Competitive Technology and
Business Strategy
1. Corporate, Competitive, Technology
Strategy
2. Strategy: growth and development;
stability, and decline
Corporate, Business and Technology Strategy Hierarchy
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Corporate Strategy
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Business (Competitive)
Strategy
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Functional Strategy –
Technology Strategy
INTERNAL ENVIRONMENT
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Five Forces Model
•
The level of industry attractiveness depends on
five dimensions:
1. Buyer Power: measures the degree of power that
customers have over companies in the industry
2. Supplier Power: measures the degree of power that
suppliers have over companies in the industry
3. Threat of New Entrants: measures ease of entry into
the industry
4. Threat of Substitutes: measures the likelihood that
new products or services will substitute for those
supplied by the industry
5. Degree of Rivalry: measures the degree of
competition between firms in the industry
Five Forces Model
STRATEGY
•
Action plan by which organisations fulfill
their mission and objectives.
• Strategy Creation is the result of Strategic
Analysis:
1. External analysis (micro i macro firm
environment);
2. Internal analysis (resources, capabilities,
competences)
Competitive strategy (generic)
• 1. Strategy of low costs;
• 2. Strategy of differentiation;
• 3. Strategy responsiveness.
COMBINED STRATEGY
• Takes into account all the feasible and
sustainable options for accomplishing
competitiveness: low costs (prices),
product/service differentiation (quality,
variety) and responsiveness (short times,
quick response to customer needs and
demands, flexibility)
STRATEGY OF LOW COSTS (PRICES)Example: American airline Company Sothwest
Airlines
- Standardized fleet;
- Shorter flights, secondary airports and terminals;
- Limited custormer service: no ticket reservations,
checking and transfer of luggage, automated ticket
issuing, no food on the plane;
- Specialized maintenance;
- Employees have ownership shares in the
Company.
Strategy of differentiation-Example of
Gilette Company
• Creates unique, special and superior value
for the customer;
• Quality, special characteristics, post-sale
services;
• Innovative products – new models of razor
blades adaptable to skin type, emitting
vitamin E, etc.
Strategy of responsiveness- Example of
Global Company Johnson Electric
• Fast, flexible, reliable response to customer
demand;
• Short response time/speed in product
development, manufacturinf and deliverance;
• Global Company Johnson, central offices in Hong
Kong delivers apprx. 13 milliona motors monthly
that are assembled in China.
Strategy Options
1. Strategy of growth and development:
company operations expansion;
2. Strategy of stability: unchanged existing
operations;
3. Strategy of decline: operations
reduction/ revival/revitalization
Possible Growth Strategies
1. Concentration strategy, and
2. Diversification strategy:
a) Related and unrelated;
b) Tangible and intangible;
c) Resource based (i.e.technology) and
business
1. Growth Strategy: Concentration
• Concentration
– When an organization focuses on its primary
line of business and looks for ways to meet its
growth goals by expanding its core business
• There are three concentration options
– Product – market exploitation
– Product development option
– Market development option
Concentration Strategies
• Product-Market exploitation
– Attempt to increase sales of current
products/services in current markets, might
include incentives or advertizing
• Product development option
– Creates new products or new features on
current products, which would be sold in
current markets
• Market development option
– When selling current products in new markets
Concentration Strategy Options
Concentration Strategies advantages
• Growing the core business using different
combinations of products and markets;
• Organization becomes good at what it does
– develops knowledge of the industry and of their
competitors
– functional and competitive strategies can be
tuned to know what customers want and how to
best provide it
– Everyone can concentrate on exploiting
resources, competencies, and capabilities
critical to success
Concentration Strategies –
drawbacks
• The organization is vulnerable to changes in
the industry and the external environment
• Concentration strategy may be effective for
small companies, but larger often start off
by this approach and may continue using it
Global Perspective – example 1
Kuka Robotics is Europe’s largest
manufacturer of automated industrial
machines (robots)
– Initially a supplier for the automotive industry,
the company looked for new markets amidst a
slump in the industry
– The firm found lucrative markets for its
robotics in a number of industries by making
sure it developed robots that did not look like
industrial equipment
Global Perspective – example 2
• Navteq Corporation formerly provided
navigation systems for autos
– Acquired by Nokia because it is a digital
mapmaker and it could be used to expand into
handheld devices
– Revenue growth from handhelds is expected to
double over the next few years
2. Growth Strategy: Diversification
• Enables a company to grow by moving into a
different industry.
• Two types of diversification:
I. Related Diversification
Means diversifying into a different industry, but
related to the company’s current business
II Unrelated diversification
Means diversifying into a completely different
industry, not related to the company’s current
business
Related Diversification
• Related Diversification is an attempt at a
“strategic” fit
– Effort is to transfer resources, distinctive
capabilities, and core competencies to the new
industry
– It is an attempt at synergy that seeks to enhance
performance of both businesses
Related Diversification
• Synergy occurs when shared resources,
capabilities, and competencies enable
greater performance by two entities when
combined
Types of Related Diversification
Unrelated Diversification
• Unrelated diversification is when an
organization seeks growth by moving into
industries in which there is no strategic fit
Unrelated Diversification
• Unrelated diversification can occur when a
company does not believe its core industry
offers growth potential
– This approach is challenging because of the
need to develop an ability to effectively manage
different businesses
– An example is Fortune Brands; which owns
separate business that sell liquor, padlocks,
cabinets, and golf balls
Related vs. Unrelated Diversification
• Research shows that related diversification
is superior to unrelated diversification
because it allows the effective use of current
resources, capabilities, and core
competencies
• However, unrelated diversification can be a
valuable strategy at times, depending on
how effectively the diverse operations are
managed
Growth strategy can be
accomplished by:
• VERTICAL growth: overtaking operations
of suppliers and/or customers (buyers);
• HORIZONTAL growth: difusion of
operations into new fields and areas
(geographical, new industries) and/or the
broadening of product scope.
Vertical Integration
• Strategy that grows by gaining control of its
inputs (backward) or its outputs (forward)
• Backward integration
– The organization becomes its own supplier
– Example: eBay bought an online payment
business
• Forward integration
– The organization becomes its own distributor
– Example: Apple Computer opened retail
outlets
Vertical Integration
• Vertical integration strategy is a growth
strategy because an organization expands its
activities and operations by becoming a
source of supply or distribution
– However, expanding into industries connected
to its primary business means it is still a single
business organization
– It is taking another path to meeting growth
goals by controlling different parts of the value
chain
Horizontal Integration
• This strategy is used to grow the
organization by combining operations with
its competitors
– It keeps the organization in the same industry,
but provides a way to expand market share and
strengthen its competitive position
• In the US, Federal Trade Commission and
Department of Justice regulates such
activities through antitrust laws, assessing
the impact of such combinations to allow
fair competition
Horizontal Integration
• The European Union regulates efforts
toward horizontal integration within
member countries
• As a growth strategy, horizontal integration
can be appropriate if:
– It enables the company to meet growth plans
– It can be strategically managed to attain
competitive advantage
– It satisfies legal and regulatory guidelines
The Global Perspective
• Horizontal integration knows no borders
• Coca-Cola sought to buy one of China’s
biggest beverage makers, Huiyuan Juice
Group Ltd for $2.3 Billion
– It would have given Coke a strong market
presence
– The deal was rejected by the Chinese Ministry
of Commerce, which indicated it would have
hurt competition in the local market
Growth Strategies – Internal vs.
External Sources
1. Based on Internal sources (Example: Ford);
2. Based on External sources – collaboration
with external actors:
- Mergers;
- Long-term contracts;
- Acquisitions;
- Joint venture;
- Strategic alliance;
- Franchising;
- Licencing;
- BOT, Leasing, etc.
Growth Strategy: Internal sources
• Internal development involves creating and
developing new business activities within
– Rather than face risks and challenges of
combining new businesses, a company seeks to
develop crucial capabilities to meet desired
goals
Growth Strategies: MergersAcquisitions
• Mergers-Acquisitions
– Involves the purchase of an organization that
enables a firm to combine operations with that
company it has merged with or acquired
• The popularity of mergers and acquisitions
go in cycles
– The main feature of either effort is to
implement growth strategies
Mergers and Acquisitions
• Merger is a legal transaction in which two
parties combined operations through an
exchange of stock to create a new entity
– Usually they take place between organizations
of similar size and it is considered “friendly”, it
is acceptable to all parties
• Acquisition is an outright purchase of one
company by another
– Can be hostile and involve different sized firms
Example: Thinking Small at IBM
IBM was reorganized into smaller, integrated
global enterprise centers of expertise
focused on industries and technical skills;
Rather than continuing to use massive
divisions, the company create a more
nimble global network that helped improve
performance
This effort also included decentralized
decision making that was more conducive
to creativity, collaboration, and innovation
Example: Acquisition strategy at GE
• General Electric (GE) entered the airport
security market by purchasing firms
– These acquisitions enabled GE to leverage its
brand, size, and credibility with the acquired
firms technology
– Why do you think GE chose acquisitions as its
way to grow?
Mergers-Acquisitions or
Internal Development
Strategic Alliances and Partnering
• This is a grow effort that seeks to minimize
the challenges and risks of buying a
business or developing its own
• This is a formal legal arrangement
• The effort seeks to combined resources,
capabilities, and core competencies for a
specific business purpose
Strategic Partnering – examples
• Examples:
– Partnering with suppliers, distributors, or
competitors
• Three main types of strategic partnering
– Joint ventures
– Long term contracts
– Strategic alliances
Joint Venture (JV)
• Two or more organizations form separate
and equal independent organization for
strategic purposes
• It minimizes the financial and political/legal
constraints that accompany M&A or
internal development
• Example: Clorox and Proctor & Gamble
entered a JV to develop garbage bags and
plastic wrap
Long term Contract
• Covers a specific business purpose
• Viewed as variation of vertical integration
between company and supplier
• Both partners understand the importance of
long term benefits to meet cost or quality
expectations
• Creates assured outlet for products
Strategic Alliance
• Two or more organizations share different
resources, capabilities, or competencies to pursue
some business purpose; requires trust
• Different than joint venture because there is no
separate legal entity formed
• The effort seeks to encourage product innovation,
bring stability to cyclical businesses, expand
product lines, or cement relationships with
suppliers, distributors, or competitors
Why Alliances Make Sense
– Flexibility and informality of arrangements
promote efficiencies
– Provide access to new markets or technologies
– Less complexity when creating/disbanding
– Risks and expenses are shared
– Brand identification is kept and exploited
– Synergies created
– Avoids issues related to antitrust
Not all alliances work out
- Amazon.com and Toys R Us created an alliance in
2000 that combined the resources of a “bricks and
mortar” business with an internet company
– It failed, each party claiming to be deceived by
the other
– Amazon violated its promise to be only sell
those toys, games, and baby products on its site
– Toys R Us failed to provide certain items
Organizational Stability Strategy
• It may seem odd for an organization to want
to remain where it is
– However, it may make sense when resources,
capabilities, or competencies are stretched to
limits and growth might risk the organization’s
competitiveness
Stability Strategy – Example of Dell
Company
• Is effective only in the SHORT RUN;
• Only as temporary solution or “timeout”;
• Dell had introduced in 1993. stability
strategy after intensive growth. It was
understood as a short temporary pause
needed for consolidation after the 285%
growth in the previous two years
When is Stability an Appropriate
Strategic Choice?
• In period of rapid upheaval with several
industry and general external forces
drastically changing
– This demands investment in current businesses
or functions
• When there is slow or no growth
opportunities
– Allows the firm to analyze their strategic
options – diversification, vertical or horizontal
integration
When is Stability an Appropriate
Strategic Choice?
• If the organization has grown rapidly and
now needs “down time”
– Effort is to better manage the expanded
activities and operations
• Large firms in a mature industry or a small
firm with satisfactory results might be risk
averse
– If successful, do not pursue growth
Decline and Renewal Strategy
Decline is represented by strategies:
1. Dependence;
2. Sale/divestment;
3. Bankrupcy/liquidation.
Renewal, Revitalization – feasible when
problems are identified and have not yet
become critical.
Decline/Renewal trategy
When managers have not been effective and
unable to develop or exploit a competitive
advantage the organization will need for
something to be done in order to survive
Renewal strategies are used to put the
organization back on the path to
successfully achieving its strategic goals
Possible Causes of Corporate
Decline
What Leads to
Performance Declines?
• While managers do not make deliberately
bad decisions causing a decline in
performance, they do create conditions that
prevent effective performance
– The primary cause of corporate decline is poor
management, to which all other causes can be
traced
– Performance will suffer if manages are inept,
incompetent, or incapable
What Leads to
Performance Declines?
• Poor management judgment is evident
when:
– Decisions to expand too rapidly or over-expand
– Inadequate financial controls or high costs
– Managers unaware of trends or changes in the
external environment
– Performance is declining
Signs of Declining Performance
Renewal Strategies
• Two main renewal strategies
– Retrenchment
– Turnaround
• Retrenchment
– Short run strategy designed to address weaknesses
that are leading to performance declines
– Not necessary to have negative financial returns,
usually occurs if unable to meet strategic goals
Renewal Strategies – retrenchment
• Retrenchment
– Is a military term refers to going back to the
“trenches” to stabilize, revitalize, and prepare
for entering battle again
– The point is to address issues before they lead
to severe problems
Renewal Strategies – Turnaround
• Turnaround
– Is designed for situations in which the
organization’s performance are more serious
– Often when the organization is facing severe
external and internal pressures and must make
strategic changes in order to remain viable
– There is no guarantee the turnaround will
accomplish the desired results, but without it
the organization will not survive
Implementing Renewal Strategies
• Cost cutting
– Reducing costs to bring performance results
back in line with expectations
– It can be across the board or selective
– The effort should avoid cutting costs in those
areas critical to retain or exploit
competitiveness
– Redundancies, inefficiencies, or waste in
activities should be eliminated
– Restructuring/downsizing are severe
approaches
Restructuring
• This includes refocusing on the primary
businesses and involve
–
–
–
–
Selling or divestment
Spin off
Liquidation
Downsizing
• Divestment might occur when the business
is desired by another company and is no
longer a strategic fit
Restructuring
• Spin off
– Involves removing a business unit and setting it
up as a separate, independent business by
distributing its shares of stock
• Liquidation
• When no buyer exists or there is no possible
spin off, a business unit will be discontinued
– This is a strategic action of last resort
Restructuring – downsizing
• Downsizing
– Is a quick way to cut costs by elimination jobs
– It can be effective when done strategically
– Table 7.3 lists some recommendations
Making Downsizing Effective
Bankruptcy & Liquidation
• Bankruptcy
- Involves restructuring- reorganizes debt and
protects the business from creditors until it
can emerge from bankruptcy
• Liquidation
– All assets are sold to pay off existing debts
– The company ceases to exist
Restructuring – summary
• Regarding renewal strategies
– Typically, they are not used one at a time;
rather, they are often combined
– The coordinated effort by strategic managers
may involve selected use of any of these efforts
– The key is that the organization’s
competitiveness is improved or strengthened
Evaluating Corporate Strategies
• This is an important part of the entire
strategic management process
• There are four main evaluation techniques
–
–
–
–
Corporate goals
Efficiency, effectiveness, productivity
Benchmarking
Portfolio analysis
Corporate Goals
• Indicate desired end results or targets that
are broader, more comprehensive, and
longer term than those of functional areas or
of business units
– However, attaining functional goals and
competitive goals are how an organization
achieves its corporate goals
– Thus, they are the standard against which
performance is measured
Types of Corporate Goals
Efficiency, Effectiveness, and
Productivity Measures
• Efficiency is an organization’s ability to
minimize resource use in goal attainment
• Effectiveness is an organization’s ability to
reach its goals
• Productivity is a specific measure of how
many inputs it takes to produce outputs
• These three measures assess how well an
organization works and achieve desired
ends
Example: Changing the Menu
Kraft is the world’s second largest food
company behind Nestle. Beginning in 1903,
the company has looked for ways to grow
its business.
– Over time, the company has developed new
products (Miracle Whip, Velveeta, Parkay)
– It has diversified by merging with Dart
Industries
– It was bought by Philip Morris and merged with
General Foods, creating the largest food maker
Benchmarking
• Is the search for the best practices inside or
outside an organization
– The benchmarking process can be used to
implement strategy
– Specific benchmarks or best practices can be a
standard against which to measure performance
– Using benchmarks, strategic managers can
evaluate whether an organization is being
managed well or if improvements are needed
Changing Corporate Strategies
• Strategic managers must decide whether to
act and, if so, what actions to take
– Changes to functional and competitive
strategies might be necessary, modifications or
even drastic action might be needed to achieve
desired results
– The key is to understand the opportunities and
threats, strengths and weaknesses facing the
organization and the need to design appropriate
strategies to exploit resources, capabilities, and
core competencies
Summarizing what corporate
strategy is
• Corporate strategy is concerned with
choices of what business to be in and what
to do with those businesses
– Single business organization is in one industry
– Multiple business organization in more than
one industry
– It establishes the overall direction, while
functional strategies provide the means to get
there
Summarizing what corporate strategy is
– cont’d
• Each type of strategy is important to what
the organization does and whether it
achieves its goals
• The three corporate strategic directions
include:
– Moving it forward (growth)
– Keeping it where it is (stability)
– Reversing the decline (renewal)
Discuss organizational growth strategies
• A growth strategy uses current businesses or
new business to:
–
–
–
–
Expand the products offered
Increase the markets served
Expand its activities or operations
Employs one of five possible approaches
Discuss organizational growth strategies
– cont’d
• Concentration
– Focuses on growth in primary line of business
– Product-market exploitation that involves
selling more products to current markets
– Product development is selling new products to
current markets
– Market development is selling current products
to new markets
– The drawback is vulnerability to external
changes
Discuss organizational growth strategies
– cont’d
• Vertical integration
– Grow by gaining control of inputs (backward),
outputs (forward), or both
• Horizontal integration
– Combining operations with competitors
• Diversification
– Growth by moving into a different industry
– Related to current business or unrelated
Discuss organizational growth strategies
– cont’d
• International
– Takes advantage of new global markets or
protects core operations from global
competitors
• Growth can be implemented in three ways:
– Merger/Acquisition
– Internal development
– Strategic partnering (joint venture, long term
contract, strategic alliance)
Describe the organizational stability
strategy
• Stability strategy maintains current size and
activities, it is short term
• Includes times when industry is in period of
rapid change, slow or no growth, rapid
growth
• When organization is large and in maturity
stage of industry life cycle or small and
satisfied with position
Describe organizational renewal
strategies
• Renewal strategy used when organization
needs to reverse the decline to put the
organization back on appropriate path to
achieving its goals
• Main cause of decline is management
decisions
• Two main renewal strategies
– Retrenchment
– Turnaround
Describe organizational renewal
strategies – cont’d
• Renewal strategies are implemented by:
– Cutting costs
– Restructuring
• Restructuring includes:
–
–
–
–
–
Divestment = selling a business
Spin off = setting up separate business
Liquidation = shutting down
Downsizing = reducing jobs
Bankruptcy = reorganizing or closing
Discuss how corporate strategy is evaluated
and changed
• There are four techniques for evaluation
– Corporate goals
– Measuring efficiency (use of resources),
effectiveness (ability to reach goals),
productivity (how many inputs used to create
outputs)
– Benchmarking (best practices)
– Portfolio analysis (BCG, McKinsey-GE
spotlight, product/market matrices)