10/27/22

Agenda for today

Generic Business Strategies

• What are business level strategies?

• How can firms differentiate and what are its benefits?
• Turnaround strategies Differentiation
• Corporate Entrepreneurship

1 2

Differentiation Improves competitive positioning

• Generate economic value by offering a product that customers prefer over • Creates higher entry barriers due to customer loyalty
competitors’ product

• Provides higher margins that enable the firm to deal with supplier power
• A business level strategy intended to:
• Increase the perceived value of the focal firm’s products and / or services relative to the
value of competitor’s products and / or services • Establishes customer loyalty and hence less threat from substitutes
• create a customer preference for the focal firm’s products and / or services

3 4

1
 10/27/22

Differentiation Bases of Differentiation

Bases of differentiation Product Attributes

1. Product Attributes: exploiting the actual product; select product positioning • Product Features—the shape of a golf club head
in relation to product attributes

• Product Complexity—multiple functions on a watch

2. Firm – Customer Relationships: exploiting relationships with customers;
select target customer group, ensure customer /product compatibility
• Timing of Introduction—being the first to market

3. Firm Linkages: exploiting relationships within the firm and/or relationships

with other firms • Location—locating next to a freeway exit

5 6

Bases of Differentiation Bases of Differentiation

Firm – Customer Relationships Firm Linkages

• Customization—creating a unique diamond bracelet for a customer • Linkages among Functions in the Firm—using a circuit board designed in
one division in other divisions

• Consumer Marketing—creating brand loyalty to a soap through image • Linkages with other Firms—a sporting goods store sponsors a benefit race
by donating running shoes and receives free radio advertising in return
advertising
• Product Mix—a furniture store begins to sell home gym equipment,
computers, and lawn mowers
• Reputation—sponsoring the local homeless shelter to engender positive
community response • Distribution Channels—a doughnut shop begins to sell its doughnuts
through gas stations
• Service and Support—an oil change shop begins to offer pick up and
delivery of cars in an office building’s parking garage

7 8

2
 10/27/22

Differentiation: benefits

• Differentiation offers the prospect of charging a premium price

• Demand for a differentiated product will be less elastic than that for
competitors products
Implementation
• Differentiation can result in above average profits
• Differentiation can create additional barriers to entry to the market for
newcomers

9 10

Risks of differentiation strategy Pitfalls of differentiation

• There are difficulties of sustaining differentiation
• Differentiation involves higher costs • Uniqueness that is not valuable
• There is a risk of creating differences that customers do not value • Too much differentiation
• Customers might become price sensitive and choose on price rather than • Too high a price premium
uniqueness
• It might involve differentiation on dimensions that become less important to • Differentiation that is easily imitated
customers over time
• Customers may no longer need the differentiation factor • Diffusion of brand identification through product-line extensions
• Perceptions of differentiation may vary between buyers and sellers
• Imitators may narrow the differentiation
• Rivals pursuing a focus strategy may be able to achieve even greater
differentiation in their market segments

11 12

3
 10/27/22

Implementation Issues
Cost Leadership vs Differentiation
Generic strategy Key strategy elements Resource and organizational
requirements
•Emphasis on branding •Marketing abilities
advertising, design, service, •Product engineering skills

Turnaround Strategy
Differentiation quality, and new product •Cross-functional coordination
•Creativity
development
•Research capability
•Incentives linked to qualitative
performance targets

13 14

Organizational Failure Organizational Turnaround

• Organizational failure is defined as an “existence-threatening decline” in performance • Organizational turnaround can be defined as the actions taken to bring about
a recovery in performance in a failing organization.
• Difficult to ascertain when or even how poor performance sets in
• The decline may be sudden or gradual • Managerial restructuring: Replacement of key individuals
• May be caused by internal actions/inactions; external circumstances; failure to change
• Operational restructuring: Attention to major operational problems
• Symptoms of failure may be
• Physical • Asset restructuring: Radical redesign for long term solutions
• Managerial • Financial Restructuring: Trying for short term solutions
• Behavioral
• Financial

15 16

4

Corporate Turnaround Strategies
• Managerial Restructuring
• When old ways of operating need to undergo drastic change, it is difficult
for incumbent top management to change their habits and institute radical
reforms
• A change in top management is tangible evidence to bankers, investors
and employees that something positive is being done to improve the firm’s
performance, even though the cause of poor performance may have been
beyond management’s control
• Stock market reaction to managerial change is ambiguous.
17
Corporate Turnaround Strategies
• Asset Restructuring
• Reorganizing the firm into self-contained strategic business units; divestment of
lines of businesses not fitting the core businesses; acquiring companies that relate
to and strengthen the core; discontinuing unpromising products; and forming
strategic alliances, joint ventures and licensing agreements
• Asset divestment: divest non-profit generating assets (and halt cash drain),
non-core assets or even profitable assets for the purpose of raising cash to
alleviate financial distress and fund restructuring
• Asset investment: Capex to achieve efficiency/productivity improvement.
Crucial for turnaround by firms with inappropriate corporate strategy or mature
or declining product/markets where a new strategic direction is imperative
19
10/27/22
Corporate Turnaround Strategies
• Operational Restructuring
• Operational restructuring comprises cost reduction, revenue generation and
operating asset reduction strategies to improve efficiency and margin by
reducing direct costs and slimming overheads in line with volume
• The efficiency/operating turnaround stage aims to stabilize operations and
restore profitability by pursuing strict cost and operating-asset reductions
• Operational restructuring is primarily designed to generate, in the short
term, cash flow and profit improvement
• Are a necessary but not sufficient condition for recovery of firms
18
Corporate Turnaround Strategies
• Financial Restructuring
• Financial restructuring is the reworking of a firm’s capital structure to relieve
the strain of interest and debt repayments
• Equity-based strategies: Dividend cuts and equity issues
• Debt-based strategies: Debt restructuring is a transaction in which an
existing debt is replaced by a new contract, with one or more of the
following characteristics: (1) interest or principal reduced; (2) maturity
extended; (3) debt-equity swap
20
5
 10/27/22

3R model of turnaround 3R model of turnaround

• Retrenchment • Retrenchment
• Repositioning • Also known as “efficiency strategy” aims to take short-term actions, to
reduce financial losses, to stabilize the company and to work against the
• Replacement/Reorganization problems, that caused the poor performance
• Reduce scope and the size of a business - selling assets, abandoning
difficult markets, stopping unprofitable production lines, downsizing and
outsourcing
• Generate resources, with the intention to utilize those for more productive
activities, and prevent financial losses

21 22

3R model of turnaround 3R model of turnaround

• Repositioning
• Also known as "entrepreneurial strategy", attempts to generate revenue
with new innovations and change in product portfolio and market position
• Development of new products, entering new markets, exploring alternative
sources of revenue and modifying the image or the mission of a company
• Replacement/Reorganization
• Management is replaced, because it is theorized that new managers bring
recovery and a strategic change, as a result of their different experience
and backgrounds from their previous work
• Ideal for situations with opinionated managers, who are not able to think
impartially about certain problems. Instead, they rely on their experience for
running the business or belittle the situation as short-termed
• Reorganization can also involve changes in planning systems, the extent of
decentralization, styles of human resource management or organizational
culture

23 24

6
 10/27/22

Definition

• The process by which teams within an established company conceive, foster,

launch and manage a new business that is distinct from the parent company
but leverages the parent’s assets, market position, capabilities or other
Corporate Entrepreneurship resources
• Corporate entrepreneurship refers to entrepreneurial activities, such as
innovation, venturing, and strategic renewal, within existing firms

25 26

Forms of Corporate Entrepreneurship Two dominant factors

• Sustained Regeneration: Firm continuously introduces new products or
services or enters new markets
• Organizational Rejuvenation: A firm alters its internal processes,
structures and/or capabilities to sustain or improve its competitive
standing
• Strategic Reward: A firm adopts a new business strategy to better
leverage its resources or more fully exploit its product-market
opportunities
• Domain Redefinition: A firm creates a new product-market arena where it
can enter as a pioneer.
How is Corporate Entrepreneurship implemented in organizations
• Organizational ownership: Who, if anyone, within the organization has
primary ownership for the creation of new businesses?
• A designated group?
• Diffused across the organization?
• Resource authority: Is there a dedicated “pot of money” allocated to
corporate entrepreneurship?
• A dedicated corporate pool of money?
• Ad hoc through individual negotiations

27 28

7
 10/27/22

The Opportunist Model

Ad hoc funding + Diffused ownership

The • All companies begin as opportunists

Four • No strategic goal

• Evolves to one of the other three models

Models • Not a deliberate strategy
• Works well in firms that:
• Have a trusting corporate culture that is open to experimentation
• Have flexible communications across hierarchies

29 30

The Enabler Model The Advocate Model

Dedicate funding + Diffused ownership Ad hoc funding + Focused Ownership

• Strategic goal is to facilitate entrepreneurs • Strategic goal is to transform SBUs

• Works well in firms that: • Works well in firms that:
• Give a lot of freedom to employees
• Hire people with the right DNA • Have a focus on growth through innovation
• Share ideas and information across organization
• The basic premise of the enabler model is that employees across an organization • Have a structured process for idea evaluation
will be willing to develop new concepts if they are given adequate support
• Organizations act as evangelists and innovation experts, facilitating corporate
• Companies provide the following: entrepreneurship in conjunction with business units
• clear criteria for selecting which opportunities to pursue,
• application guidelines for funding • The company assigns organizational ownership for the creation of new businesses
• decision-making transparency while intentionally providing only modest budgets to the core group
• both recruitment and retention of entrepreneurially minded employees
• active support from senior management.

31 32

8
 10/27/22

The Producer Model Challenges

Dedicated funding + Focused ownership

• Strategic goal is to pursue disruptive innovation • The two-culture problem.

• Works well in firms that: • New businesses present three challenges:
• Are skilled at managing internal politics • They lack hard data. Financial forecasts are undependable.
• Will work on ideas that threaten their core business • They require innovation and risk taking.
• Have a structured process for selection, supporting and, if necessary, killing off • They don’t fit with systems of parent organization (budgeting, HRM)
new ventures.

• Organizations establish and support formal organizations with significant “there’s only a fine line between
dedicated funds or active influence over business-unit funding entrepreneurship and insubordination.”
Home Depot CEO Robert Nardelli

33 34

Managing Challenges 1 of 3 Managing Challenges 2 of 3

Balance trial-and-error strategy formulation with rigor and
discipline.
• Narrow the range of choices before diving deep.
• Closely observe small groups of consumers to identify their needs.
• Use prototypes to test assumptions about products, services, and
business models.
• Use nonfinancial milestones to measure progress.
• Know when—and on what basis—to pull the plug on infant
businesses.
Balance operational experience with invention.
• Appoint “mature turks” as leaders of emerging businesses.
• Win veterans over by asking them to serve on new businesses’
oversight bodies.
• Consider acquiring select capabilities instead of developing
everything from scratch.
• Force old and new businesses to share operational
responsibilities.

35 36

9
 10/27/22

Managing Challenges 3 of 3 Summary

Porters Generic Strategies

Balance new businesses’ identity with integration. • Differentiation

1. Product Attributes
• Assign both corporate executives and managers from divisions 2. Firm – Customer Relationships
3. Firm Linkages
as sponsors of new ventures.
• Stipulate criteria for handing new businesses over to existing • Corporate Turnaround strategies
businesses. 1. 3R Model
2. Managerial -> Operational -> Asset -> Financial
• Mix formal oversight with informal support by creatively
combining dotted- and solid-line reporting relationships.
• Corporate Entrepreneurship
1. The 4 models of CE

37 38

10