McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 6
Defining the Organization's
Strategic Direction
6-2
Genzyme’s Focus on
“Orphan Drugs”
• Genzyme was founded in 1981 by scientists studying
genetically inherited enzyme diseases
• Adopted a very unusual strategy of developing drugs for rare
diseases rather than “blockbuster” drugs.
• Smaller markets, but fewer competitors
• Requires less advertising, smaller sales force
• In 1983, the FDA established the “Orphan Drug Act,” giving
seven years market exclusivity to developers of drugs for rare
(<200,000 patients) diseases.
• Also chose unusual strategy of doing its own manufacturing
and sales rather than licensing to a pharmaceutical company.
• Diversified into side businesses to fund its R&D.
• By 2012, the company (now a fully-owned subsidiary of
Sanofi) was one of the world’s leading biotech companies with
25 products sold in 90 countries.
6-3
Genzyme’s Focus on
“Orphan Drugs”
Discussion Questions:
1. How does Genzyme’s focus on orphan drugs affect the
degree of competition it faces? How does it affect the
bargaining power of customers?
2. How does focusing on orphan drugs affect the types of
resources and capabilities a biotech firm needs to be
successful?
3. Does Genzyme’s focus on orphan drugs make sense?
Do you think Genzyme has a long-term strategic intent?
4. Why do you think Genzyme has diversified into other
areas of medicine? What are the advantages and
disadvantages of this?
5. What recommendations would you offer Genzyme for
the future?
6-4
Overview
• A coherent technological innovation
strategy leverages the firm’s existing
competitive position and provides
direction for future development of the
firm.
• Formulating this strategy requires:
• Appraising the firm’s environment,
• Appraising the firm’s strengths, weaknesses,
competitive advantages, and core
competencies,
• Articulating an ambitious strategic intent.
6-5
Assessing the Firm’s Current
Position
• External Analysis
•
•
Two common methods are Porter’s Five-Force
Model and Stakeholder Analysis.
Porter’s Five-Force Model
1. Degree of existing rivalry. Determined by number of
firms, relative size, degree of differentiation between
firms, demand conditions, exit barriers.
2. Threat of potential entrants. Determined by
attractiveness of industry, height of entry barriers (e.g.,
start-up costs, brand loyalty, regulation, etc.)
3. Bargaining power of suppliers. Determined by
number of suppliers and their degree of differentiation,
the portion of a firm’s inputs obtained from a particular
supplier, the portion of a supplier’s sales sold to a
particular firm, switching costs, and potential for
vertical integration.
6-6
Assessing the Firm’s Current
Position
4.
5.
Bargaining power of buyers. Determined by number of
buyers, the firm’s degree of differentiation, the portion of
a firm’s inputs sold to a particular buyer, the portion of a
buyer’s purchases bought from a particular firm,
switching costs, and potential for vertical integration.
Threat of substitutes. Determined by number of
potential substitutes, their closeness in function and
relative price.
Recently Porter has acknowledged the role of complements.
Must consider:
a) how important complements are in the industry,
b) whether complements are differentially available
for the products of various rivals (impacting the
attractiveness of their goods), and
c) who captures the value offered by the
complements.
6-7
Assessing the Firm’s Current
Position
• Five-Force Model
6-8
Assessing the Firm’s Current
Position
Stakeholder Analysis
1. Who are the stakeholders.
2. What does each stakeholder want.
3. What resources do they contribute to
the organization.
4. What claims are they likely to make
on the organization.
6-9
Assessing the Firm’s Current
Position
• Internal Analysis
1. Identify the firm’s strengths and
weaknesses. Helpful to consider each
element of value chain.
6-10
Assessing the Firm’s Current
Position
2. Assess which strengths have potential to be
sustainable competitive advantage
•
•
•
•
Rare
Valuable
Durable
Inimitable
Competitive
Advantage
Sustainable
Competitive
Advantage
• Resources are difficult (or impossible) to
imitate when they are:
•
•
•
•
6-11
Tacit
Path dependent
Socially complex
Causally ambiguous
Identifying Core
Competencies and Capabilities
• Core Competencies: A set of integrated
and harmonized abilities that distinguish
the firm in the marketplace.
• Competencies typically combine multiple kinds of
abilities.
• Several core competencies may underlie a business
unit.
• Several business units may draw from same
competency.
• Core competencies should:
• Be a significant source of competitive differentiation
• Cover a range of businesses
• Be hard for competitors to imitate
6-12
Identifying Core
Competencies and Capabilities
6-13
Research Brief
Identifying the Firm’s Core Competencies
• Gallon, Stillman and Coates offer a step-by-step
program for identifying core competencies.
• Module 1 -- Assemble a steering committee, appoint a
program manager, and communicate the overall goals of the
project to all members of the firm.
• Module 2 -- Constructing an inventory of capabilities
categorized by type. Assess their strength, importance, and
criticality.
• Module 3 – Organize capabilities by both their criticality and
the current level of expertise within the firm for each.
• Module 4 – Distill competencies into possible candidates for
the firm to focus on. No options should be thrown out yet.
• Module 5 -- Testing the candidate core competencies against
Prahalad and Hamel's original criteria.
• Module 6 -- Evaluate the firm’s position in the core
competency.
6-14
Risk of Core Rigidities
• When firms excel at an activity, they can
become over committed to it and rigid.
• Incentives and culture may reward current
competencies while thwarting development
of new competencies.
• Dynamic capabilities are competencies that
enable the firm to quickly respond to change.
• E.g., firm may develop a set of abilities that enable
it to rapidly deploy new product development
teams for a new opportunity; firm may develop
competency in working with alliance partners to
gain needed resources quickly.
6-15
Strategic Intent
• Strategic Intent
• A long-term goal that is ambitious, builds upon and
stretches firm’s core competencies, and draws from all
levels of the organization.
• Typically looks 10-20 years ahead, establishes clear milestones
• Firm should identify resources and capabilities needed to close
gap between strategic intent and current position.
6-16
Theory In Action
The Balanced Scorecard
Kaplan and Norton argue
that effective performance
measurement should
incorporate:
• Financial perspective
• Customer perspective
• Internal perspective
• Innovation and learning
6-17
Discussion Questions
1.
2.
3.
4.
5.
6.
6-18
What is the difference between a strength, a competitive
advantage, and a sustainable competitive advantage?
What makes an ability (or set of abilities) a core competency?
Why is it necessary to perform an external and internal
analysis before the firm can identify its true core
competencies?
Pick a company you are familiar with. Can you identify some
of its core competencies?
How is the idea of “strategic intent” different from models of
strategy that emphasize achieving a fit between the firm’s
strategies and its current strengths, weaknesses, opportunities
and threats (SWOT)?
Can a strategic intent be too ambitious?