27 Oct Describe a STRATEGIC BUSINESS trend that you find interesting. Think of ideas like mergers & acquisitions, stock market, sectors or areas that are burgeoning, doing well or fail
The instruction had attached.
Note that this will include two follow-up responses, the details of which are in the introduction.
PART I: Weekly Trend Report: Describe a STRATEGIC BUSINESS trend (that means NO fashion or social media) that you find interesting. Think of ideas like mergers & acquisitions, stock market, sectors or areas that are burgeoning, doing well or failing – you get the idea. Also, WHY is it interesting? Share a link, post or image the demonstrates this trend in action.
PART II: THERE's MORE…Please read these detailed instructions for your Ch. 6 assessment:
Chapter 6 is all about strengthening a company's strategic position. Read the chapter before attempting this board. The chapter covers categories (and concepts) to compete that include (but are not limited to):
· Offensive & Defensive Actions – the deck (& book) list many examples, you can only choose 2 out of this category
· Scope of Operations Along the Industry's Value Chain
· Vertical Integration
· Forward Integration
· Backward Integration
· First-mover Advantage
· Late-mover Advantage
· Mergers & Acquisitions
After reading the chapter, take a look at the company you are following and the strategic problems you've uncovered and suggest THREE strategies (detailing the problem and a solution) that is based on one of the concepts in the listed above.
RULES & FORMAT:
1. State the strategic problem
2. Propose a solution
A. State the concept you will use
B. Detail your recommended solution that puts the concept into action
C. Briefly describe how your proposed solution solves the problem (3-4 sentences)
3. You must choose three different concepts, one from EACH category and you CANNOT use a concept more than once.
· Strategic Problem: Netflix does not own a full studio and relies heavily on many third party providers (smaller studios and production houses) while competitors such as Disney and Amazon (which bought MGM) have large in-house production capabilities. In fact, Disney even pulled all their Marvel content from Netflix demonstrating a considerable risk they will want to avoid in the future.
· Proposed solution: Merger & Acquisition – Netflix should look to buy a studio such as Sony. This move would give Netflix production capabilities similar to Amazon, Disney and other large competitors while also giving them exclusive control of a large existing library of content that may also draw subscribers. In addition, Sony, which does NOT have streaming services would gain Netflix streaming capabilities. (Source: What's on Netflix - link)
The Sony idea came from simply Googling "Studios Netflix should buy" and then clicking this article ( link) that appeared. You are allowed to use Google and use the ideas of others as long as you CITE them. No plagiarism – simply post a citation. Once you've use M&A you cannot use it again. Post three ideas.
Now some of you might say, " Hey professor, isn't Netflix M&A of Sony also a form of backward integration where they are bringing a supplier into the fold?" The answer is possibly YES, BUT as long as you make a reasonable argument and it fits the definition you are good. Also, if something can be defined a multiple ways, you are only required to pick one and move on. Just because something fits two concepts does not mean you are knocking two concept off the board.
Once you are done, respond to TWO other peers offering ONE PROPOSAL TO EACH OF THEM that solves a strategic problem they have posted.
· To create your Individual Posting, click " Reply" button.
· Individual Posting: Due by Saturday. You might consider visiting the company’s web site as one source or using Google and checking articles and media for inspiration.
· Response Postings: Due by Tuesday. Respond to the Individual Postings of at least two peers. Response Postings should be substantive postings (offer new information), contributing to and advancing the examination of the questions at hand. Response postings must be at least two paragraphs (with 3 to 5 sentences each).
Grades will be based on your demonstrated analytical and interpretive skills in providing thorough analysis of the topic, and quality responses to peer work.
Chapter 5 Supplementary Notes
The Five Generic Competitive Strategies
Chapter Five describes the five basic competitive strategy options – which of the five to employ is a company’s first and foremost choice in crafting overall strategy and beginning its quest for competitive advantage.
By competitive strategy we mean the specifics of management’s game plan for competing successfully – how it plans to position the company in the marketplace, its specific efforts to please customers, and improve its competitive strength, and the type of competitive advantage it wants to establish.
A competitive strategy concerns the specifics of management’s game plan for competing successfully and achieving a competitive advantage over rivals.
A company achieves competitive advantage whenever it has some type of edge over rivals in attracting buyers and coping with competitive forces. There are many routes to competitive advantage, but they all involve giving buyers what they perceive as superior value. Delivering superior value – whatever form it takes – nearly always requires performing value chain activities differently than rivals and building competencies and resource capabilities that are not readily matched.
The Five Generic Competitive Strategies
There are countless variations in the competitive strategies that companies employ, mainly because each company’s strategic approach entails custom-designed actions to fit its own circumstances and industry environment.
The biggest and most important differences among competitive strategies boil down to:
1. Whether a company’s market target is broad or narrow
1. Whether the company is pursuing a competitive advantage linked to low costs or product differentiation
These two factors give rise to five competitive strategy options for staking out a market position, operating the business, and delivering values to customers.
Five distinct competitive strategy approaches stand out:
1. A low-cost provider strategy: striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals.
1. A broad differentiation strategy: seeking to differentiate the company’s product/service offering from rivals’ in ways that will appeal to a broad spectrum of buyers
0. A best-cost provider strategy: giving customers more value for the money by incorporating good-to-excellent product attributes at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products with comparable attributes
0. A focused or market niche strategy based on lower cost: concentrating on a narrow buyer segment and outcompeting rivals by serving niche members at a lower cost than rivals
0. A focused or market niche strategy based on differentiation: concentrating on a narrow buyer segment and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals products
Figure 5.1, The Five Generic Competitive Strategies — Each Stakes Out a Different Position in the Marketplace, examines how each of the five strategies stakes out a different market position.
Low-Cost Provider Strategies
A company achieves low-cost leadership when it becomes the industry’s lowest-cost provider rather than just being one of perhaps several competitors with comparatively low costs.
In striving for a cost advantage over rivals, managers must take care to include features that buyers consider essential.
For maximum effectiveness, companies employing a low-cost provider strategy need to achieve their cost advantage in ways difficult for rivals to copy or match.
A low-cost leader’s basis for competitive advantage is lower overall costs than competitors. Successful low-cost leaders are exceptionally good at finding ways to drive costs out of their businesses and still provide a product or service that buyers find acceptable.
A low-cost advantage over rivals has enormous competitive power, sometimes enabling a company to achieve faster rates of growth and frequently helping to boost a company’s profitability. A company has two options for translating a low-cost advantage over rivals into attractive profit performance:
1. Option 1: use the lower-cost edge to underprice competitors and attract price-sensitive buyers in great numbers to increase total profits
2. Option 2: maintain the present price, be content with the current market share, and use the lower-cost edge to earn higher profit margin on each unit sold
Illustration Capsule 5.1, Nucor Corporation’s Low-Cost Provider Strategy, describes Nucor Corporation’s strategy for gaining low-cost leadership in manufacturing a variety of steel products.
The Two Major Avenues for Achieving a Cost Advantage
To achieve a low-cost advantage over rivals, a firm’s cumulative costs across its overall value chain are lower than competitors’ cumulative costs. There are two ways to accomplish this:
1. Do a better job than rivals of performing value chain activities more cost-effectively.
2. Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities
Cost-Efficient Management of Value Chain Activities: Managers must launch a concerted, ongoing effort to ferret out cost-saving opportunities in every part of the value chain.
1. Striving to capture all available economies of sale -In global industries, making separate products for each country market instead of selling a mostly standard product worldwide tends to boost unit costs because of lost time in the model changeover, shorter production runs, and inability to reach the most economic scale of production for each country model.
2. Taking full advantage of learning and experience curve effects – aggressively managed low-cost providers pay diligent attention to capturing the benefits of learning and experience and to keeping these benefits proprietary to whatever extent possible.
3. Trying to operate facilities at full capacity – higher rates of capacity utilization allow depreciation and other fixed costs to be spread over a larger unit volume, thereby lowering fixed costs per unit.
4. Improving supply chain efficiency – A company with a distinctive competence in cost-efficient supply chain management can sometimes achieve a sizeable cost advantage over less adept rivals.
5. Using lower cost inputs wherever doing so will not entail too great a sacrifice in quality
6. Using the company’s bargaining power vis-à-vis suppliers or other in the value chain to gain concessions – Home Depot, for example, has sufficient bargaining clout with suppliers to win price discounts on large-volume purchases.
7. Using communication systems and information technology to achieve operating efficiencies – Numerous companies now have online systems and software that turn formerly time-consuming and labor-intensive tasks like purchasing, inventory management, invoicing, and bill payment into speedily performed mouse clicks.
8. Employing advanced production technology and process design to improve overall efficiency – Companies can also achieve substantial efficiency gains through process innovation or through approaches such as business process management, business process re-engineering, and total quality management that aim to coordinate production activities and drive continuous improvement in productivity and quality.
9. Concessions being alert to the cost advantages of outsourcing or vertical integration – Outsourcing the performance of certain value chain activities can be more economical than performing them in-house if outside specialists, by virtue of their expertise and volume, can perform the activities at lower cost.
10. Integration Motivating employees through incentives and company culture – A company’s incentive system can encourage not only greater worker productivity but also cost-saving innovations that come from worker suggestions.
Revamping the Value Chain to Curb or Eliminate Unnecessary Activities: Dramatic costs advantages can emerge from finding innovative ways to eliminate or bypass cost-producing value chain activities. There are two primary ways companies can achieve a cost advantage by reconfiguring their value chains include:
· Selling direct to consumers and bypassing the activities and costs of distributors and dealers
· Coordinating with suppliers to bypass the need to perform certain value chain activities, speed up their performance, or otherwise increase overall efficiency
· Reducing materials handling and shipping costs by having suppliers locate their plants or warehouses close to the company’s own facilities
Illustration Capsule 5.2, How Walmart Managed Its Value Chain to Achieve a Huge Low-Cost Advantage over Rival Supermarket Chains, describes how Wal-Mart has managed its value chain in the retail grocery portion of its business to achieve dramatic cost advantage over rival supermarket chains.
Examples of Companies That Revamped Their Value Chains to Reduce Costs: One example of accruing significant cost advantages from creating altogether new value chain systems can be found in the beef-packing industry. Southwest Airlines has reconfigured the traditional value chain of commercial airlines to lower costs and thereby offer dramatically lower fares to passengers. Dell Computer has proved a pioneer in redesigning its value chain architecture in assembling and marketing personal computers.
The Keys to Success in Achieving Low-Cost Leadership
To succeed with a low-cost provider strategy, company managers have to scrutinize each cost creating activity and determine what drives its cost.
Success in achieving a low-cost edge over rivals comes from out-managing rivals in figuring out how to perform value chain activities most cost-effectively and eliminating or curbing nonessential value chain activities.
While low-cost providers are champions of frugality, they are usually aggressive in investing in resources and capabilities that promise to drive costs out of the business.
Wal-Mart is one of the foremost practitioners of low-cost leadership. Other companies noted for their successful use of low-cost provider strategies include Lincoln Electric, Briggs & Stratton, Bic, Black & Decker, Stride Rite, Beaird-Poulan, and General Electric and Whirlpool.
When a Low-Cost Provider Strategy Works Best
A competitive strategy predicated on low-cost leadership is particularly powerful when:
1. Price competition among rival sellers is especially vigorous
2. The products of rival sellers are essentially identical and suppliers are readily available from any of several eager sellers
3. There are a few ways to achieve product differentiation that have value to buyers
4. Most buyers use the product in the same ways
5. Buyers incur low costs in switching their purchases from one seller to another
6. Buyers are large and have significant power to bargain down prices
7. Industry newcomers use introductory low prices to attract buyers and build a customer base
A low-cost provider is in the best position to win the business of price-sensitive buyers, set the floor on market price, and still earn a profit.
The Pitfalls of a Low-Cost Provider Strategy
Perhaps the biggest pitfall of a low-cost provider strategy is getting carried away with overly aggressive price cutting and ending up with lower, rather than higher, profitability.
1. A low-cost/low-price advantage results in superior profitability only if (1) prices are cut by less than the size of the cost advantage or (2) the added value gains in unit sales are large enough to bring in bigger total profit despite lower margins per unit sold.
2. A second big pitfall is not emphasizing avenues of cost advantages that can be kept proprietary or that relegate rivals to playing catch-up.
3. A third pitfall is becoming too fixated on cost reduction.
Even if these mistakes are avoided, a low-cost competitive approach still carries risk.
Broad Differentiation Strategies
Differentiation strategies are attractive whenever buyers’ needs and preferences are too diverse to be fully satisfied by a standardized product or by sellers with identical capabilities.
The essence of a broad differentiation strategy is to be unique in ways that are valuable to a wide range of customers.
Successful differentiation allows a firm to:
1. Command a premium price for its product
2. Increase unit sales (because additional buyers are won over by the differentiating features)
3. Gain buyer loyalty to its brand (because some buyers are strongly bonded to the differentiating features of the company’s product offering)
Differentiation enhances profitability whenever the extra price the product commands outweighs the added costs of achieving the differentiation.
Types of Differentiation Themes
Companies can pursue differentiation from many angles. The most appealing approaches to differentiation are those that are hard or expensive for rivals to duplicate.
Easy to copy differentiating features cannot produce sustainable competitive advantage; differentiation based on competencies and capabilities tend to be more sustainable.
Where along the Value Chain to Create the Differentiating Attributes
Differentiation opportunities can exist in activities all along an industry’s value chain; possibilities include the following:
1. Supply chain activities that ultimately spill over to affect the performance or quality of the company’s end product.
2. Product R&D activities that aim at improved product designs and performance features, expanded end uses and applications, more frequent first-on-the market victories, wider product variety and selection, added user safety, greater recycling capability, or enhanced environmental protection.
3. Production R&D and technology-related activities that permit custom-order manufacture at an efficient cost, make production methods safer for the environment or improve product quality, reliability, and appearance.
4. Manufacturing activities that reduce product defects, prevent premature product failure, extend product life, allow better warranty coverages, improve the economy of use, result in more end-user convenience, or enhance product appearance.
5. Distribution and shipping activities that allow for fewer warehouse and on-the-shelf stockouts, quick delivery to customers, more accurate order filling, and/or lower shipping costs.
6. Marketing, sales, and customer service activities that result in superior technical assistance to buyers, faster maintenance and repair services, more and better product information provided to customers, more and better training materials for end users, better credit terms, quicker order processing, or greater customer convenience.
Managers need a keen understanding of the sources of differentiation and the activities that drive uniqueness to devise a sound differentiation strategy and evaluate various differentiation approaches.
The Four Best Routes to Competitive Advantage via a Broad Differentiation Strategy
While it is easy enough to grasp that a successful differentiation strategy must entail creating buyer value in ways unmatched by rivals, the big question is which of four basic differentiating approaches to take in delivering unique buyer value.
1. One route is to incorporate product attributes and user features that lower the buyer’s overall costs of using the product.
2. A second route is to incorporate features that raise product performance.
3. A third route is to incorporate features that enhance buyer satisfaction in noneconomic or intangible ways.
4. A fourth route is to differentiate on the basis of capabilities – to deliver value to customers via competitive capabilities that rivals do not have or cannot afford to match.
A differentiator’s basis for competitive advantage is either a product/service offering whose attributes differ significantly from the offering of rivals or a set of capabilities for delivering customer value that rivals do not have.
The Importance of Perceived Value and Signaling Value
Buyers seldom pay for the value they do not perceive, no matter how real the unique extras may be. Thus, the price premium commanded by a differentiation strategy reflects the value actually delivered to the buyer and the value perceived by the buyer.
Signals of value that may be as important as actual value include:
1. when the nature of differentiation is subjective or hard to quantify
2. when buyers are making first-time purchases
3. when repurchase is infrequent
4. when buyers are unsophisticated.
When a Differentiation Strategy Works Best
Differentiation strategies tend to work best in a market circumstance where:
1. Buyer needs and uses of the product are diverse
2. here are many ways to differentiate the product or service and many buyers perceive these differences as having value
3. Few rival firms are following a similar differentiation approach
4. Technological change is fast-paced and competition revolves around rapidly evolving product features
Any differentiating feature that works well is a magnet for imitators.
The Pitfalls of a Differentiation Strategy
Differentiation strategies can fail for any of several reasons.
1. Attempts at differentiation are doomed to fail if competitors can quickly copy most or all of the appealing product attributes a company comes up with.
2. A second pitfall is that the company’s differentiation strategy produces a ho-hum market reception because buyers see little value in the unique attributes of a company’s product.
3. The third big pitfall of a differentiation strategy is overspending on efforts to differentiate the company’s product offering, thus eroding profitability
Other common pitfalls and mistakes in pursuing differentiation may include:
1. Over-differentiating so that the product quality or service level exceeds buyers’ needs
3. Being timid and not striving to open up meaningful gaps in quality or service or performance features vis-E0-vis the products of rivals – tiny differences between rivals’ product offerings may not be visible or important to buyers
A low-cost provider strategy can defeat a differentiation strategy when buyers are satisfied with a basic product and do not think extra attributes are worth a higher price.
Best-Cost Provider Strategies
Best-cost provider strategies aim at giving customers more value for the money. The objective is to deliver superior value to buyers by satisfying their expectations on key quality/service/features/performance attributes and beating their expectations on price.
A company achieves best-cost status from an ability to incorporate attractive attributes at a lower cost than rivals.
Best-cost provider strategies stake out a middle ground between pursuing a low-cost advantage and a differentiation advantage and between appealing to the broader market as a whole and a narrow market niche.
From a competitive positioning standpoint, best-cost strategies are a hybrid, balancing a strategic emphasis on low cost against a strategic emphasis on differentiation.
The competitive advantage of a best-cost provider is lower costs than rivals in incorporating good-to-excellent attributes, putting the company in a position to underprice rivals whose products have similar appealing attributes.
When a Best-Cost Provider Strategy Works Best
A best-cost provider strategy is very appealing in markets where buyer diversity makes product differentiation the norm and where many buyers are also sensitive to price and value.
Illustration Capsule 5.3, Toyota’s Best-Cost Producer Strategy for Its Lexus Line, describes how Toyota has used a best-cost approach with its Lexus models.
The Big Risk of a Best-Cost Provider Strategy
The danger of a best-cost provider strategy is that a company using it will get squeezed between the strategies of firms using low-cost and differentiation strategies.
To be successful, a best-cost provider must offer buyers significantly better product attributes in order to justify a price above what low-cost leaders are charging.
Focused (or Market Niche) Strategies
What sets focused strategies apart from low-cost leadership or broad differentiation strategies is concentrated attention on a narrow piece of the total market.
The target segment or niche can be defined by:
1. Geographic uniqueness
2. Specialized requirements in using the product
3. Special product attributes that appeal only to niche members
A Focused Low-Cost Strategy
A focused strategy based on low cost aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than rival competitors.
This strategy has a considerable attraction when a firm can lower costs significantly by limiting its customer base to a well-defined buyer segment.
Focused low –cost strategies are fairly common.
Illustration Capsule 5.4, Motel 6’s Focused Low-Cost Strategy, describes how Motel 6 has kept its costs low in catering to budget-conscious travelers.
A Focused Differentiation Strategy
A focused strategy based on differentiation aims at securing a competitive advantage by offering niche members a product they perceive is better suited to their own unique tastes and preferences.
Successful use of a focused differentiation strategy depends on the existence of a buyer segment that is looki
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