Issue long
FINANCE
term debt.
Competitive
Strategy:ND
Production
Tactics Year 1
For each product, schedule production using the
formula:
(UnitSalesForecast X 112%) – InventoryOnHand.
Adam – sell 200 to 300 units of capacity. Adam has
too much capacity, and given our new product
it is unlikely that we will need 900 units of
capacity in the future.
Make no other plant improvements to capacity or
automation UNTIL YEAR 2- WHEN New High
End product DEVLOPMENT COMPLETE – buy
600 units of capacity at automation level 5.0.
Competitive
Strategy:ND
HR
Tactics Year 1
Invest $1.5 million per selected – critical TQM (Quality
Function Deployment; CCE ) & Process Initiatives
(CPI,JIT,QIT, Channel Support & Concurrent Engineering)
Finance
On proforma Balance Sheet-- add together Cash and
Inventory accounts. -- Keep between 15% and
20% of balance sheet assets in Cash plus
Inventory.
Drive Cash position until it roughly equals your Inventory
position. …. If you are cash poor, issue additional stock
to cover the investment in new capacity. If you are cash
rich, pay dividends.
AVOID Short Term Debt.
M A R KE T I N G
TODAY’S
M A N A G E M E N T
1. Finish Situation Analysis
2. Draft Mission & Vision
Statements
3. Select Growth &
Competitive Strategies
To compete on cost
or differentiation…
that is the question
Also on Today’s
Begin drafting
“functionally
aligned”
strategic &
tactical
decisions
matrices
Competitive
Strategy
Strategic
Objectives
Brand
Rnd1
Tactics
Rnd2
1
2
3
4
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1
2
3
4
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1
2
3
4
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Marketing
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R&D
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Production
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HR
Finance
1
2
3
4
1
2
3
4
1
2
3
4
Need to begin to
determine the
basic objectives
& specific
tactical decisions
that need to be
made within &
across each
management
domain …in order
to successfully
implement your
growth &
competitive
strategies
Getting it together