2/18/2012
Porter’s Five competitive forces
MANAGING CHANGE
Prof. Dr. Rumen Gechev
Ch.7. APPLYING STRATEGY
(1)Threat of substitute product.
(2) Threat of potential new entrants.
(3) Competition among existing companies.
(4) Bargaining power of buyers.
(5) Bargaining power of suppliers.
The Resource‐Based model
The Strategic Conflict model
• The focus is of the Resource‐Based model of
competitive advantage is on the relationship
between an organization’s resources and its
performance.
• Japanese model: real competitive advantage
comes from the ability to build, at lower cost and
more speedily than competitors, those core
competences that spawn unanticipated products.
• Advantage can be sustained due to the lack of
substitution and imitation capabilities by the firm’s
competitors.
• Portrays competition as war between rival firms.
• Shapiro (1989) argued that a firm can achieve
increased profits by influencing the actions and
behavior of its rivals and thus, in effect, manipulate the
market environment.
• Game theory : Porter’s work (1980) on benefits of
strategic maneuvering.
• Competitive Forces model: also outward‐facing but is
concerned with identifying and occupying a defensible
market position, and thereby achieving higher profits
than others in the industry.
Level of strategy
Corporate, Business and Functional
Business‐level strategy
CORPORATE LEVEL STRATEGY
(a) Stability strategy – typical case: mortgage lenders.
(b) Growth strategy – one industry (Vodafone) or growing
through diversification (Virgin).
(c) Retrenchment strategy – when organization is in troubles,
or because of adverse market conditions, sees trouble
ahead: downsizing, layoffs, selling assets or the entire
company.
(d) Harvesting strategy (fast or slow) – reducing investment,
lowering costs, improving cash flow.
(e) Combination strategy – the above strategies are NOT
mutually exclusive, and can be linked together in
whatever combination seems appropriate given the
circumstances of the organization in question.
Porter’s three generic strategies
1. Cost leadership – to achieve overall lower cost than
one’s competitors, without reducing comparable
product quality.
2. Product differentiation – special brand images,
technology features, customer service or higher
quality.
3. Specialization by focus – on affluent customers or on
the small‐business customers. CASE: Best Buy Co.
(consumer electronics retailer) – different stores focus
on five different groups – affluent, young, family man,
the busy suburban, the small business customer. This is
the so called “Divide and conquer strategy”
1
2/18/2012
Functional level strategy
Miles and Snow’s classification of strategic types (1978)
• Toyota outperform its US and Japanese rivals
because of the better supply chain strategy.
• Toyota: during the current crisis did NOT change
its corporative strategy but instead changed its
product design strategy to take cost out of its
vehicles.
• The main functional strategies concern:
marketing, finance, R&D, technology, human
resources, manufacturing/operations and supply
chain.
A. Defenders – producing narrow but stable segment of the
overall market (extensive division of labor and
centralization).
B. Prospectors – internal flexibility in order to develop and
exploit new products and markets.
C. Analyzers – seek to capitalize on the best of both the
preceding types. The aim to minimize risk and maximize
profit. The move into new markets ONLY AFTER viability
has been proved by prospectors.
D. Reactors – this is a residual strategy. Such organizations
respond inappropriately, perform poorly, and lack the
confidence to commit themselves fully to a specific
strategy for the future.
Strategic planning tools
Main External and Internal factors of matrices
I. PIMS (Profit Impact on Marketing strategy) –
based on the understanding that there are three major factors for successful performance: strategy, competitive position and market (or industry) characteristics. Main problem –
unreliable historic data, useless for forecasting.
II. Growth‐Share Matrix (Boston Box) – Star (keep investing), Question (invest more or sell), Cow (Milk the cow), Dog (Sell)
III. Scenario‐or‐ Vision‐Building approach ‐
EXTERNAL
(1) Original BCG Matrix – market growth;
(2) Business Strength Matrix – overall industry
attractiveness: critical structure factors and Five
–forces model;
(3) Life‐Cycle Matrix – industry maturity;
(4) Alternative BCG Matrix – ways to compete
(opportunities for differentiation;
(5) Profitability Matrix – market growth potential,
cost of capital;
Main External and Internal factors of matrices
INTERNAL
(1) Original BCG Matrix – relative market share;
(2) Business Strength Matrix – sources of competitive
advantage (critical success factors and value chain);
(3) Life‐Cycle Matrix – overall measurement of business
position;
(4) Alternative BCG Matrix – size (sustainability) of the
competitive advantage;
(5) Profitability Matrix – profiatbility, cash generation;
The Scenario – or – building approach
• Scenarios allow organizations to exercise or
keeping their options open by investing in a range
of products, technologies and markets (Courtney
et al, 1997)
• The rationale is that it allows an organization to
carry out an intensive examination of its own
unique and complex circumstances and needs,
rather than attempting to fit itself to standard
strategic planning tools such as PIMS and the
Growth‐Share Matrix (Linneman and Klein, 1979)
2
2/18/2012
Scenario Approaches
Delphi, Cross Impact and Vision‐building
III. Vision‐building (influenced mainly by the Delphi method – uses panel of experts who are interrogated within their area of expertise. Several rounds may be carried out. Experts have to indentify future issues that they think will affect the business
II. Cross Impact – this is a variation of the Delphi method (but experts are asked about future events and the accrued data are used to create yield curves of the probabilities for each event as function of time.
III. Vision‐building (influenced mainly by the Japanese management practices) – see next
Major elements
1. The conception by a company’s senior
management .
2. The identification of the organization’s
mission, its rationale for existence;
3. A clear statement of desired outcomes and
the desired conditions and competences
needed to achieve these.
I.
Japanese management practices) Vision‐building (influenced mainly by the Japanese management practices) continue…
• Honda’s strategic intent was to be the “second Ford”;
• Komatsu’s was to “Encircle Caterpillar”;
• Canon’s was to “Beat Xerox”
3