Generic Strategy – Porter

THEME 8 GENERIC STRATEGIES 1. Introduction. 2. The Porters coming competitive strategies (cost advantage, differentiation advantage and specialization). 3. The Ansoffs plan of attack the Growth intercellular substance ( securities industry place penetration, harvest-tide development, market development, and variegation). 4. An integrating approach. Alfonso VARGAS SANCHEZ 1 Hope is not a strategy, curiously when internationalizing the company is the intention 2 strategical Analysis Compulsory Questions What line of products is the fundamental law in? manufacturing/retail, etc. Who do they grapple with, and how do they compete? Who ar the make-ups stakeholders?Key stakeholders & international axerophtholereere their influence. What be the outdoor(a) drivers for change? PEST model, macro environment. Five Forces model, micro/industry environment. How does the organisation gain range? Resource audit, tangible & amp intangible. Value mountain chain and Value System abridgment. Assess the balance in the corporate portfolio, BCG matrix. How should I compete? Porters generic strategies low cost, differentiation, specialization. What are my strategic movements? Mergers/Acquisitions, etc. 3 Mission Vision Values PEST analysis Competitive Forces P. C. Industry Attractiveness S C. C. S. P. B (threats & opportunities)Value set up activities & linkages F. I. T. D. HH. RR. PR. Value System (linkages) other SBUs (synergies) & suppliers buyers value set up outline formulation, at three levels CBF gilds Competitive Position (Resourcebased View) cost advantage or uniqueness (strengths & weaknesses) I. L. OP. O. L. M&S A-S. S. STRATEGY ELEMENTS LEVELS BUSINESS scene RESOURCES & CAPABILITIES COMPETITIVE ADVANTAGES SYNERGIES CORPORATE (1) (1) (1) BUSINESS (2) (2) (2) FUNCTION (3) (3) 5 strategical ADVANTAGE PORTERS advance Exclusivity perceived by the client Position of low be COMPETITIVE SITUATIONBroad (the whole DIFFERENTIATION sector) trim back (only one segment) COSTS lead FOCUS or NARROW segmentation 6 THE LOW COST PHENOMENON Two basic ways -Productivity. -Economies of outgo & learning/experience. 7 8 9 COSTS LEADERSHIP RESOURCES AND APTITUDES -Sustained investment of enceinte and favourable access to pecuniary markets. ORGANISATIONAL REQUIREMENTS -Strict control of be. -Detailed and ordinary control reports. RISKS OR LIMITATIONS -Techno logical change that cancels out the experience gained or investment made. -Competitors who learn easily and rapidly. -Stagnation of the product or of the marketing. Inflation of costs that annuls the earlier price differential. -Clearly defined organisation -Special aptitudes for and responsibilities. process engineering. -Incentives based on clashing -Close supervision of quantitative objectives. work and operations. -Products designed for ease of manufacturing. - showtime cost of scattering. 10 Reading Designers on quest to build $12 computer 11 DIFFERE NTIATION RESOURCES AND APTITUDES ORGANISATIONAL REQUIREMENTS RISKS OR LIMITATIONS -Significant aptitudes -Coordination between the functions of R&D, product in marketing and in product engineering. development and marketing. Strong investment -Qualitative assessments in R&D. and incentives. -Prestige in quality -Capacity for and technology. understanding the market -Full cooperation of and how it changes. the distribution -Appropriate canalises. organisational structure for -Long tradition in the stimulating and rewarding sector, or a unique creativity. combination of aptitudes obtained in other stage pipeline activities. -Competitive levels of product prices, in accordance with a strategy of minimum global cost. -The customers no nightlong value the products factors of differentiation. -As the industry matures, imitation reduces the perceived ifferentiation. 12 Mention virtually brands for which you are willing to pay a premium price 13 SPECIALISATION RESOURCES AND APTIT UDES -Resources and aptitudes of special application and interest in the companys area of operation. -Dominance of the applicable technology and of the engineering of the product. - food marketing capacity. -Ability in the use of limited alternatives. -Other competitors are alter in part of the market of the already specialized company. ORGANISATIONAL REQUIREMENTS -Flexible and efficient organisation structure. - unified culture relevant and specific to its areas of specialisation (products and markets).RISKS OR LIMITATIONS -The differences in costs compared with nonspecialized companies are so wide that the advantages of specialisation are eliminated. -Close coordination between -The market in which the functions. company is specialized reduces its differences -Rapid response to changes with respect to the global market. in the environment. 14 15 16 A niche strategy in spite of appearance a declining industry Reading Cassettes linger long after anticipate demise 17 Segmentatio n variables Varieties of products. Types of purchaser. Distribution channels. Geographic areas. object lesson olive inunct market. 18Segmentation matrix (1) TYPE OF PURCHASER VARIETIES OF PRODUCTS (QUALITY) olive vegetable oil consummate(a) Olive Oil particular(a) Virgin Olive Oil terminal customer (bottled product) Restaurants, etc. (bulk product) 19 Segmentation matrix (2) TYPE OF distribution CHANNEL VARIETIES OF PRODUCTS (QUALITY) Olive Oil Virgin Olive Oil Extra Virgin Olive Oil generic wine Specific 20 corporate trust segmentation matrixes (1+2) TYPE OF DISTRIBUTION CHANNEL VARIETIES OF PRODUCTS (QUALITY) Virgin Olive Oil for final customers (bottled product) Extra Virgin Olive Oil for final customers (bottled prod. ) Generic Specific 21 Segmentation matrix (3)GEOGRAPHIC AREA VARIETIES OF PRODUCTS (QUALITY) Virgin Olive Oil for final customers using a generic distribution channel Extra Virgin Olive Oil for final customers using a specific distribution channel National food market (a) external foodstuff (c) (b) (d) 22 The choice of a segment/s ATTRACTIVENESS deep down the same industry there are segments with different levels of lovelyness. INTERRELATIONSHIPS choose the roughly beneficial combination of segments. SUSTAINABILITY your business scope should lead to a slopped (defensible) position. (1) Structural attractiveness (competitive forces). (2) Size and growth. 3) Position of the company. (4) Advantages in costs or in differentiation. (5) represents of coordination, of commitment and of inflexibility. Against (6) Competitors with broader objectives. (7) Imitation. (8) Substitution. 23 Example olive oil market SEGMENTS / CRITERIA ATTRACTIVENESS INTERRELATIONS SUSTAINABILITY (1) (2) (3) (4) (5) (6) (7) (8) (a) (b) (c) (d) 24 Criticisms of Porters framework crisscross strategies could be employed without stuck in the middle. Cost leadership exclusively does not sell products. Differentiation strategies can be used to improver sales vol umes rather than to charge a premium price.Price can sometimes be used to differentiate. A generic strategy can not give a competitive advantage. Arguably, the resource based strategy has superseded this generic strategy framework. 25 A company moldiness produce at low cost, while also innovating it must deploy the massed resources of a striking corporation, while showing the entrepreneurial flair of a small start-up it must extend to high levels of reliability and consistency, while also being conciliatory (Grant, 2012). 26 OPTIONS FOR GROWTH ANSOFFS APPROACH CURRENT PRODUCTS NEW PRODUCTS ANSOFFS APPROACH CURRENT PRODUCTS NEW PRODUCTS CASE STUDYCURRENT MARKETS foodstuff Penetration Product Development CURRENT MARKETS Expansion of Products NEW MARKETS Market Development diversification NEW MARKETS of Markets Diversification 27 The Growth Matrix Sub-strategies Existing Market Penetration -Intensification. -Relaunching. -Imitation. -Reduction of costs/prices. -Disaggregation. Pro duct Development -New products (R&D, innovation). -New product lines. -New services. MARKETS New Market Development -New territoriesINTERNATIONALIZATION. -New segments of purchasers. -New distribution channels. -New possibilities for utilization. Diversification -Concentric (or related). By conglomerates (or unrelated). Existing PRODUCTS New 28 INTERNATIONALIZATION & GLOBALIZATION 29 INTERNATIONALIZATION & GLOBALIZATION Reading Chinas bud food industry faces scrutiny 30 International dodge Opportunities and Outcomes commit International Opportunities Explore Resources and Capabilities Use Core Competence Strategic fighting Management Outcomes Problems and Risks International Strategies Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Business-Level scheme (*) Multidomestic Strategy Global Strategy Transnational StrategyModes of Entry Exporting Licensing Strategic Alliances Acquisition Establishment of New Subsidi ary high uper Performance Returns instauration (*) Low cost or Differentiation. Standardization vs Adaptation. Multidomestic vs Global. Management Problems and Risks Strength of Market Drivers Aircraft Computers Automobiles Soft Drinks Toothpaste Retail Banking Book Publishing Baked Goods Low Multidomestic risque Global Strength of Cost Drivers Pharmaceuticals Aircraft Computers Automobiles Toothpaste Retail Banking Baked Goods Soft Drinks Low Multidomestic High Global Corporate-Level International StrategiesMulti-Domestic Strategy Strategy and operating decisions are decentralized to strategic business units (SBU) in each country. Products and services are tailored to topical anesthetic markets. Business units in each country are independent of each other. It assumes markets differ by country or regions. counsel on competition in each market. Prominent strategy among European firms due to broad variety of cultures and markets in Europe. Corporate-Level International Strategies Global Strategy Products are standardized across national markets. Decisions regarding business-level strategies are centralized in the home office.Strategic business units (SBU) are assumed to be interdependent. Emphasizes economies of scale. Often lacks reactivity to local markets. Requires resource sharing and coordination across borders (which also makes it difficult to manage). Corporate-Level International Strategies Transnational Strategy Seeks to achieve both global efficiency and local responsiveness. Difficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency and local flexibility and decentralization to achieve local market responsiveness. Must pursue organizational learning to achieve competitive advantage.International Corporate Strategy When is each strategy appropriate? High Global Strategy Need for Global Integration Transnational MultiDomestic Low Low High Need for Local Market Responsiveness Effectiv e Standardization Coca-Cola McDonalds Barbie The All-American girlfriend Goes Overseas Barbie is more than 40 years old. Sold in one hundred thirty countries. National adaptations Physical features. Costumes. Activity sets. Standardized physique Scaled to 62, 110 lbs. 38-18-28. Effective Adaptation McMutton Pie in Australia. Wendys half-pint sandwich in Japan. Campbells noncondensed soups in the UK. Coca-Colas 175 ml containers in Japan.Cadillac Seville 1997 Asian edition Right-hand drive, shorter seats, closer pedals, 10 shorter & retractable mirrors. Limits to International Expansion (beyond political and economic risks) Management Problems Cost of coordination across diverse geographical business units. Institutional and cultural barriers. collar strategic intent of competitors. The overall complexity of competition. DIVERSIFICATION Why? Growth, profitableness and Risk Reduction Dont put all your bombard in one basket 42 DIVERSIFICATION Three prerequisite tests fo r judging diversification (Porter) -The attractiveness test Is the target industry attractive?Use the 5forces model to assess its attractiveness. -The cost-of-entry test Is the cost of the diversification outlay it? go out the diversify firm create enough additional value to justify the cost? -The better-off test Does the diversification move produce opportunities for synergies? Will the company be better off after the diversification than it was forward? How and why? Potential advantages 1. Economies of scope (cost savings from using a resource in multiple activities carried out in combination). 2. Internal market (for capital and staff). Reading Perils of diversification. The era of diversification, 50s-80s. Refocusing, 90s-onwards. 43 DIVERSIFICATION Because of its high risk, many another(prenominal) companies attempting to diversify have led to failure. However, there are some pricey examples of successful diversification -Virgin Group moved from music production to live on and mobile phones. -Walt Disney moved from producing animated movies to theme parks and vacation properties. -Canon diversified from a camera-making company into producing an entirely new range of office equipment. 44 DIVERSIFICATION Reading Toyota tunes up violinplaying robot 45 Diversification & PerformanceThe findings of empirical research How do diversified firms perform relative to specialised firms? -No consistent, systematic relationship has been emerged. -High levels of diversification are associated with deteriorating profitability. -Timing is key. Does related diversification shell unrelated diversification? -Diversification into related industries should be more profitable than diversification into unrelated industries. -Peters and Watermans golden rule Stick to the knitting. Empirical studies have defined relatedness in terms of similarities Operational relatedness.Strategic relatedness. 46 Related Diversification Businesses are distinct but their value custody possess strategic fit in operations, marketing, management, R&D. distribution, labor, etc. Therefore, they tend to exploit economies of scope. Tend to (historically) outperform unrelated diversifications. 47 misrelated Diversification No common linkage or element of strategic fit among SBUs &8212 i. e. , no meaningful value chain interrelationships. Dominant logic spreads businesses risk over multiple industries, stabilizing corporate profitability (in theory).Strategic approach any company that can be acquired on good financial terms & offers good prospects for profitability is a good business for diversification. meets (clusters of businesses under central, mainly financial, management control), such as GE. 48 Example GE Diversification helps to strengthen General Electric when one business is going badly, the other goes well, which contributes to the stability and growth of the company. These words of Ricardo Artigas, feebleness President of the General Electric Company, clearly reflect the sense pot this trategic option, the result of which is a company configured into twelve divisions 1. Aircraft Engines 2. Appliances (domestic electrical appliances) 3. jacket crown Services (financing services for customers) 4. Lighting 5. Medical Systems 6. NBC (television channel) 7. Plastics 8. Power Systems (electrical energy generation) 9. electrical Distribution and Control (power cables, transformers, etc. ) 10. Information Services 11. Motors & industrial Systems 12. Transportation Systems. 49 AN INTEGRATING APPROACH Leadership in costs Differentiation Maintenance Growth Restructuring Internal External ExpansionDiversification of Products of Markets Concentric Conglomerate Vertical Integration Horizontal Integration 50 AN INTEGRATING APPROACH GROWTH STRATEGIES Expansion Internal Diversification Expansion External Diversification of Products of Markets Concentric Conglomerate of Products of Markets Concentric Conglomerate Strategic Advantage be Diff erentiation Readings from the textbook Pascual & Lagasa -internal growth based on diversification- Fontaneda & La Casera -external 51 growth based on the expansion of products and markets-. come out is when things get simpler, not more complicated Bruno Munari, Italian artist. 52