Advanced Strategic Management PDF

Advanced Strategic Management Business Strategies and Models Introduction Menu for the next 3 weeks: Strategic choices + 2 Cases + 1Guest Strategic Choices Business Corporate Str...

Advanced Strategic Management Business Strategies and Models Introduction Menu for the next 3 weeks: Strategic choices + 2 Cases + 1Guest Strategic Choices Business Corporate Strategy Strategy Strategy Methods How to compete in Determing the How to pursue the market directions strategies 2 Business Strategy Level of analysis: Strategic Business units of corporation or standalone firms. A strategic business unit (SBU) supplies goods or services for a distinct domain of activity (eg. Divisions or Profit Centers) SBU can be identified by: Market based criteria (similar, customers, channel, competitors) Capabillities criteria (online business activitites) 3  Business Strategy Let’s go back to basics: 1) Your defintion of competitive advantage 2) Basic competitive Strategies 4 Competitive advantage Competitive advantage → [classical definition] if a firm is able to create value for its customers that exceeds the firm’s cost to create it (Porter 1987) To be competitive→ SBU must ensure that users see sufficient value → to pay more than the costs of supply. To have an advantage → SBU must be able to create greater value than competitors. 5 Basic competitive strategies 6 Business Strategy Cost leadership (Lower Cost + Broad Target) Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity. Main drivers of cost leadership - Lower input cost - Economies of scale [Average cost per product goes down as quantity increases] - Economies of scope [Variety based advantage”: benefit from joint production] - Learning economies [Time based advantage unit cost reductions which occur as additional units of a given output are produced] - Product design [Design of products that requires cheaper inputs or manufacturing] - Organization of production [All techniques that decrease cost of production] 7 Business Strategy Cost leadership (Lower Cost + Broad Target) SOME CAVEATS: A business’s cost structure needs to be lowest cost Low cost should not be pursued in total disregard for quality - the cost-leader has to be able to meet market standards. Cost-leaders have two options: Parity with competitors in product or service features valued by customers allows the cost-leader to charge the same prices as the average competitor in the marketplace→ cost advantage →extra profit Proximity(closeness) to competitors in terms of features→ customers may only require small cuts in prices to compensate for the slightly lower quality. 8  Business Strategy Differentiation based strategy Differentiation involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium. Within each market businesses may differentiate along different dimensions. Two key issues to consider: § The strategic customer on whose needs the differentiation is based § Key competitors – who are the rivals and who may become a rival. 9 Business Strategy Differentiation based strategy The key drivers of differentiation are: Product and service attributes – providing better or unique features (e.g. Apple or Dyson). Customer relationships – customer service and responsiveness (e.g. Zalando); customisation (e.g. SAP) or marketing and reputation (e.g. Coca Cola). Complements – building on linkages with other products/services (Apple and iTunes). CAVEAT: Don’t forget that producing cost should not exceed WTP 10 Business Strategy Focus strategy A focus strategy targets a narrow segment or domain of activity and tailors its products or services to the needs of that specific segment to the exclusion of others. Two types of focus strategies: Cost focusers Differentiation focusers Identify areas where broader cost look for specific needs that broad based strategies fail because of the differentiators do not satisfy so well added cost of trying to satisfy a wide (e.g. ARM Holdings in the market for range of needs (e.g. Iceland Foods). mobile phone chips). 11 Business Strategy Focus strategy 12 Business Strategy Hybrid Strategies Stuck in the middle? Porter’s general answer: better not. However, under certain circumstances it might be feasible: § 2 SBUs of same company pursuing different generic strategies § Technological or managerial innovations where both cost efficiency and quality are improved § The competitive landscape is not so competitive § Pathway to achieve results and then reposition to one of the basic strategies 13 BASIC COMPETIVE STRATEGIES LIMITATIONS? - COMPETITIVE STRATEGIES EVOLVE OVER TIME! - INTERACTION WITH COMPETITORS 14 Strategy Clock Low Cost Strategies Introducing temporal dynamism: the strategy clock High Differentiation strategies Hybrid Strategies Perceived Benefits Non competitive strategies Low Cost Strategies Low Low High Consumers price 15 Strategy Clock Low Cost Strategies Introducing temporal dynamism: the strategy clock High Low Cost Strategies Standard low-price strategy. Low prices combined with similar quality to competitors Perceived Benefits aimed at increasing market share. Needs a cost advantage (such as economies of scale) to be sustainable A ‘no-frills’ strategy. Focusing on price sensitive market segments. Very limited brand loyalty Low Low High Consumers price 16 Strategy Clock Differentiation Strategies Introducing temporal dynamism: the strategy clock High Differentiation strategies differentiation without price premium – used to increase market share. Perceived Benefits differentiation with price premium used to increase profit margins focused differentiation – used for customers that demand top quality and will pay a big premium. Low Low High Consumers price 17 Strategy Clock Hybrid Strategies Introducing temporal dynamism: the strategy clock High Hybrid Strategies Seeks to simultaneously achieve higher benefits and lower prices relative to those of competitors. Perceived Benefits Hybrid strategies can be used: to enter markets and build position quickly; as an aggressive attempt to win market share; to build volume sales and gain from mass Low production. Low High Consumers price 18 Strategy Clock Non competitive strategies Introducing temporal dynamism: the strategy clock High Non competitive strategies Increased prices with low perceived product or service benefits. Perceived Benefits In competitive markets, such strategies will be doomed to failure. Only feasible where there is strategic ‘lock-in’ or a near monopoly position. Low Low High Consumers price 19 Interaction with competitors 20  Interactive dynamics BLUE LINE → various trade-offs in terms of price and perceived quality that are Price Paid acceptable to customers. D cost leading firm (L)→ relatively poor perceived quality→ customers accept (lower price) M differentiator (D)→ higher price-quality combination L mid-point firm (M)→ reasonable prices and reasonable quality Percived Quality 21  Interactive dynamics Price Paid D What if (M) REACTS? Consequences for (L) M Consequences for (D) Consequences for Consumers L Percived Quality 22 Interactive dynamics Hypercompetitive envirnoments Hypercompetitive environments: environments of fierce competition leading to unsustainable advantage or the decline in the sustainability of advantage - Rapid move and counter-move - Markets with continuous disequilibrium and change - Planning for long-term sustainability may actually destroy competitive advantage by slowing down response 23 Interactive dynamics Hypercompetitive envirnoments 24 Interactive dynamics Cooperation instead of competition Insights from game theory 25 Interactive dynamics Cooperation instead of competition How a ‘game’ can be transformed from ‘lose–lose’ competition to ‘win–win’ cooperation? Four principles: Ensure repetition> In many circumstances, though, it is easier to achieve tacit cooperation if the two players know that they will be making similar interdependent decisions over time. Signalling> Strategic moves are also signals to competitors. → Strategists need to be aware of the messages that their moves convey and read the messages of their competitors’ moves Deterrence> Signalling can be about deterring unwanted strategic moves by competitors. Commitment> If a company invests heavily in developing its brand in a market, or building up a portfolio of patents, then competitorswill know that it is highly committed, and be less likely to attack head-on. 26 Business Models https://www.youtube.com/watch?v=SJ79AnfRefM 27 Business Model Introduction A business model describes a value proposition for customers and other participants, an arrangement of activities that produces this value and associated revenue and cost structures. 28 Business Model Multi-sided platforms A multi-sided platform is a business model that brings together two or more distinct but interdependent groups of participants to interact on a platform (e.g. Uber, video games, Google search). It can be: ‒ A technology (e.g. Microsoft’s PC operatings system) ‒ A product (e.g. Nintendo’s videogame console) ‒ A service (e.g. Ubers transportation service) 29 Business Model Multi-sided platforms Key points on platform & platform competition Often characterized by increasing return to adoption Main antecedents: Learning curves & network externalities Consequences: competition is difficult even if alternative solutions are superior; Winner takes all effect When the increasing return to adoption depends on complementary goods producers are incentivized to adopt standardized interfaces and a modular production system that would enable a wide range of third-party complement developers to create complements for a common platform 30  Business Model Multi-sided platforms (1/2) Key points on platform & platform competition Often characterized by increasing return to adoption (Learning curves & network externalities) Consequences: competition is difficult even if alternative solutions are superior; Winner takes all effect. Standardization and Aggressive Disseminating knowledge, reliance on modular Subsidizing one side in penetrating licensing technology in production systems to attract the other side pricing order to increase installed enable third-party (e.g. Video games) base & complementary complement developers goods to create complements for a common platform. 31  Business Model Multi-sided platforms (2/2) Operating in an ecosystem has consequence for the scope of firm Competition / Increased specialization Envelopment: moving into collaboration with of the actors on one side another platform market, complementors (es. The evolution of PC combining its own industry] functionality with the target's, to form a multi-platform bundle (INSTAGRAM/TIKTOK) 32  CASE 33  CASE 1) Evaluate the attractiveness of European Airline industry. What structural forces influence the profitability of the industry? 2) How would you evaluate Ryanair’s performance between 2013-2018? What metrics would you use to evaluate it? Why? Do we miss somethingh? 3) How would you describe Ryanair business model in 2013 prior to AGB trasformation? (value proposition, customer serverd, revenue stream, key resources & capababilites, cost structure) 34