SIBM-2013-International Syllabus

SUSTAINABLE COMPETITIVE ADVANTAGE & STRATEGIC OPTIONS

DAY:6 SESSIONS 16-18

The Role of

Synergy between SBUs provides an SCA that is truly sustainable since it is

Based on unique characteristics of the firm Very difficult for competitors to imitate

The Role of

Synergy means that the whole is more than the sum of its parts.
2 BIZs operating together > 2 independent BIZs A set of products providing greater ROI than each of them individually.

 Common Core technologies Across product lines

As a result of synergy the combined businesses will have one or more of:
Increased customer value Increased sales Lower operating costs Reduced Investment

Created by exploiting some commonality in two businesses such as

Customers or Customer applications Sales force or channel Brand name or image Facilities (Manufacturing, Offices) R&D Staff Marketing & Market research

Alliances for

Nokias strengths in Mfg & Mktg of Mobile Phones + Sonys competence in Miniaturization = Leadership in Broadcast TV in mobile market.

STRATEGIC VISION Vs STRATEGIC OPPORTUNISM

Two different approaches to the development of SCAs Strategic Vision focuses on business strategies expected to be successful in the long-term. Strategic Opportunism emphasizes strategies that make sense today Each can work, but requires different

Systems, people, culture

A clear focus strategy with a core driving idea and

specific competitive arena Functional strategies Value proposition & Competitive advantage that drives the business

Buy-in throughout the organization

Belief in the correctness of the strategy An acceptance that it is achievable & worthwhile A real commitment to make the vision happen

Assets, Competencies & Resources

To implement the strategy & A plan to obtain them

Patience

Willingness to stick to the strategy in the face of competitive threats or enticing opportunities that would divert resources from the vision.

STRATEGIC VISION Vs STRATEGIC OPPORTUNISM

Strategic Approach

Strategic Risk

Focus on Future
Focus on Present

Strategic Vision Strategic Opportunism

Strategic Stubbornness Strategic Drift

STRATEGIC

The risk in Strategic Vision route is:

The vision may be faulty Its pursuit a wasteful exercise

STRATEGIC

Among many pitfalls 3 standout

Implementation Barriers Faulty Assumptions of the Future A Paradigm shift

Implementation Barriers

A picture of the future may be accurate but the firm

may
be unable to implement the required strategies underestimate the nature & scope of challenges

Faulty Assumptions of the Future

Customer Loyalty cards from retailers was expected to

encourage brand loyalty & customer retention. A small fortune spent on these programs Very little evidence of brand loyalty or financial gains

A Paradigm shift
Changes in technology

change the nature of the business. It is rare for a leader in one paradigm to be a leader in the next, in fact they fade sharply.
Computers: Mainframes to tablets Music players: Cassettes to Smart phones Music Formats: Napster to iTunes

Why are Organizations Stubborn?

Penalty of Success
Success should provide the impetus & resources to make paradigm shifts. Instead, successful firms often reinforce the old vision and refine it by

Reducing costs Improving service

Why are Organizations Stubborn?

Need to Change Organization & Culture

Why are Organizations Stubborn?

Why kill the Golden Goose? Any paradigm shift cannibalizes the existing business

Strategic
Focus on the present. Basis of the strategy:
Environment is so dynamic & uncertain it is not feasible to aim at a future target Unless a business has strategic advantage at the present, it is unlikely to be successful in the future.

Advantages of Strategic
Tends to generate a healthy vitality & energy esp. when the organization has decentralized R&D and Marketing that generate a stream of new products

Advantages of Strategic
Results in Economies of Scope with A&Cs supported by multiple product lines. Adidas

Asset : Brand Competencies: Product Design, Customer sensing. Applied to: Sports Footwear (Running, Football, Tennis, Training), Apparels etc One of the worlds most recognized brand names & innovative product design drive their marketing across all the product lines.

Strategic

Drivers of business for Strategic opportunism very different from those for Strategic Vision. Strategic uncertainties are also different Supporting information & analysis are also different

Drivers of Strategic

What trends are active & critical now? What strategic problems are faced by customers that need immediate solution? What new technologies are available and are ready to be deployed?

Drivers of Strategic
What are the current opportunities & threats? What is the competition doing?
In the market? In their labs?

What strategic changes are occurring or will occur soon?

THE STRATEGIC DRIFT

Strategic Opportunism can turn into Strategic Drift. Investments are made incrementally in response to opportunities rather than directed by a strategic vision. Three phenomenon can turn strategic Opportunism to Strategic Drift.

THE STRATEGIC DRIFT

A short-lived, transitory force mistaken for one with enough staying power to make a strategic move worthwhile. Opportunities to create immediate profits may be rationalized as strategic when, in fact, they are not.

An instrumentation co getting customer requests for special purpose instruments that apparently can be used by other customers

THE STRATEGIC DRIFT

Expected synergies across new & current SBUs may not materialize due to:
Implementation problems Culture clashes Synergies were only illusions Drive to exploit A&Cs does not work

As a result new SBUs may exist without the expected SCAs

 Used to make specialized cooling towers for Steel plants & make huge profits. Over time, steel plants became knowledgeable and started buying standard towers. PCTL slowly drifted into commodity business, to retain its market share. It had too much overhead costs to compete on price and slowly lost its superior consulting and design skills too

STRATEGIC OPTIONS

Strategic Options
Strategic Options are Generic Business Strategies that a firm can pursue to define its strategic efforts better.

Eleven common Strategic Options

Quality Product Attribute Product Design Product Line Breadth CSR Brand Equity Value Focus Innovation CRM Being Global

Quality has many dimensions.

Performance Conformance to specs Features Customer support

Even aesthetic design can be a key dimension of quality

3M Post-It is a market pioneer. With other competitors offering similar products 3M differentiates its products on Quality. The Post-It notes stick to the surface longer and better

The adhesive used is enclosed in microscopic glass spheres that crush when the note is pressed against a surface.

Different customers have different expectations of quality & measure quality differently. Luxury Cars:

Quality = Performance Ferrari: Speed

Other Cars

Quality = Conformance to specs Volvo: Safety

PRODUCT ATTRIBUTE
To pursue a marketing strategy based on being dominant in a product attribute that is central to the products purchase & use.

PRODUCT DESIGN
The products design or aesthetic appeal can successfully set the firm apart from its competitors. As feature differentiators narrow, the design differences stand out

PRODUCT LINE BREADTH

Offer customer value; One stop destination for all product or service needs, Combined with strong service & expertise, it is a clear differentiator. Appeals to individuals & organizations trying to simplify searching, even if they have to pay higher prices

Being the best corporate citizen among competing firms in a market is a

Very useful differentiator & A means for greater long-term returns

HP: worlds second greenest company (after IBM).

Appeals to increasingly environment conscious customers Helps it to compete against Dell.

BRAND EQUITY
A Brand name, by helping the customers to interpret information related to the product more easily helps to
Add meaning to the product Lowers the risk of product purchasing

Success of 3M Post-It is not just due to its Quality, but also its Brand name. 3M is a strong , familiar brand name that provides confidence in purchasing, 3M is not known to sell products that are not of high quality. Thus 3M brand has strong Brand Equity.

Key elements of Brand Equity

Perceived Quality Brand Associations Brand Awareness Brand Loyalty

Key elements of Brand Equity

Brand Awareness
High consumer familiarity with a brand is a strategic asset Makes it easier for the firm to introduce additional or related products

Key elements of Brand Equity

Brand Loyalty

Helps reduce cost of marketing to loyal customers

BRAND EQUITY
Brand Equity strategy requires a multifaceted approach to building brands. It is not enough to create brands with strong Brand Awareness. The implementation of marketing strategy needs to ensure
Positive & strong Brand associations High perceived Quality Substantial Brand Loyalty.

Offering a product that is perceived to have a superior Quality-to-Price ratio relative to competitive offerings.
Quality may be acceptable & price very low OR Quality may be very high and the price acceptable

A firm can take advantage of the Value option by

Maintaining a minimum acceptable quality Having a low-cost culture & Pursuing multiple cost advantages

Four ways to obtain

1. 2. 3.

4.

Offering no-frills products or services Lowering costs in production or operations Achieving economies of scale Taking advantage of experience curve

No-frills Products or Services

Commonly pursued by lowcost airlines Benefit is that full-service airlines cannot easily
stop offering the services customers expect Change operation easily

No-frills Products or Services

EasyHotel, London dispenses with
Telephones, closets Hand towels, temperature controls.

Lower costs in Prodn & Ops

Achieving lower costs in raw materials, labor, distribution can give a firm a competitive edge if not an absolute Cost advantage. Dell has some computer components shipped to its customers directly from its suppliers.

Lower costs in Prodn & Ops

Product costs can be reduced
by developing designs with fewer or simpler parts. Physically reducing the size of a product.

Economies of Scale
Efficiency increases with the size of operations as fixed costs can be spread over more units of production

Experience Curve
As experience accumulates, costs tend to decline in a predictable way due to
Learning Technical improvements in prodn & ops Product/process redesigns

Costs decrease by 15% from experience when production doubles

Called the 85% experience curve

When demand falls suddenly the company has less flexibility to compete cost-effectively if it has
Invested in large capacity ops to achieve economies of scale OR Pursued high market share to quickly move down the experience curve.

Heinz pursued the value option in its Baked Beans product. The market faced periodic dips. Heinz responded by producing large quantities for its competitors to use its installed capacity.

You cant depend on your eyes when your Imagination is out of focus -Mark Twain

You cant depend on your eyes when your Imagination is out of focus -Mark Twain