MODULE 5:

SUSTAINABLE STRATEGIC MANAGEMENT

COMPETITIVE LEVEL STRATEGIES

A Report
Presented to the Faculty of
College of Accountancy, Business, Economics and
International Hospitality Management
Batangas State University
Batangas City

In Partial Fulfillment
of the Requirements for the Degree
Bachelor of Science in Management Accounting

Group 1
Abeleda, Irish Catherine D.
Adelantar, Resty C.
Alfaro, Regiely Regal Caryl C.
Alo, Lyka Jane D.
Arago, Ma. Lourdes A.
Areglado, Angel Mae G.
Basilan, Trishia Anne C.
Belano, Mary Joy B.

BSMA 3205
NATURE OF COMPETITIVE LEVEL STRATEGIES

In today's highly competitive business environment, having a competitive advantage is

essential for a company's success. By developing effective competitive level strategies,
companies can differentiate themselves from their competitors, increase market share,
and ultimately achieve long-term success.

In this report, I will provide an overview of competitive level strategies, including the
foundations of competitive strategy, examples of successful implementation, and sources
of competitive advantage.

Foundations of Competitive Strategy

Strategic managers make strategic choices about customer needs, customer groups, and
core competencies to develop effective competitive level strategies.

Figure 1. Foundations of Competitive Strategy

The figure 1 Foundations of Competitive Strategy depicts the three strategic choices that
form the foundation of competitive strategy: customer needs, customer groups, and core
competencies. By making consistent decisions about these choices, strategic managers
can develop effective competitive level strategies.
Gap using segmentation strategy based on customer needs

Figure 2. GAP

Gap is a well-known brand that was founded in 1969. Initially, the company sold blue
jeans and white cotton t-shirts, but it later expanded to include clothing for men, women,
and children.
Gap has successfully segmented its markets according to customer needs by tailoring its
stores and brands to appeal to unique customer groups.
Gap has developed multiple formats and designs to meet the needs of each market
segment, such as GapKids, babyGap, GapMaternity, and GapBody.

Sources of Competitive Advantage - Michael Porter's generic competitive

strategies
Michael Porter identified three generic competitive strategies: cost, differentiation, and
focus. To achieve a competitive advantage through cost, differentiation, or focus, strategic
managers must make consistent decisions about product/service, market, and core
competence.

Developing effective competitive level strategies is essential for a company's success in

today's highly competitive business environment. By differentiating themselves from their
competitors, companies can increase market share and achieve long-term success.

COST-LEADERSHIP STRATEGIES

Cost Leadership is a strategy to reduce the cost of operation and produce the
lowest priced products or services, to outdo the closest competitors and gain market
share. It means producing products that are cheaper than the ones offered by
competitors. If a company adopts this strategy and sustains costs lower than its peers,
then it will succeed. When they lower their price, they will win their target customers. In
short, in cost leadership strategy, it lowers the cost and sells more units at a lower price.
Choosing to implement a cost-leadership strategy necessitates strategic
managers focusing on lowering overall product or service costs while maintaining quality
that meets customer needs.
Take note that cost leadership and price leadership strategy are different. Cost
leadership focuses on establishing a competitive advantage by lowering the cost of
operation in the industry. While price leadership means having the lowest price.
 What are the benefits of employing a cost leadership strategy?

● By employing a cost leadership strategy, a company will not only be able to gain
profit but eventually increase its market size as some consumers shop only at
stores that offer the lowest price.
● Companies with the lowest cost of operation have higher chances of survival
during downtimes.
● Companies operating with a cost leadership strategy can achieve higher profit
margins by reducing production costs as compared to their competitors who are
focusing on pricing strategies.

DIFFERENTIATION STRATEGIES

Differentiation involves uniqueness along some dimension that is sufficiently

valued by customers to allow a price premium.
A differentiation strategy is an approach businesses develop by providing
customers with something unique, different and distinct from items their competitors may
offer in the marketplace. The main objective of implementing a differentiation strategy is
to increase competitive advantage. A business will usually accomplish this by analyzing
its strengths and weaknesses, the needs of its customers and the overall value it can
provide.

When picking strategic dimensions consider two factors:

1. The strategic customer
2. Key competitors

Benefits of creating a differentiation strategy

Differentiation strategies have several advantages that may help you develop a unique
niche within your industry. Here are the possible benefits of creating a differentiation
strategy:

1. Reduced price competition

Differentiation strategy allows a company to compete in the market with something other
than lower prices. For example, a candy company may differentiate their candy by
improving the taste or using healthier ingredients. Although its competitors have cheaper
candy, they can’t provide the taste that consumers may want from that specific candy
company.

2. Unique products

This benefit of a differentiation strategy is that it builds on the unique qualities of a product.
Your company may create a list of characteristics its products contain that your
competitors lack. Those characteristics will differentiate your product, and you may
communicate this through effective marketing and advertising.

3. Better profit margins

When products are differentiated and turned into higher-quality products, it offers more
opportunity for larger profit margins. For example, if your target market is willing to pay a
higher price for top quality or better value, you may generate more revenue with fewer
sales.

4. Consumer brand loyalty

Effective differentiation may create brand loyalty in customers if a business maintains the
perceived quality of your products. For example, if you have a brand that is marketed by
a sports figure, it will likely increase brand loyalty because it enhances the value of your
brand.

5. No perceived substitutes

A strategy that successfully differentiates may present the idea that there is no other
product available on the market to substitute it with. A business may gain an advantage
in the market even when there are similar products available because customers will not
be willing to replace your product with another one. Companies try to differentiate
themselves by providing consumers with unique products that are frequently
revolutionized.

INTEGRATING COST-LEADERSHIP AND DIFFERENTIATION STRATEGIES

Competitive environment can force businesses to build competencies that reduce

costs while also adding to their uniqueness. Making low-cost, high-quality products with
unique features is the goal of this method. This strategy aims to emphasize both low cost
and individuality as sources of competitive advantage. In an integrated low-
cost/differentiation strategy, a company offers differentiated products at a lower
price. It is also an illustration of a hybrid strategy. With increased worldwide
competitiveness, this new hybrid corporate model might be on its way to becoming more
and more well-liked. Businesses that combine two strategies may be in a stronger place
to respond to environmental changes than those that rely solely on one.

A company must compete with companies in countries with lower wage

rates while also adding unique features to cater to local tastes and conditions
(Rothaermel 2013). Thus, strategic managers are expected to combine all strategies
positions, differentiation, and low cost in certain competitive environments, which is a
difficult strategy to execute due to the contradictory criteria of each strategic position.
Strategic managers have the ability to generate a higher level of profit than companies
following only one of the generic tactics (Hill and Jones 2009).
 Combining cost and differentiation is a difficult strategy to implement. It can be
difficult to balance the tradeoffs between cost and differentiation since these are unique
strategic roles that demand strategic managers to efficiently manage value chain
operations that are greatly different. As competition on a global scale rises, this new
hybrid method may become even more crucial—and well-liked. Companies that integrate
the generic strategies may be better positioned to increase their capacity for rapid
environmental adaptation and acquire new knowledge, skills, and technologies than
businesses that rely just on one generic strategy.

Companies may be able to obtain a competitive edge and generate above-average

returns via an integrated cost leadership/differentiation strategy due to a number of
additional considerations as well.

1. Flexible Manufacturing Systems

A computer-controlled procedure used to manufacture a variety of goods in
manageable, flexible amounts is known as a flexible manufacturing system.
2. Information Networks across Companies
A corporation can boost flexibility and responsiveness by using information
networks to coordinate interdependence between value-creating activities carried both
internally and outside.
3. Total Quality Management Systems
These systems were put in place to increase productivity in the execution of the
internal value-creating activities as well as product quality (from the standpoint of the
customer).

FOCUS STRATEGIES

Aimed at a specific market niche (small group of customers), Michael Porter

(1985). It does not provide a source of competitive advantage in and of itself than the two
genetic strategies. Market segmentation is low, and product differentiation can range from
high (uniqueness) to low (price). Companies frequently choose focus strategies in order
to better serve the needs of a smaller market segment that competitors (Hill and Jones
2009). In essence, a focus strategy is a basic marketing tactic that enables businesses
to pinpoint the precise requirements of a specialized market and create goods that meet
these requirements. This tactic is — also referred to as a niche marketing strategy. Focus
strategy was defined by Hoskisson, Ireland, and Hitt as a marketing plan that
concentrates on providing a good or service to a certain market segment.

Focus strategies can provide competitive advantages through cost leadership or

product differentiation. It serves a small market niche of customers by operating at a lower
unit cost and thus offering a lower price than competitors. Focus strategies also cater to
a narrow consumer segment with goods that are tailored to the specific tastes and needs
of the target market. Companies can enjoy high customer loyalty that discourages other
firms from competing with them directly.

Risk of Focus Strategies, according to Dess, Lumpkin, and Eisner (2008):

a. limited focus that fails to meet consumer expectations;
 b. cost deflation;
c. new competition;
d. competitors’ ability to mimic the service, and;
e. niche disappearance due to technological changes, shifting customer tastes.

The focus strategy has many benefits for firms. It is the ideal strategy, first and
foremost, to effectively comprehend the needs of your target audience. The goal of a
focus strategy is to focus on a certain client group's unique needs.

Types of Focus Strategy:

1. Focused differentiation strategy

The first kind of focused differentiation strategy is one that is concerned with
creating a differentiating product for a certain market niche. A company that prioritizes
uniqueness focuses on a specific consumer group and enhances its product with
distinctive and personalized features.
This market segment focuses on niche customers and competition with
competitors by providing niche members with unique attributes that are superior to those
offered by competitors.

2. Focused low-cost strategy

When a company enters a market, it frequently chooses a targeted low-cost
strategy. These businesses come to the market with an alternative product that offers
their target clients greater advantages at a lesser cost. In this market category, the
emphasis is placed on niche consumers and competition from consumers in similar
circumstances. The business must maintain lower prices in order to provide specialized
customers a better deal than its competitors.
Determining targets and long-term goals, adapting actions, and allocating
resources needed to carry out this goals-chandler are all part of a strategy. It is necessary
to prepare today for potential future events in order to cope with the unpredictable
tomorrow and get the best results from the strategy. A strategy is all about planning done
for the following day or the future and is expected to get the greatest outcomes out of the
strategy.

COMPETITIVE DYNAMICS AND STRATEGIC POSITIONING

When businesses operate in competitive markets, it's important to understand the

dynamics that shape the market. Competitive dynamics refers to the ongoing actions and
reactions between competitors as they compete for market share, customers, and
resources. Competitor analysis is crucial for businesses to develop competitive strategies
that enable them to stand out and succeed in the marketplace.

Competitive Dynamics
● Competitive dynamics refer to the moves and countermoves of competitors within
an industry.
 ● Businesses can make preemptive strategic moves to anticipate and respond to the
actions of competitors, such as introducing new products, expanding into new
markets, or forming strategic partnerships.
● First-mover advantage refers to the benefits gained by the first company to enter
a market or introduce a new product over competitors.
● While second-mover advantage can enable businesses to learn from the mistakes
of the first-mover and improve upon their offerings.
● Late mover disadvantage, on the other hand, has a much lower performance rate
than first and second movers, with just average returns.

Strategic Positioning
Strategic positioning is the process of developing a unique market position that sets a
business apart from its competitors. It involves identifying customer needs, analyzing the
competitive landscape, and developing a clear value proposition that resonates with
customers. Generative learning and environmental analysis can help businesses identify
emerging trends and opportunities, while a culture and framework that encourages
strategic thinking and innovation can help businesses stay ahead of the curve.

Example: General Electric's Preemptive Strategy

General Electric's (GE) preemptive strategy involved expanding into emerging markets in
China and India, where it anticipated significant growth opportunities. As part of this
strategy, GE implemented a reverse innovation strategy, which involved co-creating
products and services with multiple stakeholder groups, including customers, suppliers,
and local partners. By involving stakeholders in the innovation process, GE was able to
tailor its offerings to local market needs and establish a strong competitive position in
these markets.

SSM COMPETITIVE STRATEGIES

Businesses must demonstrate that they are striving toward a sustainable future in
addition to pleasing shareholders with their financial performance. Companies are now
required to discuss their performance in terms of ESG (environmental, social, and
corporate governance) factors. This is the point when strategic management and
sustainability collide.

Sustainable strategic management (SSM) involves analyzing, formulating, and

implementing business strategies that are economically competitive, socially responsible,
and in balance with the cycles of nature. (Stead & Stead, 2014)

SSM is the result of business organizations' coevolutionary interactions with the people
they serve and the environment. Organizations can gain a competitive edge through the
use of SSM strategic frameworks by working as advocates for environmental and social
change.

Porter's (1985) generic competitive strategies are expanded to include SSM competitive
strategies that generate mutual value for both the business and the larger society
and ecosystem (Porter and Kramer 2011). Shared value is generated through the
dynamic. capabilities that enable triple-bottom-line efficiency.

Organizations that "stand for sustainability" use SSM tactics (Stead and Stead 2000,
324). How do we say so?

● SSM strategies are built as tools for operationally incorporating the environment
and the larger community into strategic decision-making processes, the
philosophies and ethics of SSM become observable through these strategies
● SSM strategies vary in content depending on their scope, markets, customer
needs, and purpose.
● SSM strategies are usually defined as multi-sector strategies that require broad
cooperation with stakeholders to build shared value at and level of the business
ecosystem hierarchy.

Figure 3. Hierarchy of SSM Strategies

Eco-efficiency was introduced by the World Business Council for Sustainable

Development (WBCSD) in the early 1990s. It is based on the concept of using fewer
resources to generate more goods and services and decreasing the levels of waste
and environmental pollution.

Also defines as being achieved by the delivery of competitively priced goods and services
that satisfy human needs and bring quality of life, while progressively reducing ecological
impacts and resource intensity throughout the life cycle, to a level at least in line with the
Earth's estimated carrying capacity.
Socio- efficiency is the continuing commitment by business to behave ethically and
contribute to economic development while improving the quality of life of the workforce
and their families as well as of the local community and society at large. Businesses must
move beyond CSR to achieve socio-effectiveness, which is described below and can be
found among organizations that have a social mission and a sustained positive impact on
society.

The co-evolutionary nature of SSM strategies is reflected in the progression of the

strategies over time up the hierarchy of strategies. There has already been a coevolution
from

Eco-efficiency-based competitive level strategies such as pollution prevention that

provide cost reductions and the preservation of natural and economic capital to;

Broader-based socio-efficiency strategies that facilitate the creation of social and

human capital, including investments in community, human resources, and partnerships.

Both eco- and socio-efficiency are sources of potential competitive advantages based on
sustainability-based core competencies that generally create relatively short-term
sustainability and economic value added.

GENERIC COMPETITIVE LEVEL SSM STRATEGIES

Market opportunities for environmentally and socially sensitive products and services can
directly link the organization's economic sustainability with its environmental and
social sustainability, affording competitive advantages associated with cost
reduction and market differentiation (Porter 1985).

The social component of SSM competing strategies has evolved more slowly than the
ecological component due to the measurements being significantly more challenging to
measure social performance than ecological performance.
 Figure 4. Coevolution of SSM Strategies

Eco-efficiency is based on the concept of using fewer resources to generate more goods
and services and decreasing the levels of waste and environmental pollution.

Product stewardship is a product-centered approach to environmental protection. Also

known as extended product responsibility (EPR), product stewardship calls on those in
the product life cycle—manufacturers, retailers, users, and disposers—to share
responsibility for reducing the environmental impacts of products. Product stewardship
recognizes that product manufacturers must take on new responsibilities to reduce the
environmental footprint of their products.

Eco-effectiveness refers to long-term prosperity that depends not on the efficiency of a

fundamentally destructive system, but on the effectiveness of processes designed to be
healthy and renewable in the first place. Eco-effectiveness celebrates the abundance and
fecundity of natural systems, and structures itself around goals that target 100 percent
sustaining solutions

Socio-effectiveness refers to the assessment of a firm’s absolute social performance

and includes questions such as whether a company’s products are accessible and thus
benefitting all or limited in availability and just benefitting an elite few.

ECO-EFFICIENCY-BASED POLLUTION PREVENTION STRATEGIES

What is Eco-efficiency?

● Eco-efficiency is all about reducing ecological damage to a minimum while at the

same time maximizing efficiency. Specifically, maximizing the efficiency of a
 company’s production process.

● Eco-efficiency generates more value through technology and process changes

whilst reducing resource use and environmental impact throughout the product or
service's life. Eco-efficiency applies to all business aspects, from purchasing and
production to marketing and distribution.

Figure 5. Eco-Efficiency

Eco-efficiency

Unique competitive advantage to Basic business requirement

● Transforming from a unique competitive advantage enjoyed by a few cutting-edge
organizations into a basic business requirement necessary for the survival of
virtually all industrial firms.

Eco-efficiency as a basic business requirement

Due to the dynamics of coevolutionary competitive adaptation, the emergence of
ecoefficiency as a basic business requirement
● means that those organizations that do not expand their value-creating processes
to include natural capital may eventually become unable to successfully adapt to
the sustainability-infused business environment

Eco-efficiency involves developing cost-competitive advantages by eliminating or

reducing:

● resource depletion
● materials use
● energy consumption
● emissions
● effluents
These strategies were the first win- win strategies to be based on eco-efficient
capabilities.

In a true biophysical sense, eco-efficiency slows the entropic flow through the economy.

As with Porter's (1985) cost leadership strategy, core competencies in pollution

prevention strategies are in operational eco-efficiencies that include redesigning pollution
and waste control systems, redesigning production processes to be more environmentally
sensitive, using recycled materials from other production processes and/or outside
sources, and renewing renewable energy sources.

Eco-efficient pollution prevention strategies provide firms with opportunities to

establish social legitimacy in the greater community, which means that these strategies
can provide firms with socio-efficient as well as eco-efficient value added

Example:
3M is generally given credit for being the first mover and leader in eco efficiency and
pollution prevention. 3M introduced its now famous Pollution Prevention Pays (3P)
program in 1975, demonstrating that preventing pollution before it occurs can create
greater economic and ecological value added. In 1975 this was the innovative, firstmover
thinking that secured 3M a competitive cost position. To date, 3M has completed more
than 9,300 3P projects designed to slow the entropic flow of energy and resources
through the firm. These projects have included such things as product reformulation,
process modification, equipment redesign, and recycling and reuse of waste materials.
Collectively, they have resulted in the elimination of more than 3.5 billion pounds of
pollution at a savings for 3M of nearly US$1.5 billion. The firm makes it clear that the
fourth P, people, is critical to the success of the 3P program because it relies completely
on voluntary employee participation (3M 2012).

TOTAL QUALITY ENVIRONMENTAL MANAGEMENT AND ISO 14000

What is TQEM?
● Total Quality Environmental Management (TQEM) is the process of
implementing quality management standards and principles to those
manufacturing processes and procedures that directly affect the quality of the
environment.
 Figure 6. TQEM

Companies in the Global Environmental Management Initiative (GEMI) developed

TQEM in the late 1980s.

Total Quality Environmental Management (TQEM)

● has become a standard process for improving eco-efficiency in most
manufacturing organizations
● integrates natural resource conservation and preservation into the overall quality
control formula, enhancing companies' ability to avoid waste, and emissions while
lowering costs.

What is the scope of Total Quality Environmental Management?

● Limited to enhancing the eco-efficiency of internal throughput systems, which is
a shortcoming

To make it a valuable tool for incorporating both ecological and social responsibility into
products/services
● TQEM should be extended to TQSM, complete quality sustainability
management

TQEM alliance involves using TQEM as a framework for forming industrial ecologies
with other firms.
● These reduce waste and pollution while creating social capital within a business
ecosystem.

Alliances such as these create advantages that one firm cannot achieve alone, thus
demonstrating the creative potential of investing in the development of social capital to
build ecosystems that reduce the entropic flow.

SUSTAINABILITY-BASED SUPPLIER RELATIONSHIPS

Sustainability-based supplier relationships create social capital and are critical in
minimizing the ecological, social, and economic costs of the firm's resource acquisition.
A recent study found that vendors consume as much as 80 percent of the energy,
water, and other resources used in a supply chain, which makes it imperative that
sustainability become a priority in supplier relationships.

Efficient supply chains are being developed with shorter distances and more efficient,
less polluting modes of transportation. In fact, many firms are mandating more
sustainable practices from their suppliers.

Examples of sustainability-based supplier relationships:

● Staples has a goal that all of its paper products come from sustainable forests;
● Unilever has declared that it will buy tea and palm oil only from sustainable sources
by 2015;
● Walmart has given a directive to its Chinese suppliers to reduce waste and
emissions, cut packaging costs by 5 percent, and increase product energy
efficiency by 25 percent by 2012 (Nidumolu, Prahalad, and Rangaswami 2009).
● Other firms require suppliers to secure ISO 14001 certification and to adopt
pollution prevention policies.
● Not only does Toyota require ISO 14001 certification for its suppliers, it also
requires them to eliminate toxic substances from their manufacturing processes.
● Other firms such as Royal Dutch Shell regularly audit the child labor practices of
their suppliers.

Regardless of the position of a firm in its value chain, there is pressure on it to find eco-
efficiency solutions that slow the entropic flow of energy and resources.

The Sustainable Packaging Coalition (SPC) is an industry working group

dedicated to a more robust environmental vision for packaging. SPC is a project
of GreenBlue, a nongovernmental organization (NGO) that provides
businesses with the science and resources to make more sustainable
decisions.

SPC promotes supply-chain collaboration that builds packaging systems that

encourage the creation of economic value through a sustainable flow of
materials. SPC has created a curriculum of the essentials of sustainable
packaging and a software package to calculate the product's environmental
life cycle impacts to assist its members in moving toward more sustainable
solutions in their packaging.

Starbucks, an SPC member, shared at an SPC meeting that it has begun a trial
process in its Chicago stores where it will recycle cups into napkins for further
use in its stores. Starbucks hopes to institute this closed-loop resource recycling
process throughout its stores in the United States by working with individual
communities and their varying recycling infrastructures (SPC 2012).

In today's business environment of unpredictable energy and materials costs, worldwide

pressures to reduce greenhouse gas emissions, and the incessant pressures from
competitors and customers to improve efficiency, organizations are showing a
willingness to make significant investments in eco-efficiency. Production facilities
in most industries are being built or redesigned to use minimal energy and to generate
minimal emissions and wastes.

Consider Subaru's plant in Indiana. Subaru designed this plant's operations

around eco- and socio-effectiveness; it produces zero wastes and has had zero
layoffs and zero pay cuts, all in a state that has lost 46,000 automobile jobs in the
past decade. The firm has saved $5.3 million due to its eco-effective design,
and it produces enough energy at its waste-to-fuel operation to sell power
back to the grid (Farzad 2011). Stakeholders demand that strategic managers
take full stewardship of their value chain from cradle to cradle, thus eco- and
socio-effective operational designs like Subaru's that slow entropic flow and save
money are the future of operations management (McDonough and Braungart
2002).

PRODUCT STEWARDSHIP STRATEGIES: ECOLOGICAL AND SOCIAL

DIFFERENTIATION

What are Product Stewardship Strategies?

● Product stewardship strategies are strategies that give a company a competitive
advantage by helping it to distinguish its goods and services from its rivals in the
marketplace on ecological and social grounds (Hart 1995, 1997; Reinhardt 1999;
Stead and Stead 1995).

What do Product Stewardship programs aim for?

● It aim to reduce an organization's ecological and social footprint by providing
goods and services that are cleaner, more socially conscious, use less resources
and energy, are more recyclable, biodegradable, durable, and less wasteful,
among other things

What do the Product Stewardship policies necessitate?

● Product stewardship policies necessitate the ability to collect and analyze the
environmental and social impacts of a company's goods and services through the
open system value chain, so these strategies are built around core competencies
like creativity, product creation, sales, and marketing.

Stuart Hart (1995) described

Product Stewardship as a logical strategic step for firms that have achieved eco-
efficiency.

In essence, he said that once companies develop production processes that lower costs
by better managing and preserving the earth's unique, non-substitutable, non-duplicable
natural resources, they would be able to distinguish their products/services in the
marketplace based on their sustainability features. Thus, he said that product stewardship
strategies provide firms with both cost leadership and differentiation competitive
advantages that can be sustained over a long period of time.

Product Stewardship Strategies

● can boost a company's credibility, perceived legitimacy, and brand value, both
of which are intangible assets that are difficult to replicate by rivals.
● Product stewardship activities are more successful when all of the firm's
stakeholders are active in the product/service creation process from the start.

This enables the company to incorporate a diverse range of stakeholder viewpoints into
Its products and services.

Example:
According to Xerox CEO Ursula Burns, product stewardship is at the heart of her firm's
innovations. She said, "We approach sustainability from a life cycle perspective because
we recognize that the biggest opportunity for us to make an impact is by addressing all
aspects of our actions, products, and services" (Business Roundtable 2011, 115).
Product stewardship goals have motivated Xerox to form an alliance with the Nature
Conservancy to promote sustainable forestry and to protect biodiversity. Xerox has also
developed a solid ink technology that reduces waste by 90 percent, uses 9 percent less
energy, reduces greenhouse emissions 10 percent, uses no water, and is designed to
print pages that are easier to recycle. The firm also created the industry's first
Sustainability Calculator to help customers evaluate their environmental footprint
(Business Roundtable 2011). Thus, Xerox uses its product stewardship lens to examine
both internal processes and external market dynamics.

Starbucks leads a business ecosystem based on a shared vision of sustainability and has
successfully used both eco-labels and social labels to effectively leverage its brand by
social and ecological differentiation. By actively listening to, interacting with, and acting
on the expectations of its customers who are socially and environmentally conscious,
Starbucks has effectively incorporated eco- and socio-efficiency into their operations and
tells its story of ecological and social responsibility right on its packages and cups. The
key to its success is its ability to leverage the learning attained from the 50 million
customers it sees in its stores every week who give their ideas about how Starbucks can
be more ecologically and socially sensitive. By listening to its customers, Starbucks, for
example, developed its own set of stringent guidelines (Coffee and Farmer Equity
Practices, CAFE) to ensure that coffee purchases are ethically sourced, with a goal of
having 100 percent of its coffee purchases responsibly grown and ethically traded by
2015 (Ottman 2011). By connecting coffee producers and consumers, Starbucks works
directly to promote fairer trading conditions, fair wages, and sustainability so workers in
undeveloped and developing markets can invest in a better future for themselves and
their communities. Starbucks customers pay a premium price for a cup of fair-trade
coffee, demonstrating the relationship between socio-efficiency, social labeling, and
competitive advantage.

Starbucks has been able to successfully distinguish itself in the gourmet coffee industry
by offering sustainable goods in a highly segmented market targeted at environmentally
and socially conscious customers, and by building its strategy on the core competencies
of eco- and socio-efficiency. To summarize, Starbucks has effectively developed the
dynamic product stewardship skills to execute an effective strategy of social and
ecological differentiation by making clear strategic choices concerning product, industry,
and core competencies.

SUSTAINABILITY AND COMPETITIVE DYNAMICS

Sustainability refers to achieving our goals without affecting the capacity of

coming generations to achieve their goals. We require social and economic resources in
addition to natural resources.
An industry's firms engage in a series of attacks and retaliations, which results in
competitive dynamics. In order to improve or defend their competitive position inside
their competitive arena, firms attack and counterattack against rivals (MacMillan et al.,
1985).
An organization can better meet the demands of its customers than the competition
by having a certain collection of assets, traits, or competencies called sustainable
competitive dynamics.The competitive responses to the increased demand for triple-
bottom-line performance by stakeholders vary depending on the perception of strategic
managers in term of the opportunity afforded by sustainability. The world in which we live
is competitive. Certain goods and services are more successful than others at selling,
and some nations are better than others at providing their population with a living wage.
What you, your business, or your department do better than anyone else
constitutes your competitive dynamics. The sustainable portion relates to your capacity
to carry out those actions over an extended period of time. It can develop advantages
and have multiple dynamics.
A global survey of 3,000 business executives conducted by BCG and the MIT
Sloan Management Review (2011) , found two categories of strategic moves
demonstrated by the firms surveyed are;
a. The Casual Adopter – those firms that were late into the sustainability market and
invested only in short-run, eco-efficiency strategies.
b. The Embracers – those strategic managers who preemptively put sustainability
at the top of their strategic agendas because they believed that sustainability was
important to their firm’s competitiveness.
An industry's firms engage in a series of attacks and counterattacks, which is the basis of
competitive dynamics . In order to improve or defend their competitive position inside their
competitive space, businesses attack and counterattack rivals.

EXAMPLE:

Executives from Clorox believe that embracing sustainability can enhance their firm’s
brand position by allowing them to penetrate the sustainability - based segments within
their markets. Clorox has repositioned its Brita water pitchers and filter lines, has
introduced a new natural cleaning product line called Green Works, and has acquired and
expanded the Burt’s Bees line of natural personal care products. Their market research
indicates that 15 percent of customers take sustainability and health into account when
purchasing, and 25-30 percent take environmental benefits into consideration. By
carefully segmenting their market and offering a product such as Green Works, Clorox is
able to change a premium price of 15-20 percent above conventional cleaners. A
multisector marketing agreement with the Sierra Club for their endorsement created a
more differentiated brand for Clorox, and a partnership with Wlamart and Safeway made
sure that consumers could easily find the new product entry. Clorox achieved first-mover
advantages, securing a 40 percent share of this $200 million market by end of 2008, and
the Sierra Club received $500,00 as its share of revenue (MIT Sloan Management Review
and BCG 2011).Thus Clorox developed a small business ecosystem around its new
sustainable product introduction , creating shared value for the whole system.

STRATEGIES DEPENDENT ON THE FIRM'S RELATIVE COMPETITIVE POSITION

Whether or not a company operates in a structured business ecosystem, its
competitive position within its target market will influence its competitive strategy. The
competitive position of an organization is described as the position of an organization
compared to its competitors in the same market or industry.
There are a multitude of factors contributing to (and which can be used to measure)
competition. The major categories are:
• Market position - relative share of market, rate of change of share, variability of
share across segments, perceived differentiation of quality/service/price, breadth
of product, and company images
• Economic and technological position - relative cost position, capacity utilization,
technological position, and patented technology, product or process
• Capabilities - management strength and depth, marketing strength, distribution
system, labor relations, relationships with regulators

Depending on your broad brand position, your competitive attacks are likely to
vary. First, you need to identify which broad brand position you hold. The four broad
positions that brands typically take in the market are the following:

Market Leader: They are the leader and the pioneer brands of the market where the
brand exists.
Market Challenger: A market challenger wants to aggressively steal market share from
the market leader, and invests time and money into finding differentiators and creating
marketing programs that enable the brand to exploit opportunities whenever they arise.
Market Follower: A market follower seeks to gain market share but is less interested in
differentiating its brand from the market leader. Instead, the market follower effectively
rides on the market leader's coattails while positioning its brand just far enough away from
the market leader to be different.
Market Nicher: Market nichers are typically smaller players and smaller companies that
can't effectively compete against the market leader but can succeed in a specific area
and with a specific audience by focusing on a specific differentiator aligned with the niche.
 Strategic managers of dominant market share firms must strike a balance between
harvesting what has already been accomplished and maintaining or improving their
current competitive position. Some of strategic options regarding competitive positioning
are the following:
● To stay on the offensive. In order to continue outperforming competitors, the
business should take the lead in the industry by introducing new products/services
ahead of competitors and increasing marketing activities.
● To hold and maintain the present competitive position. Through erecting
barriers to entry such as new patents, the introduction of more brands, and so
forth.

Confrontational Strategy
● may be used in combination with either a keep-the-offensive or a hold-and-
maintain strategy.
● an organizational strategy in which company management decides to confront,
rather than avoid, competition.
● concerted strategic efforts designed to make it hard for smaller, aggressive-minded
firms to grow and prosper.

Focused Differentiation Strategy

● based on disruptive change and generative learning in carefully segmented
markets is the general strategic prescription for a small-cap company.
● requires the business to offer unique features to a product or service, and it must
fulfill the requirements of a niche or narrow market.
● Avoiding head-on rivalry with the dominant share leader can be accomplished by
finding and engaging in market segment gaps, or by generating new market room
entirely.
● Rather than diversification, revenue growth, and increased market share, the
strategic intent is on specialization and income.

Strategic managers should also take risks by concentrating on developing core

competencies in research and development, technological skills, and new product/service
development, and thus managing innovation as a means of growth. R&D is important for
companies to stay competitive in a constantly changing market.
 Figure 7. Corporate Portfolio of SSM Competitive Strategies

ECOSYSTEM LEADERSHIP STRATEGIES

Keystone firms, the ecosystem leaders, will be responsible for shaping the vision
and structuring the business ecosystem, regardless of whether the ecosystem is
operating in developed, developing, or undeveloped markets, based on eco- and socio-
effectiveness by providing platforms that solve fundamental problems, thus providing
sustainable solutions for its niche ecosystem members. The nature of the relationships
reflected by the degree of coupling with the niche players identifies the ecosystem
leader's influence over the said players.

Business ecosystem analysis focuses on the critical interactions between the

leader’s capabilities and those of its network of business ecosystem partners. The SSM
strategies formulated and implemented by ecosystem members will depend heavily upon
their relative ecosystem position.

Three ecosystem positions are identified in the literature

(1) Ecosystem leader position and (2) niche player position

 - have significant value for creating the type of inclusive, collaborative,
trusting relationships required to build effective sustainability-based
business ecosystems
(3) Dominator position
- would likely impede building such relationships because ecosystem
dominators typically seek maximum short-run benefits for themselves
instead of long term shared value for all ecosystem members
- lack value creation and destructive behavioral patterns
- An example is Enron where they took more value than what they contributed
and created value only for the top managers and destroyed value for all of
its other stakeholders.

Ecosystem leaders are responsible for shaping the vision and structuring the
business ecosystem, as well as the ecosystem's overall health. They essentially serve
as a hub in a network of ecosystem member interactions. In this role, leader firms serve
to enhance the robustness, the efficiency, and the stability of the ecosystem. Ecosystem
leaders also establish the nature and coupling strength of the relationships in the
ecosystem which determines the degree of the ecosystem stability. In doing so, it opens
up a space for value-sharing opportunities among the niche players and provides
sustained competitive advantages for their own firms and in return promotes a healthy
business ecosystem where they listen, influence, adapt flexibly, and work together.

ECOSYSTEM NICHE PLAYER STRATEGIES

A niche player aims to specialize and differentiate itself from other members in the
system. “When they are allowed to thrive, niche players represent the bulk of the
ecosystem and are responsible for most of the value creation and innovation”. For
example, niche players operating in developed markets will likely focus their strategies
more on reducing the entropic flow of physical throughputs, and niche players operating
in undeveloped and developing markets will likely focus their strategies more on serving
basic human needs within ecological limits.
Niche players often use focused-differentiation strategies based on innovative,
disruptive change aimed at carefully segmented target markets. Thus, sustainable
innovation with respect to products, services, business models and market is a basic
business requirement for ecosystem membership. The entrepreneurship niche players
are self-contained modules that coevolve around a keystone firm that provides them with
a common platform creating shared sustainable value. It is also one of specialization
through taking explicit advantage of the opportunities provided by the ecosystem while
mitigating the challenges posed by such a business environment. By selecting a
specialization that is truly unique and investing in unique capabilities, niche players can
create competitive advantages. Risks however, arise when a niche player's firm tight
coupling with the ecosystem leader results in a lack of mobility between ecosystems and
the vulnerability to technological change (Iansiti and Levien 2004 b).
If a company uses a niche strategy, it must be cautious about its network and
analyze which companies are, or will become, keystones or dominators. A niche player’s
livelihood depends upon its ability to overcome any conflicts that may arise between itself
and these other, perhaps larger, players. If it does not effectively protect itself it could be
swallowed up by these other stronger players. Sometimes, a niche player has to find a
way to leverage or detach itself from being dependent on a keystone in order to keep the
keystone from sucking too much value from the niche player.
It is important to note that roles in a network are dynamic. For instance, keystones
may become dominators and niche players may eventually become keystones. Defining
the business environment or ecosystem, and recognizing the company's position within
the system, helps the company identify which strategy to follow.

Example:
Figure 8. ebay

eBay Inc. is an American multinational e-commerce company based in San Jose,

California, that facilitates consumer-to-consumer and business-to-consumer sales
through its website. eBay was founded by Pierre Omidyar in 1995 and became a notable
success story of the dot-com bubble.
A good example of a keystone company that effectively creates and shares value
with its ecosystem is eBay. It creates value in a number of ways. It has developed state-
of-the-art tools that increase the productivity of network members and encourage
potential members to join the ecosystem. These tools include eBay’s Seller’s Assistant,
which helps new sellers prepare professional-looking online listings, and its Turbo Lister
service, which tracks and manages thousands of bulk listings on home computers. The
company has also established and maintained performance standards that enhance the
stability of the system. Buyers and sellers rate one another, providing rankings that bolster
users’ confidence in the system. Sellers with consistently good evaluations attain
PowerSeller status; those with bad evaluations are excluded from future transactions.

SSM STRATEGIES FOR DEVELOPED MARKETS

The current global economy is a mix of developed and developing or emerging

markets. It is critical for the survival of future generations that strategic managers in
developed and developing markets formulate strategies based on innovative business
models that provide consumer value while slowing the entropic flow of resources through
their organizations.

Developed Markets
● house the richest 25% of the global population and regulate 75% of global income
and buying power
 ● largest producers and buyers of products and services in the world
● considered to be stable and have a relatively high level of economic growth.

Developing Markets
● also known as emerging markets refers to an economy that experiences
considerable economic growth and possesses some, but not all, characteristics of
a developed economy
● countries that are transitioning from the “developing” phase to the “developed”
phase

Human footprints are enormous in both developed and emerging markets. Highly
developed countries tend to have higher ecological footprints than low-income or least
developed countries, which often have less industry and smaller populations.
Corporations in many of the resource-intensive industries in these markets, such as
chemicals and energy, have large ecological footprints and use older technologies with
limited ecological performance improvement potential.

CLIMATE CHANGE STRATEGIES

Climate Change
● major ecological problem that will have long-term consequences for the economy,
culture, and the earth
● long-term shifts in temperatures and weather patterns primarily due to burning
fossil fuels like coal, oil and gas

The most popular means for a firm to disclose its carbon footprint is through:
● company’s sustainability report
● Securities and Exchange Commission filings in the United States
● Carbon Disclosure Project, a multisector partnership formed to assist the
international community in carbon emissions reduction

Why is disclosing a company's carbon footprint important?

As the world takes steps towards building a climate safe, deforestation free, water
secure future, ambitious corporate action is more crucial than ever. Disclosure through
CDP provides the bedrock for this. As the world’s most comprehensive dataset, CDP's
data both fuels and tracks global progress towards building a truly sustainable economy
for people and the planet.
As well as meeting the demands of your investors and customers, reporting your
environmental data through CDP enables you to protect and improve your company’s
reputation, boost your competitive advantage, uncover risks and opportunities, and track
and benchmark progress. In a world where mandatory disclosure is gaining momentum,
disclosing through CDP also helps companies get ahead of regulation.
Cap and Trade System
● firms get limited allowances to emit greenhouse gasses and they are allowed to
trade these with other market participants
● carbon can actually be assigned a price (the total value of emission rights in the
EU Emissions Trading Scheme is about E40 billion a year)
● provides opportunities for firms to capture profit in the carbon-trading market via
many roles, including buying or selling for speculative purposes or creating low-
carbon projects that would help companies outside the system reduce emissions
at low costs and then profitably sell their emission rights in the market.

Since carbon is so closely tied to other commodity products, such as coal, oil, and
natural gas, carbon emissions impact strategic decisions related to sourcing energy, the
engine that drives the firm and the economy. Thus, trading emissions has created a whole
new financial market, where carbon has a price, providing opportunities for firms to
capture profit in the carbon-trading market.

Advantages of Cap and Trade System

1. Since companies that have emissions credits can sell them for extra profit, this
creates a new economic resource for industries.Its proponents argue that a cap
and trade program offers an incentive for companies to invest in cleaner
technologies in order to avoid buying permits that will increase in cost every year.
2. This process may lead to faster cuts in pollution, since companies that cut their
emission levels faster are somehow rewarded as they can then sell their allowance
to other companies.
3. Because the government can decide to auction emissions credits to the highest
bidder, cap and trade is also a revenue source for the government, since it has the
power to auction emissions credits to the highest bidder.
4. As a free trade system, cap and trade gives consumers more choices as well.
Consumers can choose not to purchase from companies that are out of
compliance, and do business with those that are trying to reduce their pollution
levels.
5. Finally, the cap and trade system also has benefits for the taxpayers. The
government sells emission credits to businesses that need them. The income
generated helps to supplement the resources that taxpayers are providing the
government.

As global climatic disasters have increased, the carbon market has emerged and
the sustainability movement has grown. Typically, the initial climate change strategy
implemented by firms is to make efforts to optimize their carbon efficiency through
strategies to improve the efficiency of their infrastructure (buildings, factories, data
centers), supply chains, and finished goods. (automobiles, flat-screen TVs, computers).
Often, these strategies involve not only eco- efficiency measures but also a shift to less
carbon-intensive sources of power such as wind, solar, or geothermal.
 However, as the low-hanging fruit of eco-efficiency is picked, new business models
are necessary that create radically more effective low-carbon solutions that reward
suppliers and end users for consuming less energy. Value chains that disrupt existing
industries and create new ones will necessarily spring up. A new generation of strategies
that question the underlying assumptions of the current business model must emerge to
fundamentally decouple economic growth from carbon emissions growth. This will require
building continuous organizational learning and innovation capabilities to learn how
climate change issues affect core activities and which strategic adjustments are
necessary to manage these impacts.

Rhodia
● a French specialty chemical company with one-third of its sales in sustainability-
leveraged products
● has a committed climate change strategy that has led to increased earnings from
low-carbon projects and participation in the carbon-trading market.
● has also partnered with Brazilian counterparts to target a reduction in greenhouse
gasses by:
1. combating deforestation, which is the main source of greenhouse gas
emissions in Brazil
2. developing cleaner and more sustainable production processes by using
clean technologies and biomass as raw material for industrial chemistry
3. developing carbon capture and storage technologies and cogeneration
technologies
4. developing renewable energy sources, with priority given to biomass and
wind energy, which are still underexploited in both countries

EMERGING BUSINESS MODELS FOR DEVELOPED MARKETS

The primary sustainability challenge in today’s developed markets is to supply

a steady stream of innovative products and services that are created, distributed,
advertised, used, and disposed of in sustainable methods that drastically minimize the
company's high-entropy corporate and consumer footprints. Achieving sustainability
will require that organizations in developed markets create and implement innovative
SSM strategies that deliver long-term consumer value in creative ways that protect and
enhance the planet’s ecological and social systems, and encourage sustainable
consumption patterns that are in balance with the carrying capacity of the Earth. For this
reason, more eco- and socio-effective business models are being developed that go
beyond the short-run gains achieved by eco- and socio-efficiency.

Some examples that give solution in the primary sustainability challenge are:

late Ray Anderson of Interface

- leasing carpet instead of selling it to consumers

Cengage

- a leader in the textbook industry

- moving toward book leasing and electronic publishing

According to Jacquelyn Ottman (2011), in markets where eco-efficiency has

become a common business necessity, simply redesigning existing products according
to eco-efficiency will not be a competitive advantage anymore. However, she views this
as a next stage leading to questioning fundamental assumptions. This stage moves
product/service development from a cradle-to-grave to a cradle-to-cradle mentality where
product design mimics nature based on the principles of eco-effectiveness. Moreover,
she demonstrated this thinking through the redesign of a simple toothbrush.

Eco-efficient thinking: producing it with recycled and recyclable materials, and so forth,
but it is still the same product concept—a toothbrush that must eventually be disposed of

Eco-effective thinking: creating new products required for cleaning teeth such as
specially treated chewing gums or food additives that prevent plaque buildup without a
brush, paste, water, and packaging

Eco-effective thinking may lead to a very different type of solution because it is made
based on redesigning a product produced to have a positive environmental impact and
not just to lessen its negative impact throughout its entire lifecycle. Thus, it requires an
organizational culture supported by entrepreneurial, generative learning.

SUSTAINABLE MARKETING STRATEGIES

According to (yodelpop, n.d.)

“Sustainable marketing is the process of creating, communicating and delivering value to

customers in such a way that both natural (resources nature provides) and human
(resources people provide) capital are preserved or enhanced throughout.”

Principles that can help a business in implementing sustainable marketing

strategies

Consumer-oriented

Consumer-oriented principle means that the company or organization views its

marketing strategy from the consumer’s point of view. This involves product
stewardship wherein the consumer’s learning is promoted. Since consumers are
becoming more aware of the state of the environment, they are more willing to be part of
a sustainable consumption which is prioritized and addressed through sustainable
marketing managers by equipping consumers about necessary information about how to
safely use and dispose of their products just like what Proctor and Gamble, Clorox, and
Unilever did.
Innovative

This principle guarantees that a business is continuously looking for new and
creative ways to provide consumers products and services, and better methods in
marketing them because those who overlook innovation will be left behind by change and
competitors who continually come up with new, better methods. Since sustainability is
becoming more strategically important progressive businesses are making efforts to
create sustainable solutions to the environmental and social problems caused by the
human footprint in both the developed and developing markets.

Societal marketing

With the principle of societal marketing, the company establishes a balance

between decisions based on what the consumer wants, what the firm needs, and what
the customer's and society's long-term interests are. Innovative companies view potential
societal issues as opportunities to contribute solutions to. Thus, SSM strategies for
developed markets include dynamic, strategic initiatives that create shared stakeholder
value by reducing the entropic flow of energy and natural resources, and by creating
innovative, sustainable products and services, both of which meet current stakeholder
demands and enhance the triple-bottom-line performance of the firm and its business
ecosystem.

SSM STRATEGIES FOR UNDEVELOPED AND DEVELOPING MARKETS

The BoP is a fragmented market consisting of many segments based on the

individual characteristics of regions, countries, and industry sectors that are not fully
integrated into the formal market economy. Entering the BoP market is difficult because
of this inability to scale operations. Within the informal economy there are few channels
of distribution, few formal regulations, and few means of financing. Living at the base of
the pyramid makes people highly susceptible to isolation, disease, illiteracy, crime,
environmental degradation, exponential population growth, and so forth. As desperate as
this sounds (and is), these issues offer numerous win–win strategic opportunities to
create long term economic benefits by helping to improve the lives of the poor in these
undeveloped markets through eco- and socio-effective BoP strategies.
So, even highly developed markets like the BoP market segments that are in
desperate need of economic, human, and social capital creation. Some companies or
businesses in urban stressed areas encourage people to take what they need and donate
what they can or a donation box near the counter with a suggested donation amount
posted. All of the reported revenues in excess of their costs, and the extra money is used
to train at-risk youth from the communities to become their employees. This is an example
how a BoP socio-effectiveness strategy in an economically depressed market segment
can serve the needs of the poor while building the firm’s brand and reputational capital,
both of which provide competitive advantages for the firm.
THE COEVOLUTION OF BOP STRATEGIES

BoP strategies specifically target the low-income demographic in order to generate

revenues by “selling goods to and sourcing products from the Bop’’. As more and more
firms have discovered the BoP market space, two generic strategies have coevolved: one
focuses on serving BoP consumers and the other focuses on serving BoP producers.
Given the coevolutionary nature of BoP market space, the firm may employ either strategy
or both strategies to compete in the BoP market. Typically, organizations implement
market strategies that focus on the poor as consumers for the goods and services of their
corporations. These strategies are designed to provide low-cost products and services
that address the basic needs of the poor, such as education, health care, sanitation, and
clean water.
The first generic is the poor as consumers is generally the initial perception
strategic managers have when they enter the BoP market space. These strategies are
usually designed to merely sell an organization’s standard products at lower prices to the
masses or to generate rapid sales, often without regard to environmental responsibility or
social welfare. Typically, these strategies take products created for developed markets,
make some adjustments in them for local conditions, and then distribute them in the BoP
markets.
The emphasis of the second generic form of BoP strategy moves from extracting
capital from BoP customers to co-creating economic opportunities with them. The poor
are seen as co-producers in an inclusive market environment with value creating activities
in these strategies.
As a result, an effective BoP strategy necessitates collaborating with social
entrepreneurs, NGOs, citizen service groups, governmental bodies, competitors, and
development agencies to create an inclusive business ecosystem (Jenkins and Ishikawa
MAC 301 SUSTAINABILITY AND STRATEGIC AUDIT 71 2010). The inclusive
environment is designed to help poor people become wealth asset builders. The poor
become co-producers in the supply chain when they are able to create “sustainable
livelihood businesses'' (Kirchgeorg and Winn 2006, 172) through an inclusive,
collaborative ecosystem. This reduces manufacturing costs, transportation costs, and the
overall footprint of the business ecosystem while also creating employment, profits, and
microenterprises in the local area.

BOP STRATEGY IMPLEMENTATION

Importance of building an interconnected business environment for BOP strategy
implementation
Building an interconnected business environment means creating partnerships and
collaborations between different businesses, governments, civil society organizations,
and communities. It's important for implementing BOP strategies because it allows for a
coordinated effort, optimizes resources, and creates synergy between different
stakeholders. Essentially, it helps everyone work together towards a common goal,
making it easier to implement strategies that benefit people living at the bottom of the
pyramid.
Obstacles in implementing BOP strategy
Implementing BOP strategy can be a daunting task, and there are several obstacles that
businesses face. These obstacles can include the lack of infrastructure, insufficient funds,
and the absence of a suitable regulatory environment. Additionally, businesses must
navigate cultural differences, language barriers, and local customs.

Importance of stakeholder engagement in creating an inclusive ecosystem

Stakeholder engagement is critical in creating an inclusive ecosystem. Businesses must
understand the needs of the local population and work together with them to develop
products and services that meet their needs. By working closely with stakeholders,
businesses can build trust and credibility, and create a sense of ownership among the
local population.

Importance of microfinance in funding local entrepreneurs

Encouraging Entrepreneurship in the BOP Ecosystem One way to encourage
entrepreneurship in the BOP ecosystem is through microfinance. Microfinance provides
small loans to local entrepreneurs who would not otherwise have access to traditional
sources of funding.

Example of Successful Bop Strategy Implementation: General Electric's Reverse

Innovation Strategy
General Electric's (GE) reverse innovation strategy is focused on designing and
producing affordable products and services for consumers in emerging markets. The
strategy involves developing products and services in these markets and then bringing
them back to developed markets.

Two-pronged development and market strategy:

GE's reverse innovation strategy involves a two-pronged approach to product
development and market strategy. The first prong involves creating products and services
that are specifically designed for emerging markets. The second prong involves
leveraging the innovation and learning that happens in emerging markets to develop new
products and services for developed markets.

STRATEGIES DEPENDENT ON STAGE OF INDUSTRY/ECOSYSTEM

COEVOLUTION

Since each stage of coevolution presents various opportunities and challenges,

the stage of industry/business ecosystem coevolution is a strategic environmental factor
affecting the formulation of SSM competitive strategies.
 Figure 9. Whole-Pyramid Strategic Thinking

Stage of Industry/Business Ecosystem Coevolution

Embryonic and Pioneering Period: an industry just beginning to develop, characterized
by slow growth, high prices, low volumes, a substantial need for investment, and a high
risk of failure.
This phase involves the development and early marketing of a new product or
service. Innovators often create new businesses to enable the production and
proliferation of the new offering. Information on the products and industry participants are
often limited, so demand tends to be unclear. Consumers of the goods and services need
to learn more about them, while the new providers are still developing and honing the
offering. The industry tends to be highly fragmented in this stage. Participants tend to be
unprofitable because expenses are incurred to develop and market the offering while
revenues are still low.

Establishment and Growth Stage: characterized by rapidly increasing demand,

improving profitability, falling prices, and relatively low competition (though a threat of new
competitors is generally at its highest point in this stage).
Consumers in the new industry have come to understand the value of the new
offering, and demand grows rapidly. A handful of important players usually become
apparent, and they compete to establish a share of the new market. Immediate profits
usually are not a top priority as companies spend on research and development or
marketing. Business processes are improved, and geographical expansion is common.
Once the new product has demonstrated viability, larger companies in adjacent industries
tend to enter the market through acquisitions or internal development.

Maturity Stage: characterized by little or no growth, industry consolidation, and high

barriers to entry. Shakeout: characterized by slowing growth, intense competition,
declining profitability, and a focus on cost reduction.
 The maturity phase begins with a shakeout period, during which growth slows,
focus shifts toward expense reduction, and consolidation occurs. Some firms achieve
economies of scale, hampering the sustainability of smaller competitors. As maturity is
achieved, barriers to entry become higher, and the competitive landscape becomes
clearer. Market share, cash flow, and profitability become the primary goals of the
remaining companies now that growth is relatively less important. Price competition
becomes much more relevant as product differentiation declines with consolidation.

Decline Stage: characterized by negative growth, excess capacity, and intense

competition.
The decline phase marks the end of an industry's ability to support growth.
Obsolescence and evolving end markets negatively impact demand, leading to declining
revenues. This creates margin pressure, forcing weaker competitors out of the industry.
Further consolidation is common as participants seek synergies and further gains from
scale. Decline often signals the end of viability for the incumbent business model, pushing
industry participants into adjacent markets. The decline phase can be delayed with large-
scale product improvements or repurposing, but these tend to prolong the same process.

Fundamental strategic choices to either exit or stay in the industry must be made. There
are several basic strategic options available to a business ecosystem in the decline stage.

Hold and Maintain Strategy - to maintain the present market position without significant
reduction in marketing, technology, and other investments in hopes that competitors will
eventually leave the market. If the firm remains in the market and others exit, there may
still be potential for revenues and profits.
Harvesting Strategy - involves obtaining as much profit as possible while quickly
reducing costs. The objective is to wring out as much as possible.
Divestiture Strategies - involve eliminating the business from the firm's product portfolio.
Horizontal Integration Strategies - involve the firms acquiring at a reasonable price the
best of the surviving firms left in the business thus consolidating its competitive position.
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