Value Chain Analysis
Raw Materials (cotton, wool, silk)
Yarns (petrochemicals, natural fibers)
Fabrics (weaving, knitting, finishing)
20%
Garments (Design, cutting, sewing, packaging)
100%
Retail (branding, marketing, servicing)
30-100%
The Core Competency
The Core Competency
Is the core competency dead?!?!
Companies are abandoning the logic of the core competency.
The world is changing and business is always at the forefront of
change.
Focus is on ecosystem and customer engagement.
A race for your attention and mind.
Is the core competency dead?!?!
Companies are abandoning the logic of the core competency.
The world is changing and business is always at the forefront of
change.
Focus is on ecosystem and customer engagement.
A race for your attention and mind.
Service and brand extensions are essential for engagement.
Is the core competency dead?!?!
Nike
“You can't have a barrier or restriction to that core competency. If
we constrain ourselves by a circle of competency, we'll do
ourselves a disservice. You need a willingness to punch through it.”
Lead Engineer at Nike
Nike+ products introduction to digital
•
Originally partnered with Phillips for MP3 player in 2003
•
“Why the f’n-f are you now in the MP3 business? Why are you doing
this? It's not your core business!” Steve Jobs to Mark Parker
•
Created more partnerships with developers.
•
Fuel band is successful and a natural brand and service extension
Is the core competency dead?!?!
Netflix and …. Create
•
Core competency was content delivery
•
Spent $100M on House of Cards (probably knew that had something)
•
CEO denies stepping out of core competency
“There's no creative risk for Netflix, this is a business risk.. A slight
risk”
VP of Corporate Communications
Apple
Design is core competency
•
Came to dominated music industry
•
Phone Industry
•
Car Industry? ! Display Industry? !
Is the core competency dead?!?!
Strategy
“Competitive strategy is the about being different. It means
deliberately choosing a different set of activities to deliver a unique of
value”
Michael Porter
“The determination of long-run goals and objectives of an enterprise
and the adoption of courses of action and the allocation of the
resource necessary for carrying out these goals.”
Alfred Chandler
“a patter in a stream of decisions”
Henry Mintzberg
“if you don’t have a strategy you will be part of somebody else’s
strategy”
- Alvin Toffler
Strategy
What is competitive advantage?
Firms gain advantage on 2 levels
Cost Leader – provides the lowest/lower cost options
Differentiated – provides a better product a premium price
Do we want to compete with everyone?
Strategy
What is competitive advantage?
Firms gain advantage on 2 levels
Cost Leader – provides the lowest/lower cost options
Differentiated – provides a better product a premium price
Do we want to compete with everyone?
Probably not
Strategy
Target Scope
Cost
Differentiation
Broad (Industry Wide)
Cost Leadership
Differentiation
Narrow (Market Wide)
Focus Strategy
(Low Cost)
Focus Strategy
(Differentiation)
It is difficult to start with an industry wide scope, you may get eaten
alive if you are successful or purchased.
What can you do?
•
Get funding
•
Seek an acquisition
Strategy
Cost Leadership Strategy
•
•
•
•
•
Aiming to become lower cost producer
Compete on price with every other industries and
earn higher profits
Targets a broad market
Competitive advantage is focused on driving
costs down
Success means unchallenged position as lowest
cost provider – very beneficial when customers
are price sensitive.
Cost Leadership
Success Factors
•
•
•
•
Heavy Capital Investment
Design skills for efficient manufacturing or operational
design.
High levels of expertise and talent
Efficient distribution channels – cannot waste money on
building channels.
Risks
•
•
•
•
Other firms will lower costs in parallel
Price wars
Technological disruption
Sustaining leadership – other firms may focus on a
valuable segment and attack your strategy.
Strategy
Differentiation Strategy
•
Development of a product or service that officers unique value.
•
Perceived as better and different than rivals
•
Value added allows premium pricing and better margins
•
Could be based on
•
Marketing
•
Durability
•
After sales service and warranty
•
Overall quality
•
Additional Features
Differentiation
Success Factors
•
•
•
•
Leading on research and design
Highly skilled and talented team
Strong selling and marketing with ability to communicated
perceived value
Brand image and reputation
Risks
•
•
•
•
•
Higher costs and less market
Customer may no longer need your product
Imitation by competitors and change in taste
Can become uncool
Rivals attack your most valuable segments with greater
differentiation.
Business Models
Variable Costs
Increase with each additional unit of consumption
Fixed Cost
Cost is consistent and you’re a obligated to pay it no matter what.
Step-Fixed Costs
Increases with next capacity unit
Step-Variable Costs
Increases with utilization units
Determine our operating costs
Determine our upfront investment
Determine our profit margin transaction
Determine our Break Even Point
How to long to make upfront costs back
Business Models
Determine our upfront investment
Determine our operating costs
Determine our profit margin transaction
Determine our Break Even Point (operating costs/profit margin per
transaction)
Operating cash flow = (profit margin per unit x units) – operating
costs
How to long to make upfront costs back (upfront costs/operating
cash flow)
Strategy
Focus Strategy
•
Focus on a narrow segment and within attempts to create either
a cost or differentiation advantage
•
Segments are better served with laser focus
•
Promotes high levels of loyalty and pride
•
Less bargaining power and scale but may be able to pass on
higher costs
Focus
Success Factors
•
•
•
Lower investment
Benefit from specialization – easier to know
everything about a segment than an entire market or
industry
Be succesful in one segment then replicate in
another market
Risks
•
•
•
•
Smaller market, limited opportunities for growth
Eggs in one basket – decline of your segment
Pigeon holed
Risk of copycat imitation
Strategy
Forming Strategy
1.
What is our current situation?
2.
Where do we want to go from here?
3.
How are we going to get there?
What is the goal
1.
How to outcompete rivals
2.
How to manage the functions and talent in the business
3.
How to improve financial and market performance
4.
How to respond to economic and market conditions
Competitive Advantage
•
Google
•
Apple
•
Netflix
•
Amazon
Business Models
Matchmaker Model (C2C)
Traditionally consignment stores and real estate brokers
EBay and Expedia
Collaborative consumption – sharing of under utilized resources
Profit from buyers and sellers
Deposit Model (B2B or B2C)
Ask for payments upfront
Upfront fee to use service
Subscription (B2B or B2C)
Re-occuring subscription for anything and everything
The new magazines and tv channels
Business Models
Standardize and Re-sell (B2B)
Get upfront payments from business to develop a custom solution
Develop solution and then customize slightly and re-sell with large
scale
Scarcity (B2C)
Limited production requires less capital
Create false sense of value – but this is real value, because why?
Use margins to fund capital investment
Business Models