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- Dwayne D. Gremler
Corporate & Business Unit Strategy
(Chapter 2)
What is strategy?

What is the classical framework for strategic
management?

Issues in the new economy

eBay example

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- Dwayne D. Gremler
Classical Framework for Strategic Management
Implementation
Internal
(Company)
Analysis
External
Analysis
Control
and
Monitoring
Strategy
Formulation
Corporate
Business unit
Functional
Operating
Objectives
Mission
Exhibit 2-1
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- Dwayne D. Gremler
Creating Competitive Advantages
Investment to Create and
Sustain Advantage
Distinctive
Competencies
Competitive
Advantages
Performance
Outcomes
Adapted from: Day, G.S. and R. Wensley. Assessing Advantage - A Framework for Diagnosing Competitive Superiority.
Journal of Marketing, vol. 52 (1988): 1-20.
e-Marketing Strategy
Positioning and target-market selection
Marketing tactics: (4 ps)
Superior
customer value
Low-cost
producer
Superior skills
Superior
resources
Satisfaction
Loyalty
Market share
Profitability
Exhibit 2-2
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- Dwayne D. Gremler
The Value Chain
Firm Infrastructure
(Financing, planning, investor relations)
Human Resources Management
(Recruiting, training, compensation system)
Technology Development
(Product design, testing, process design, market research, material research)
Inbound
Logistics
Procurement
(Raw materials, advertising space, health services)
M
A
R
G
I
N
Primary Activities
Support
Activities
Operations Outbound
Logistics
Marketing
and Sales
After-Sale
Service
(Data collection,
material storage,
customer access)

(Component
molding, branch
operations,
underwriting)

(Order processing,
warehousing, report
preparations)

(Sales, proposal
writing,
advertising,
trade shows)

(Installation,
customer support,
repair)

Exhibit 2-3
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- Dwayne D. Gremler
The Five Forces Analysis
Risk of Entry by
Potential Competitors
Bargaining Power
of Suppliers
Rivalry Among
Established Firms
Bargaining Power
of Buyers
Threat of Substitute Products
Source: Porter, Michael E. How Competence Forces Shape Strategy. Harvard Business Review (March-April 1979).
Copyright 1979 by the President and Fellows of Harvard College. All rights reserved.
Adapted and reprinted by permission of Harvard Business Review.
Exhibit 2-6
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- Dwayne D. Gremler
Centricity of Technology
Customer
Gains Control
Strategy
Formulation
Fast, Unpredictable
Competition
Rapidly Reconfigured
Company Resources
The Effects of the Networked Economy
on Strategy Formulation
Exhibit 2-7
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- Dwayne D. Gremler
The Networked Economys Impact on
Porters Five Forces
The Internet provides direct
connection to customers; however, it
minimizes suppliers bargaining power
Suppliers can access end-users
through the Internet, minimizing the
need for middlemen
Differentiation becomes more difficult
as access to suppliers is equalized
via digital markets and Internet
purchases
Fewer barriers to entry result in
increased buyer competition thus
boosting supplier bargaining power
Reduces bargaining power of
channels
Consumers have more
information and ability to
search for better deals
Decreases switching costs
Wherever technology enables a task to be easily undertaken, barriers to entry go down
New market entrants can acquire technology applications easily
Large capital pool has attracted new entrants to many industries
High technology costs and expertise increase barriers to entry
Especially for Internet-related technology or services, substitute products can easily be offered
Internet has introduced new business methodologies thus creating additional substitution threats
Internet minimizes ability to product differentiate; less
differentiation means more competition over price
Low barriers to entry open markets to heavier
competition
Variable costs decrease as a percentage of fixed
costs, leaving price discounting as a primary method
of competition

Risk of Entry by
Potential Competitors
Bargaining Power
of Suppliers
Rivalry Among
Established
Competitors
Bargaining Power
of Buyers
Threat of Substitute Products
Source: Adaptation of data from a discussion drawn for Michael Porters research with David Sutton.
Exhibit 2-8
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- Dwayne D. Gremler
The Offering Interactivity and
Individualization
Low

Game sites
Napster
Hotmail
Low High
High

Myteam.com
eBay

myCNN.com
Amazon.com

First-generation websites
Most content sites
(magazines)
Individualization
Interactivity
Exhibit 2-9
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- Dwayne D. Gremler
Low
Low High
High
Sweet Spot:

Amazon.com
eBay
Resource Contained:

drkoop.com

Vulture Victim:

Boo.com
PointCast in its early days
Quality of Customer Insight
Quality of the
Resource System
Low Payoff:

Rx.com, Drugstore.com
MarketWatch.com
Yahoos auction site
BlackBerry, Visor
Resource Insight Matrix: How to Win
Sources of Competitive Advantage
Exhibit 2-10
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- Dwayne D. Gremler
Extended Classical Framework for Strategic
Management
Implementation
Internal
(Company)
Analysis
External
Analysis
Control
and
Monitoring
Strategy
Formulation
Corporate
Business unit
Functional
Operating
Objectives
Mission
Reconfigure
Company
Resources
Centricity of
Technology
Customer
Control and
Power
Fast,
Unpredictable
Competition
Exhibit 2-11
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- Dwayne D. Gremler
Chapter Summary Conclusion
Strategy addresses how a firm fulfills its mission and achieves its
goals
The field of strategic management has gone through several shifts
in thinking in the past four decades: the 60s (The Planning Era),
70s (Diversification), 80s (Industry Attractiveness) and 90s (Core
Competencies and Resource-Based Views)
Four principle networked-economy forces significantly affect the
strategy formulation process: the increasingly central role of
technology, fast and unpredictable competition, reconfigured
company resources, and customer control and power
The classical framework for strategic management remains the
same; however, networked-economy firms require further
considerations in the framework, such as a technology element
and input from Resource-Insight Matrix and the Interactivity-
Individualization Matrix