Generic Strategy – Porter

THEME 8 GENERIC STRATEGIES 1. Introduction. 2. The ostiarys nuzzle competitive strategies (cost good, differentiation advantage and specialization). 3. The Ansoffs approach the Growth Matrix ( food market penetration, crossroadion development, market development, and diversification). 4. An integrating approach. Alfonso VARGAS SANCHEZ 1 Hope is not a strategy, specially when internationalizing the political party is the intention 2 strategicalal Analysis Compulsory Questions What air is the organisation in? manufacturing/retail, etc. Who do they compete with, and how do they compete? Who ar the organisations stakeholders?Key stakeholders & their influence. What atomic number 18 the external drivers for transform? PEST model, macro environment. Five Forces model, micro/industry environment. How does the organisation profits value? Resource audit, tangible & intangible. Value Chain and Value system analysis. Assess the balance in the corporate portfolio, BCG gro und substance. How should I compete? porters beers generic strategies low cost, differentiation, specialization. What ar my strategic movements? Mergers/Acquisitions, etc. 3 Mission Vision Values PEST analysis Competitive Forces P. C. attention Attractiveness S C. C. S. P. B (threats & opportunities)Value Chain activities & linkages F. I. T. D. HH. RR. PR. Value System (linkages) some other SBUs (synergies) & suppliers buyers value chains schema formulation, at three levels CBF Companys Competitive government agency (Resourcebased View) cost advantage or uniqueness (strengths & weaknesses) I. L. OP. O. L. M&S A-S. S. STRATEGY ELEMENTS LEVELS BUSINESS electron orbit RESOURCES & CAPABILITIES COMPETITIVE favourS SYNERGIES CORPORATE (1) (1) (1) BUSINESS (2) (2) (2) FUNCTION (3) (3) 5 STRATEGIC ADVANTAGE PORTERS arise Exclusivity sensed by the customer mark of low be COMPETITIVE SITUATIONBroad (the whole DIFFERENTIATION sector) Reduced (only iodin member) COSTS LEADERSHI P FOCUS or NARROW SEGMENTATION 6 THE LOW COST PHENOMENON Two basic ways -Productivity. -Economies of scale & acquirement/experience. 7 8 9 COSTS LEADERSHIP RESOURCES AND APTITUDES -Sustained investment of great(p) and favourable access to financial markets. ORGANISATIONAL REQUIREMENTS -Strict control of costs. -Detailed and frequent control reports. RISKS OR LIMITATIONS -Technological change that fagcels out the experience gained or investment made. -Competitors who learn slowly and rapidly. -Stagnation of the product or of the marketing. Inflation of costs that annuls the previous price differential. -Clearly outlined organisation -Special aptitudes for and responsibilities. process engineering. -Incentives based on meeting -Close supervision of numeric objectives. work and operations. -Products designed for ease of manufacturing. - disordered cost of distribution. 10 instruction Designers on quest to build $12 computer 11 DIFFERENTIATION RESOURCES AND APTITUDES ORGANISATION AL REQUIREMENTS RISKS OR LIMITATIONS -Signifi evoket aptitudes -Coordination between the functions of R&D, product in marketing and in product engineering. development and marketing. Strong investment -Qualitative assessments in R&D. and incentives. -Prestige in note -Capacity for and technology. understanding the market -Full cooperation of and how it changes. the distribution -Appropriate channels. organisational structure for -Long tradition in the touch on and rewarding sector, or a unique creativity. combination of aptitudes obtained in other business activities. -Competitive levels of product prices, in accordance with a strategy of minimum global cost. -The customers no longer value the products factors of differentiation. -As the industry matures, imitation reduces the perceived ifferentiation. 12 Mention some brands for which you are willing to pay a premium price 13 SPECIALISATION RESOURCES AND APTITUDES -Resources and aptitudes of special application and matter to in the lodges area of operation. -Dominance of the relevant technology and of the engineering of the product. - marketplaceing capacity. -Ability in the affair of limited picks. -Other competitors are specialized in part of the market of the already specialized company. ORGANISATIONAL REQUIREMENTS -Flexible and efficient organisation structure. -embodied culture relevant and specific to its areas of differentiation (products and markets).RISKS OR LIMITATIONS -The differences in costs compared with nonspecialized companies are so wide that the advantages of long suit are eliminated. -Close coordination between -The market in which the functions. company is specialized reduces its differences -Rapid chemical reaction to changes with respect to the global market. in the environment. 14 15 16 A niche strategy within a declining industry Reading Cassettes bum about long after expected demise 17 breakdown variables Varieties of products. Types of purchaser. dissemination channels. Ge ographic areas. Example olive oil market. 18Segmentation matrix (1) TYPE OF emptor VARIETIES OF PRODUCTS (QUALITY) olive vegetable oil stark(a) Olive Oil Extra unadulterated Olive Oil Final customer (bottled product) Restaurants, etc. (bulk product) 19 Segmentation matrix (2) TYPE OF DISTRIBUTION credit line VARIETIES OF PRODUCTS (QUALITY) Olive Oil Virgin Olive Oil Extra Virgin Olive Oil generic Specific 20 Combining segmentation matrixes (1+2) TYPE OF DISTRIBUTION CHANNEL VARIETIES OF PRODUCTS (QUALITY) Virgin Olive Oil for final customers (bottled product) Extra Virgin Olive Oil for final customers (bottled prod. ) Generic Specific 21 Segmentation matrix (3)GEOGRAPHIC AREA VARIETIES OF PRODUCTS (QUALITY) Virgin Olive Oil for final customers using a generic distribution channel Extra Virgin Olive Oil for final customers using a specific distribution channel interior(a) Market (a) multinational Market (c) (b) (d) 22 The choice of a segment/s ATTRACTIVENESS within the same in dustry there are segments with different levels of attractiveness. INTERRELATIONSHIPS choose the most beneficial combination of segments. SUSTAINABILITY your business cranial orbit should lead to a strong (defensible) position. (1) Structural attractiveness (competitive forces). (2) Size and harvest-feast. 3) Position of the company. (4) Advantages in costs or in differentiation. (5) Costs of coordination, of commitment and of inflexibility. Against (6) Competitors with broader objectives. (7) Imitation. (8) Substitution. 23 Example olive oil market SEGMENTS / CRITERIA ATTRACTIVENESS INTERRELATIONS SUSTAINABILITY (1) (2) (3) (4) (5) (6) (7) (8) (a) (b) (c) (d) 24 Criticisms of Porters framework Hybrid strategies could be employed without stuck in the mediate. Cost leadership alone does not sell products. Differentiation strategies can be used to increase sales volumes rather than to charge a premium price.Price can sometimes be used to differentiate. A generic strategy can not gi ve a competitive advantage. Arguably, the resource based strategy has superseded this generic strategy framework. 25 A company mustiness produce at low cost, turn also innovating it must deploy the massed resources of a large corporation, while showing the entrepreneurial whizz of a small start-up it must fulfil high levels of reliability and consistency, while also being flexible (Grant, 2012). 26 OPTIONS FOR GROWTH ANSOFFS APPROACH underway PRODUCTS NEW PRODUCTS ANSOFFS APPROACH CURRENT PRODUCTS NEW PRODUCTS side STUDYCURRENT MARKETS Market Penetration Product Development CURRENT MARKETS elaboration of Products NEW MARKETS Market Development diversification NEW MARKETS of Markets diversification 27 The Growth Matrix Sub-strategies Existing Market Penetration -Intensification. -Relaunching. -Imitation. -Reduction of costs/prices. -Disaggregation. Product Development -New products (R&D, innovation). -New product lines. -New services. MARKETS New Market Development -New terri toriesINTERNATIONALIZATION. -New segments of purchasers. -New distribution channels. -New possibilities for utilization. Diversification -Concentric (or related). By conglomerates (or unrelated). Existing PRODUCTS New 28 INTERNATIONALIZATION & globalisation 29 INTERNATIONALIZATION & GLOBALIZATION Reading Chinas develop food industry faces scrutiny 30 International schema Opportunities and Outcomes spot International Opportunities Explore Resources and Capabilities make use of Core Competence strategical competitiveness Management Outcomes Problems and finds International Strategies Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Business-Level outline (*) Multidomestic Strategy Global Strategy Transnational StrategyModes of Entry Exporting Licensing Strategic Alliances Acquisition Establishment of New Subsidiary elevateder Performance Returns mental home (*) Low cost or Differentiation. Standardization vs Adaptat ion. Multidomestic vs Global. Management Problems and Risks Strength of Market Drivers Aircraft Computers Auto unstables Soft Drinks Toothpaste Retail Banking Book Publishing Baked Goods Low Multidomestic proud Global Strength of Cost Drivers Pharmaceuticals Aircraft Computers Automobiles Toothpaste Retail Banking Baked Goods Soft Drinks Low Multidomestic High Global Corporate-Level International StrategiesMulti-Domestic Strategy Strategy and operating decisions are decentralized to strategic business units (SBU) in each country. Products and services are tailored to local anesthetic markets. Business units in each country are independent of each other. It assumes markets differ by country or regions. concentre on competition in each market. Prominent strategy among European firms due to broad variety of cultures and markets in Europe. Corporate-Level International Strategies Global Strategy Products are standardized crosswise national markets. Decisions regarding business-level s trategies are centralized in the home office.Strategic business units (SBU) are assumed to be interdependent. Emphasizes economies of scale. Often lacks reactivity to local markets. Requires resource sharing and coordination across borders (which also makes it difficult to manage). Corporate-Level International Strategies Transnational Strategy Seeks to achieve both global efficiency and local responsiveness. Difficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency and local flexibility and decentralization to achieve local market responsiveness. Must pursue organizational learning to achieve competitive advantage.International Corporate Strategy When is each strategy appropriate? High Global Strategy Need for Global Integration Transnational MultiDomestic Low Low High Need for Local Market Responsiveness Effective Standardization Coca-Cola McDonalds Barbie The All-American missy Goes Overseas Barbie is more than 4 0 years old. Sold in one hundred thirty countries. National adaptations Physical features. Costumes. Activity sets. Standardized physique Scaled to 62, 110 lbs. 38-18-28. Effective Adaptation McMutton Pie in Australia. Wendys shrimp sandwich in Japan. Campbells noncondensed soups in the UK. Coca-Colas 175 ml containers in Japan.Cadillac Seville 1997 Asian edition Right-hand drive, shorter seats, closer pedals, 10 shorter & retractable mirrors. Limits to International Expansion (beyond political and economic risks) Management Problems Cost of coordination across diverse geographical business units. Institutional and cultural barriers. Understanding strategic intent of competitors. The overall complexity of competition. diversification Why? Growth, Profitability and Risk Reduction Dont put all your eggs in one basket 42 DIVERSIFICATION Three essential tests for discernment diversification (Porter) -The attractiveness test Is the target industry attractive?Use the 5forces mod el to assess its attractiveness. -The cost-of-entry test Is the cost of the diversification worth it? go forth the diversified firm create enough additional value to unloosen the cost? -The better-off test Does the diversification move produce opportunities for synergies? Will the company be better off after the diversification than it was before? How and why? Potential advantages 1. Economies of scope (cost savings from using a resource in denary activities carried out in combination). 2. Internal market (for capital and staff). Reading Perils of diversification. The era of diversification, 50s-80s. Refocusing, 90s-onwards. 43 DIVERSIFICATION Because of its high risk, many companies attempting to shift turn in led to failure. However, there are some good examples of in(predicate) diversification -Virgin Group moved from music production to travel and mobile phones. -Walt Disney moved from producing animated movies to theme parks and vacation properties. -Canon diversified fr om a camera-making company into producing an entirely new range of office equipment. 44 DIVERSIFICATION Reading Toyota tunes up violinplaying robot 45 Diversification & PerformanceThe findings of empirical look for How do diversified firms perform relative to specialised firms? -No consistent, systematic kin has been emerged. -High levels of diversification are associated with deteriorating profitableness. -Timing is key. Does related diversification outperform unrelated diversification? -Diversification into related industries should be more profitable than diversification into unrelated industries. -Peters and straw hats golden rule Stick to the Knitting. Empirical studies have defined relatedness in terms of similarities Operational relatedness.Strategic relatedness. 46 Related Diversification Businesses are distinct but their value chains possess strategic fit in operations, marketing, management, R&D. distribution, labor, etc. Therefore, they tend to exploit economies of sco pe. angle to (historically) outperform unrelated diversifications. 47 Unrelated Diversification No greenness linkage or element of strategic fit among SBUs i. e. , no important value chain interrelationships. Dominant logic spreads businesses risk over multiple industries, stabilizing corporate profitability (in theory).Strategic approach any company that can be acquired on good financial terms & offers good prospects for profitability is a good business for diversification. Conglomerates (clusters of businesses under central, mainly financial, management control), such(prenominal) as GE. 48 Example GE Diversification helps to strengthen general Electric when one business is going badly, the other goes well, which contributes to the stability and growth of the company. These words of Ricardo Artigas, Vice President of the General Electric Company, understandably reflect the sense behind this trategic option, the result of which is a company configure into twelve divisions 1. Air craft Engines 2. Appliances (domestic electrical appliances) 3. Capital Services (financing services for customers) 4. Lighting 5. checkup Systems 6. NBC (television channel) 7. Plastics 8. Power Systems (electrical energy generation) 9. Electrical Distribution and Control (power cables, transformers, etc. ) 10. information Services 11. Motors & Industrial Systems 12. Transportation Systems. 49 AN INTEGRATING APPROACH lead in costs Differentiation Maintenance Growth Restructuring Internal extraneous ExpansionDiversification of Products of Markets Concentric Conglomerate Vertical Integration Horizontal Integration 50 AN INTEGRATING APPROACH GROWTH STRATEGIES Expansion Internal Diversification Expansion External Diversification of Products of Markets Concentric Conglomerate of Products of Markets Concentric Conglomerate Strategic Advantage Costs Differentiation Readings from the textbook Pascual & Lagasa -internal growth based on diversification- Fontaneda & La Casera -external 51 g rowth based on the expansion of products and markets-. turn over is when things get simpler, not more complicated Bruno Munari, Italian artist. 52