Seminar Objectives for Tonight
 Unit 5 feedback and questions
 Review Unit 6 assignments/discussion questions
 Unit 6: Business Strategy and Multi-business Strategy
the Global Environment
Unit 5 Feedback
Unit 6- To Do List
 Read
 Chapter 8, Business Strategy
 Chapter 9, Multi-business strategy
 Case 7, Section B, Comprehensive Cases ,The Apollo Group, Inc. (University of
Phoenix)
 Complete and upload your Case Analysis Assignment
 Respond to the Discussion Questions
 Visit the websites of two luxury car makers: Lexus and BMW.
These two companies compete in the same strategic group. Browse the sites and look
for each company's business-level strategy.
In what ways are the luxury car companies' strategies similar? In what ways are they
different? Which company would you say has the competitive advantage? Why?
Chapter 8
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Strategic Management Model
Evaluating and Choosing Business Strategies: Seeking
Sustained Competitive Advantage


The two most prominent sources of
competitive advantage can be found in the
business’s cost structure and its ability to
differentiate the business from competitors
Businesses that have one or more
sources/capabilities that let them
operate at a lower cost will
consistently outperform their
rivals that don’t
8-7
Evaluating Cost Leadership Opportunities

Business success built on cost leadership requires
the business to be able to provide its product or
service at a cost below what its competitors can
achieve

What companies can you think of that use cost
leadership as a key strategy
8-8
Ex. 8.2 Evaluating a Business’s Cost Leadership Opportunities
8-9
Sustainable Low-Cost Activities
1.
2.
3.
4.
5.
Some low-cost advantages reduce the likelihood of
buyers’ pricing pressure
Truly sustained low-cost advantages may push
rivals into other areas
New entrants competing on price must face an
entrenched cost leader
Low-cost advantages should lessen the
attractiveness of substitute products
Higher margins allow low-cost producers to
withstand supplier cost increases
8-10
Risks of a Cost Leadership Strategy
1.
2.
3.
4.
Many cost-saving activities are easily duplicated
Exclusive cost leadership can be a trap
Obsessive cost cutting can shrink other
competitive advantages
Cost differences often decline over time
8-11
Evaluating Differentiation



Differentiation requires that the
business have sustainable advantages
that allow it to provide buyers with
something uniquely valuable to them
Differentiation usually arises from
one or more activities in the value
chain that create a unique value
important to buyers
Strategists use benchmarking and
consider the 5 forces in considering
differentiation
8-12
Ex. 8.3 Evaluating a Business’s Differentiation Opportunities
8-13
Evaluating Speed as a Competitive Advantage
 Speed-based strategies, or rapid
response to customer requests or
market and technological changes,
have become a major source of
competitive advantage for
numerous firms in today’s intensely
competitive global economy
8-14
Ex. 8.5 Evaluating a Business’s Rapid Response (Speed)
Opportunities
8-15
Key considerations- Differentiation
 Rivalry reduced with successful
differentiation
 Decreased price sensitivity
 Increased brand loyalty
Speed (Rapid Response) can be
created by:





Customer responsiveness
Product development cycles
Product or service improvements
Speed in delivery or distribution
Information Sharing and Technology
8-17
Risks of Speed-based Strategy



Speeding up activities that haven’t been
conducted in a fashion that prioritizes rapid
response should only be done after
considerable attention to training,
reorganization, and/or reengineering
Some industries may not offer much advantage
to the firm that introduces some forms of rapid
response
Customers in such settings may prefer the
slower pace or the lower costs currently
available, or they may have long time frames in
purchasing
8-18
Evaluating a Business’s Rapid Response
(Speed) Opportunities
Evaluating Market Focus as a Way to Competitive Advantage



Market focus: the extent to which a
business concentrates on a narrowly
defined market
Small companies, at least the better ones,
usually thrive because they serve narrow
market niches
Market focus allows some businesses to
compete on the basis of low cost,
differentiation, and rapid response
against much larger businesses with
greater resources
8-20
Risks of Market Focus



The risk of focus is that you attract major
competitors who have waited for your business to
“prove” the market
Publicly traded companies built around focus
strategies become takeover targets for large firms
seeking to fill out a product portfolio
Slipping into the illusion that it is focus itself, and
not low cost, etc. that is creating the business’s
success.
8-21
Stages of Industry Evolution and Business Strategy Choices


The requirements for success in industry
segments change over time
Strategists can use these changing requirements,
which are associated with different stages of
industry evolution, as a way to isolate key
competitive advantages and shape strategic
choices around them
8-22
Stages
 Introduction/Emerging
 Growth
 Maturity
 Decline
Emerging Industries
 Emerging industries are newly
formed or re-formed industries
that typically are created by
technological innovation, newly
emerging customer needs, or other
economic or sociological changes
 There are no “rules of the game”
8-24
Business Strategies in Emerging Industries







Technologies that are most proprietary to the pioneering
firms and technological uncertainty will unfold
Competitor uncertainty because of inadequate
information about competitors, buyers, and the timing of
demand
High initial costs but steep cost declines
Few entry barriers
First-time buyers requiring initial inducement to purchase
Inability to obtain raw materials and components until
suppliers gear up to meet the industry’s needs
Need for high-risk capital because of the industry’s
uncertain prospects
8-25
Emerging Industries






For success in this industry setting, business
strategies require one or more of these features:
The ability to shape the industry’s structure
The ability to rapidly improve product quality and
performance features
Advantageous relationships with key suppliers and
promising distribution channels
The ability to establish the firm’s technology as the
dominant one
The early acquisition of a core group of loyal
customers and then the expansion of that customer
base
The ability to forecast future competitors
8-26
Competitive Advantages and Strategic Choices in Growing Industries


Rapid growth brings new competitors into the
industry
At this stage, growth industry strategies that
emphasize brand recognition, product
differentiation, and the financial resources to support
both heavy marketing expenses and the effect of
price competition on cash flow can be key strengths
8-27
Growth Industries

For success in this industry setting, business strategies
require one or more of the following features:

The ability to establish strong brand recognition

The ability and resources to scale up to meet increasing
demand

Strong product design skills to be able to adapt products
and services

The ability to differentiate the firm’s product[s] from
competitors entering the market

R&D resources and skills to create product variations

The ability to build repeat buying from established
customers

Strong capabilities in sales and marketing
8-28
Competitive Advantages and Strategic Choices in
Mature Industries



As an industry evolves, its rate of growth eventually
declines
Firms working with the mature industry
strategies sell increasingly to experienced, repeat
buyers who are now making choices among known
alternatives
Competition becomes more oriented to cost and
service as knowledgeable buyers
expect similar price and features
8-29
Mature Industries
Strategy elements of successful firms in maturing
industries often include the following:






Product line pricing
Emphasis on process innovation that permits low-cost product
design, manufacturing methods, and distribution
synergy
Emphasis on cost reduction
Careful buyer selection to focus on buyers who are less
aggressive, more closely tied to the firm, and able to buy more
from the firm
Horizontal integration to acquire rival firms whose
weaknesses can be used to gain a bargain price
International expansion to markets where attractive growth
and limited competition still exist
8-30
Competitive Advantages and Strategic Choices in Declining Industries





Declining industries are those that make
products or services for which demand is
growing slower than demand in the economy
as a whole or is actually declining
Focus on higher growth or a higher return
Emphasize product innovation and quality
improvement
Emphasize production and distribution
efficiency
Gradually harvest the business
8-31
Competitive Advantage in Fragmented Industries






A fragmented industry is one in which no firm
has a significant market share and can strongly
influence industry outcomes
Tightly managed decentralization
“Formula” facilities
Increased value added
Specialization
Bare bones/no frills
8-32
Competitive Advantage in Global Industries

A global industry is one that comprises firms
whose competitive positions in major geographic
or national markets are fundamentally affected by
their overall global competitive positions



License foreign firms to produce and distribute the
firm’s products
Maintain a domestic production base and export
products to foreign countries
Establish foreign-based plants and distribution to
compete directly in the markets of one or more
foreign countries
8-33
Four Generic Global
Competitive Strategies
 Broad-line global competition
 Global focus strategy
 National focus strategy
 Protected niche strategy
8-34
Ex. 8.10
Grand Strategy Selection Matrix
8-35
Ex. 8.11
Model of Grand Strategy Clusters
8-36
Building Value as a Basis for Choosing Diversification
or Integration

The grand strategy selection matrix and
model of grand strategy clusters are useful
tools to help dominant product company
managers evaluate and narrow their choices
among alternative grand strategies

Dominant product company managers
who choose diversification or integration
eventually create another management
challenge
8-37
Chapter 9
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
The Portfolio Approach


The portfolio approach is a historical starting
point for strategic analysis and choice in
multibusiness firms
Boston Consulting Group (BCG) pioneered an
approach called portfolio techniques that
attempted to help managers
“balance” the flow of cash
resources among their various
businesses while identifying their
basic strategic purpose within the overall
portfolio
9-39
Ex. 9.2
The BCG Growth-Share Matrix
9-40
Ex. 9.4 The Industry Attractiveness-Business Strength
Matrix
9-41
Ex. 9.5
BCG’s Strategic Environments Matrix
9-42
BCG’s Strategic Environments Matrix




Volume businesses are those that have
few sources of advantage, but the size is
large—typically the result of scale
economies
Stalemate businesses have few
sources of advantage, with most of
those small
Fragmented businesses have many
sources of advantage, but they are all
small
Specialization businesses have many
sources of advantage and find those
advantages potentially sizable
9-43
Limitations of Portfolio Approach






It does not address how value is being created across
business units
Truly accurate measurement for matrix classification
was not as easy as the matrices portrayed
The underlying assumption about the relationship
between market share and profitability varied across
industries and market segments
The limited strategic options came to be seen more as
basic strategic missions
It ignored capital raised in capital markets
It typically failed to compare the competitive
advantage a business received from being owned by a
particular company with the costs of owning it
9-44
The Synergy Approach: Leveraging Core
Competencies



Opportunities to build value via diversification,
integration, or joint venture strategies are usually
found in market-related, operations-related, and
management activities
Strategic analysis is concerned with whether or not
the potential competitive advantages expected to
arise from each value opportunity have materialized
The most compelling reason companies should
diversify can be found in situations where core
competencies—key value-building skills—can be
leveraged with other products or into markets that are
not a part of where they were created
9-45
The Synergy Approach



Each core competency should provide a relevant
competitive advantage to the intended businesses
Businesses in the portfolio should be related in
ways that make the company’s core competencies
beneficial
Any combination of competencies must be
unique or difficult to recreate
9-46
The Corporate Parent Role:
Can It Add Tangible Value?
Realizing synergies from shared capabilities and
core competencies is a key way value is added in
multibusiness companies.
1. Research suggests that figuring out if the
synergies are real and, if so, how to capture
those synergies is most effectively
accomplished by business unit managers, not
the corporate parent.
2. How can the corporate parent add value to
its businesses in a multibusiness company?
9-47
The Parenting Framework



The parenting framework perspective sees
multibusiness companies as creating value by
influencing—or parenting—their businesses
The best parent companies create more value
than any of their rivals do or would if they
owned the same businesses
To add value, a parent must improve its
businesses
9-48
10 Sources of Parenting Opportunities





Size & Age
Management
Business Definition
Predictable Errors
Linkages





Common
capabilities
Specialized
expertise
External relations
Major decisions
Major changes
9-49
The Patching Approach




Patching is the process by which corporate
executives routinely remap businesses to
match rapidly changing market opportunities
It can take the form of adding, splitting,
transferring, exiting, or combining chunks of
businesses
Patching is not seen as critical in stable,
unchanging markets
When markets are turbulent and rapidly
changing, patching is seen as critical to the
creation of economic value in a multibusiness
company
9-50
Proponents of Patching




View traditional corporate strategy as creating defensible
strategic positions for business units by acquiring or
building valuable assets, wisely allocating resources to
them, and weaving synergies among them
In volatile markets, they argue, this traditional approach
results in business units with strategies that are quickly
outdated and competitive advantages rarely sustained
beyond a few years
As a result, strategic analysis should center on strategic
processes more than strategic positioning
In these volatile markets, patchers strategic analysis
focuses on making quick, small, frequent changes in parts
of businesses and organizational processes
9-51
Ex. 9.9
Three Approaches to Strategy
9-52