MGF 3684

Business Strategy
Week 3
 What you need to know today

1. Strategic Positioning Concepts 3. Capstone

2. Ryanair Case Analysis

Concepts Case Studies MGF

3684

Concepts StratBusines
eg y s
Mgt

IT Security Vs
Take-aways Cybersecurity
What we will be learning this week?
Housekeeping
Announcements
 S E C T I O N 1

Strategic
Positioning
Recall from Last Week: Porter’s Generic Strategies

2 generic strategic approaches to compete: Costs Vs Differentiation

or a mix of the 2

Cost

(Market) Scope
Broad
Leadership Differentiation

Integrated
Modified to
Strategy*

Narrow
Cost Differentiation
Focus Focus

Lower Cost Uniqueness

Competitive Advantage Focus

*Note: Sometimes also ”Best Cost Strategy” or “Combination Strategy”

Integrated Strategy Vs “Stuck in the Middle” Strategy

Porter rejects the notion of Integrated Strategy

“Becoming stuck in the middle is often a
manifestation of a firm’s unwillingness to make
choices about how to compete. It tries for
competitive advantage through every means and
achieves none, because achieving different types
of competitive advantage usually requires
inconsistent actions.” (Week 2 Reading, Porter
1985: p. 265)

Prima facie, cost leadership and differentiation call for

very different skills, management styles, corporate
cultures…(“tradeoffs”)

By trying to achieve both, companies may be making

compromises that undermine the achievement of
either (“disproportionate tradeoff”)
Integrated Strategy Vs “Stuck in the Middle” Strategy
Yes, BUT…research indicates that some firms manage
to achieve both low cost and differentiation and
that these firms are among the highest
performers.
Anecdotal evidence:
• Toyota (superior quality coupled with low cost)
• In the past: Dell (customised PC & fast delivery coupled
with low cost)
• Acer (low cost plus slick designs)

 Suggesting the tradeoff between differentiation

and cost is not absolute.
 [NB: compare “Blue Ocean” take on this.]

Blue ocean strategies pursue differentiation and low

cost capabilities to open up a new market space and
create new demand. Today’s technology allows the
integration or mix of differentiation and low costs, which
was not the case when Porter’s develop his Generic
Strategies concept
Integrated Strategy Vs “Stuck in the Middle” Strategy

Point to consider: Porter’s generic strategies tend to

drive companies to the extremes – lowest cost or
highest differentiation.

But in many industries the most profitable strategies

may involve offerings with intermediate
differentiation at an intermediate price (and cost)
and today’s technology advances scan enable
such mix of capabilities development for strategic
positioning.
 Integrated Strategy: Today’s Example

The online and live-streaming concerts of BTS in

2020 and 2021 were sold out and under A$50,
which is about half of the general average live
concert ticket price of A$139.

Through these live streamed concerts, BTS was

able to engage with fans around the world in
their own homes. The quality of live streaming
was high density quality videos.
 Generic Strategy & Business Performance

This data suggest that an Integrated Strategy is a viable generic strategy.

• Successful adoption of an Integrated Strategy results in high performance. The managed use of
technology can enable such success.

• Unsuccessful adoption of an Integrated Strategy (“Stuck in the middle”) will result in poor
performance. When technology use is not well managed to deliver low cost or/and enable
scalability and differentiation, project cost overruns and go-to-market delays can result in
business failures.
Example Validating Porter’s Claim that Integrated Strategy is Not viable

German Mobile Telephone Industry Between 1992 – 1998, the mobile

sector rationalised and offered similar
mobile products:

• Margins became tighter, pushing

competition to be lost cost driven

• Product differentiation reduced as

mobile phone technology become
more standardized and resulting in
very similar products.

This trend pattern validates Porter’s

claim that integration strategy is not
viable. One either competes on low
price OR product differentiation, not
both.

(McKinsey Quarterly, 2000)

1999 -2004: Trend Showing the Vanishing Middle Market

This research finding shows that:

1. High end markets are those who

engage differentiation strategies
2. Low end markets engage in cost
advantage strategies
3. The middle markets are
disappearing, linking to identify
companies who engage stuck-in-
the-middle strategies were
challenged by a reduce market
size.

This research finding proves that

Porter’s claim of the stuck-in-the-
middle strategic positioning is one
that is very challenged and exposes
firms to market failure.
Differentiating & Blurring Integrated & Stuck-in-the-middle Strategies

Differentiation Cost Efficiency In conclusion, tradeoffs do exist and…

Eg engaging technology Eg engaging TQM practices

investments
Integration strategies balancing the mix of
differentiation & cost efficiency capabilities being
developed. This involves trade-off – more
differentiation means less cost efficiencies and
vice-versa.
In balancing the mix of these strategic capabilities,
a firm can get “stuck” whereby equal mix agendas
no longer work. When this happens, the firm is
caught in a state of stuck in the middle, exposing it
to failure
….getting ‘stuck in the middle’ is a
possibility…
…but some tradeoffs are “less real” than
others…
E.g. with Six Sigma programs, the tradeoff
between quality and cost disappeared, but the
tradeoff between cost and innovation remained.
….and there may be successful mid-
market competitors blending
differentiation and cost elements.
 Strategy Formulation: A Forgotten Artform?
2016
20+ years forward Simester (
MIT Sloan School of Management, 2016) says
“many executives in big companies attained
their positions by excelling at getting things
done. Unfortunately, a bias for doing rather
than thinking can leave these executives ill-
equipped for their new roles.”
1996
“Bit by bit, almost imperceptibly,
management tools have taken the place
of strategy.” (Porter, 1996: 61)
2019
Waagen (2019) says enterprise
leaders are not critically thinking
while doing
Incorrect culture of:
• Silo focus: What gets measured,
gets done
• Emphasis on short-term
thinking and achievements
• Fast living – no time for planning
and critical evaluation in getting
things done.
 What is Strategy?

“Competitive strategy is about being Strategy developing is NOT about using a

different. It means deliberately choosing a set of strategy management tools. It
different set of activities to deliver a unique requires thinking to choose the right
mix of value.” competitive advantage and identify the
(Porter 1996: 64) appropriate and different sets of
activities to create and sustain value that
delivers the sought strategies

“I watch where the cosmetics

industry is going and then walk in
the opposite direction.”

Anita Roddick, founder of The Body Shop

Took a Segmentation targeting and
positioning approach (Bhasin, 2019)
Differentiating Operating Effectiveness & Strategic Positioning
+
Operational effectiveness (OE)
“Operational effectiveness (OE)
means performing similar activities
better than rivals perform them”
(i.e. approaching the productivity
frontier)
Compete in the Now
+ Compete
differently
Strategic Positioning.
“In contrast, strategic positioning
means performing different activities
from rivals' or performing similar
activities in different ways.”
 Strategic Positioning: Activity Patterns

Radically different activities Vs Performing similar activities in different ways

Design: “Scandinavian”, for flat pack

Assembly and delivery activities transferred to the

IKEA consumer

Dell Assembly: from built-to-stock to built-to-order

Direct sales replaces conventional retail

Performing similar activities in different ways X Radically different activities

 Operating Effectiveness Vs Strategic Positioning
Strategic positioning = A firm that is fully
choosing a unique point differentiated at the These 2 dots indicate a firm is mixing differentiation
& cost advantage (integrated strategic position),
High where tradeoffs are required expense of cost efficiency which can be continuous improved to achieve best
practice capabilities.

However all firms can improve to eventually

achieve best practice competencies, hence such
Relative Differentiation

integrated strategy can be easily duplicated

KEY MESSAGE

Productivity Frontier = Operating Effectiveness is

Σ of all existing best about a firm achieving
practices best practice competency
OE = Improvements to
BUT
get closer to
productivity frontier
Does not necessary
translate to achieving
Low
A firm that is fully cost strategic advantage
High Relative Cost Position Low efficient at the expense of
differentiation
 What does “positioning” means in the Capstone World?

Capstone Customer Buying Criteria

(page 3-4):

1. Price appropriateness for different

segments

2. Product Age

3. Product Reliability (Mean Time

Before Failure measured)

4. Product Size + Performance

Positioning Different Context of
Discussions so far
Operating Effectiveness is NOT Sufficient for Competitive Advantage
“Constant improvement in operational
effectiveness is necessary to achieve superior
profitability. However, it is usually not sufficient.”
(Porter 1996: 62)
1) Other firms can quickly emulate new best
practices, new technology…
2) Emphasis on OE tools leads to competitive
convergence (competitors beginning to look more
and more alike)
 price-based competition sets in, margins decline
Discussions
Look at Universities.
Which ones are operationally effective
Vs
Those who are strategically different?
Read Monash University Strategic
Communications -
https://www.monash.edu/news/articles/mo
nash-university-welcomes-victorian-governm
ent-funding/monash-university-launches-its-
new-10-year-strategic-plan
 Separating Operational Effectiveness & Strategic Positioning

Porter advocates differences between

Operation Effectiveness & Strategic
Positioning
Operating Not redesign a
Strategic
Effectiveness firm’s BUT
Positioning Border between OE and strategy/strategic
operations to
Best Practice be effective, positioning sometimes may not be as clear as
Differentiation espoused by Porter.
Capability but also
& Cost
Maturity difficult to
Management Some “OE initiatives” have been shown to be
Management imitate
very systemic, difficult-to-imitate and enduring
sources of CA (e.g. quality initiatives in some
Japanese competitors) - core competency
design directions

Strategic positioning (i.e. strategy) is about being

Ie saying saying strategic positioning is about
different from competitors, by performing a tailored set
being different in product offerings – unique
of activities, which is characterised by fit, and
products vs low cost products
protected from competitors by tradeoffs.
Separating Operational Effectiveness & Strategic Positioning

Strategic positioning (i.e. strategy) is about being

different from competitors, by performing a
tailored set of activities, which is characterised
Operating Not redesign a by fit, and protected from competitors by
Strategic
Effectiveness firm’s tradeoffs.
Positioning
operations to
Ie saying saying strategic positioning is about
Best Practice be effective,
Differentiation being different in product offerings – unique
Capability but also
& Cost products vs low cost products
Maturity difficult to
Management
Management imitate
A strategic position is not sustainable unless there
are tradeoffs, i.e. requiring others to make choices,
thus protecting the firm from “straddlers” and
“repositioners”. (Porter 1996: p.68)

Although Porter concedes that companies may be

able to straddle, i.e. occupy different positions at the
same time, in the form of separate business units
“each with its own brand name and tailored
activities.” (Porter 1996 p.77)
Example: Hybe – the K pop Management Company
Cost efficiency focused with some
functional differences (how different
from competitors shape the strategic
positioning type)
Different product
positioning (ie straddling)
A strategic position is not sustainable
unless there are tradeoffs, i.e. requiring
others to make choices between
differentiation & cost leadership, thus
protecting the firm from “straddlers”
and “repositioners”. (Porter 1996: p.68)
Although Porter concedes that
companies may be able to straddle, i.e.
occupy different positions at the same
time, in the form of separate business
units “each with its own brand name
and tailored activities.” (Porter 1996
p.77)
Unless you choose EITHER
differentiation or cost leadership
(ie no integrated strategies), to
prevent others from copying you
 Strategic Positioning – Concept of “Fit”

Positioning is also about how activities relate to the

overarching strategy and to one another, ie

The redesign your enterprise functional workflows must

always align to the strategic positioning type

• First-order fit - consistency between each activity

(function) and overall strategy.
• Higher-order fits - activities (functions) are mutually
reinforcing.
Fit(s) “enhances a position’s uniqueness and amplifies the
tradeoffs.” (p.71)
Does redesign a firm’s workflows result in
achieving the sought strategic positioning
choice?
Workflow redesign will also imply work grouping
changes, which are summarised in restructuring
org charts.
Southwest Airlines: Activity System

Is this activity system aka workflow

structure result in achieving the
strategic positioning choice?

Are these interlinking activities result

in SW Airlines’ strategic positioning
choice?
S E C T I O N 2

Topic
Case Studies
Translating Theories into Practice
 Case Analysis: Ryanair

Identify & Analyse the

Case Story’s Events
to answer the following Qs

1. Can the Ryan brothers make money at the I£98

fare they propose?

2. How costly would it be for Aer Lingus and British

Airways to retaliate against Ryanair’s launch
rather than accommodate it?
 S E C T I O N 3

Capstone
Preparation
 Capstone Help Desk

Capstone Help Desk is based in Chicago, USA. The helpdesk email is

support@capsim.com and contact hours in Melb EST timezone is:

1. Tuesday to Saturday from 1:00 AM to 1:00 PM Melbourne time.

2. Sunday and Monday from 3:00 AM to 11:00 AM Melbourne time.

During office hours (see (1)) Help Desk turnaround time is generally within one hour,
but many times in just a few minutes.

Telephone contact details in https://www.capsim.com/contact

Next Week’s Lesson

External Analysis – Outside In