Chapter 2: Business Strategy and Global Competivevess 1
Chapter 2 Business Strategy and Global Competitiveness Chapter 2: Business Strategy and Global Competivevess 2
Introduction Chapter 2: Business Strategy and Global Competivevess 3
Manor Care Operates “Sleep Inns” l Labor shortage l Designed rooms to minimize housekeeping staff needed l l l Attached nightstands to walls No doors on closets Rounded shower stalls Advanced security system Chapter 2: Business Strategy and Global Competivevess 4
Manor Care Results Rooms can be cleaned in 20 minutes versus 30 minute industry standard l 92 -room hotel operated with equivalent of 11 full-time workers l Chapter 2: Business Strategy and Global Competivevess 5
American Steel Industry Foreign competition posed major threat to industry in early 1980 s. l In 1982, US producers needed 10. 59 labor hours to produce one metric ton compared with 10. 01 hours in Japan. l US closed plants, modernized others, and reduced payrolls. l Chapter 2: Business Strategy and Global Competivevess 6
American Steel Industry continued By middle of 1991, US steelmakers able to produce a metric ton with 5. 4 hours compared to 5. 6 hours for Japanese. l At the same time, quality also improved. l Chapter 2: Business Strategy and Global Competivevess 7
American Steel Industry continued In early 80 s, Ford rejected 8% of domestic steel shipments and 20% were late. l By early 1990 s, steel rejects reduced to 1% and 99% of shipments were on time. l Chapter 2: Business Strategy and Global Competivevess 8
Technology Examples Kansas City Power & Light using automatic meter readers which broadcasts data on electricity usage and eliminates $15/hour human meter readers. l Coca-Cola is installing similar technology in its vending machines. l This will allow Coke to better schedule deliveries and evaluate ad campaigns. l Chapter 2: Business Strategy and Global Competivevess 9
Examples Illustrate Shortage of employees often necessitates need to improve productivity. l Increased competition (especially foreign competition) another reason why companies seek to improve their productivity. l Improving productivity is often dependent on new technologies. l Chapter 2: Business Strategy and Global Competivevess 10
Top Management Responsible for making and keeping organization competitive. l Develops business strategy l l l provides direction and vision guides short- and long-term decisions must consider international competition All functional areas and business processes must support the business strategy. Chapter 2: Business Strategy and Global Competivevess 11
Business Strategy A set of objectives, plans, and policies for the organization to successfully compete in its markets. l l Long range (3 to 5 years) It specifies what organization’s competitive advantage will be Focuses on few key areas The pattern of decisions made over time is in fact an organization’s business strategy. 12
Formulating the Business Strategy Chapter 2: Business Strategy and Global Competivevess 13
Strategy Formulation 14
Vision and Mission Statements Vision statements used to express organization’s values and aspirations. l Mission statements express organization’s purpose or reason for existence. l Chapter 2: Business Strategy and Global Competivevess 15
Core Competencies l l l Collective knowledge and skills an organization has that distinguish it from the competition. Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services. Building blocks of core capabilities. Chapter 2: Business Strategy and Global Competivevess 16
Core Competencies continued l l l Are basis on which new outputs are developed. Better to think of organization in terms of its portfolio of core competencies than as a portfolio of products. Identifying and developing core competencies is one of top management’s most important roles. Chapter 2: Business Strategy and Global Competivevess 17
Core Capabilities l Organization practices and business processes Chapter 2: Business Strategy and Global Competivevess 18
Examples of Core Competencies Sony - miniaturization l 3 M- knowledge of substrates, coatings and adhesives l Black and Decker - small electrical motors and industrial design l Honda - engines and power trains l Chapter 2: Business Strategy and Global Competivevess 19
Core Competencies Used to Gain Access to Markets l Cannon l l l core competencies in optics, imaging, and electronic controls Products include copiers, laser printers, cameras, and image scanners. Boeing l l integrating large scale systems commercial jetliners, space stations, missiles Chapter 2: Business Strategy and Global Competivevess 20
Key Characteristics of Core Competencies/Capabilities Should be used to gain access to a variety of markets l Should be strongly related to key benefits provides by products or services l Should be difficult to imitate l Chapter 2: Business Strategy and Global Competivevess 21
Outsourcing Subcontracting out production of parts or performance of activities l Activities and parts fall on a continuum ranging from strategically unimportant to strategically important l Activities not strategically important are candidates to be outsourced l Chapter 2: Business Strategy and Global Competivevess 22
Strategically Important Parts or Activities Strongly related to what customers perceive to be key product characteristics. l Require highly specialized skill and knowledge. l Require highly specialized physical assets l The organization has the technological lead or is likely to obtain it. l Chapter 2: Business Strategy and Global Competivevess 23
Hollowed Out The extent that most of a firm’s complex parts and production are outsourced l Often when complex parts outsourced, engineering talent follows l Supplier may become competitor l Chapter 2: Business Strategy and Global Competivevess 24
Creeping Breakeven Phenomenon l Vicious cycle where products appear to become more expensive to produce inhouse as others are outsourced. l l Result from way overhead allocated Logical conclusion is organization ends up producing no outputs. Chapter 2: Business Strategy and Global Competivevess 25
Business Strategy and the Product Life Cycle Chapter 2: Business Strategy and Global Competivevess 26
The Life-Cycle Curve Chapter 2: Business Strategy and Global Competivevess 27
Product Life Cycle Strategies often tied to product life cycle l Length of life cycles shrinking l Business strategy should match life cycles stages l Chapter 2: Business Strategy and Global Competivevess 28
Categories of Business Strategies Chapter 2: Business Strategy and Global Competivevess 29
First-to-Market Strategy Products available before competition l Strong applied research capability needed l Can set high price to skim market or set lower price to gain market share l Chapter 2: Business Strategy and Global Competivevess 30
Second-to-Market Strategy Quick imitation of first-to-market companies l Less emphasis on applied research and more emphasis on development l Learn from first-to-market’s mistakes l Chapter 2: Business Strategy and Global Competivevess 31
Cost Minimization or Late-to. Market Strategy Wait until market becomes standardized and large volumes demanded l Compete on basis of costs instead of product features l Research efforts focus on process development versus product development l Chapter 2: Business Strategy and Global Competivevess 32
Market Segmentation Serving niche markets l Applied engineering skills and flexible manufacturing processes needed l Chapter 2: Business Strategy and Global Competivevess 33
The Balanced Scorecard l l Helps translate mission and strategy into appropriate performance measures. Traditionally organizations relied primarily on financial measures. No single set of measures can provide information needed in all critical areas of the business. Purpose of balanced scorecard the development of a set of measures that provides a comprehensive view of the organization. Chapter 2: Business Strategy and Global Competivevess 34
Benefits of Using Balanced Scorecard Clarify and gain consensus of strategy l Mechanism for communicating strategy l Mechanism for aligning departmental and personal goals to the strategy l Help ensure strategic objectives are linked to annual budget l Timely feedback related to improving the strategy l Chapter 2: Business Strategy and Global Competivevess 35
Performance Measured in Four Areas Financial performance l Customer performance l Internal business process performance l Organizational learning and growth l Chapter 2: Business Strategy and Global Competivevess 36
Developing a Balanced Scorecard l l l Top management translates mission and strategy into specific customer and financial objectives. Measures for internal business processes developed on basis of customer and financial objectives. Investments in employee training and information technology linked to customer, financial, and internal business process objectives. Chapter 2: Business Strategy and Global Competivevess 37
Focus Goal of business strategy is to establish and maintain a unique strength, or focus that leads to a sustainable competitive advantage. l Two successful competitive positions l lowest cost outstanding strength Chapter 2: Business Strategy and Global Competivevess 38
Common Areas of Focus Innovation l Customization l Product/service flexibility l Volume flexibility l Performance l Quality l Product/service reliability l Delivery reliability l Response l After-sale service l Price l Chapter 2: Business Strategy and Global Competivevess 39
Order Qualifiers and Winners Order qualifiers are characteristics that are the ante to enter the market l Order winners are characteristics that win the customer’s purchase l Chapter 2: Business Strategy and Global Competivevess 40
Loss of Focus New outputs l New attributes l New tasks l Departmental professionalism l Ignorance and noncommunication l Life cycle changes l Chapter 2: Business Strategy and Global Competivevess 41
Product Life Cycle Stages and Emphasis Chapter 2: Business Strategy and Global Competivevess 42
Strategic Frameworks Chapter 2: Business Strategy and Global Competivevess 43
The Sand Cone Model Chapter 2: Business Strategy and Global Competivevess 44
Example Performance Frontier Chapter 2: Business Strategy and Global Competivevess 45
New Technology Results in Shift of Performance Frontier Chapter 2: Business Strategy and Global Competivevess 46
Stages of Operational Effectiveness Internally Neutral l Externally Neutral l Internally Supportive l Externally Supportive l Chapter 2: Business Strategy and Global Competivevess 47
Global Competitiveness Long-term viability of a firm l Short-term success in terms of market share or profitability l Since 1970 s, imports to the US have grown faster than exports from the US l US is biggest debtor nation in world l Chapter 2: Business Strategy and Global Competivevess 48
The United States’ Merchandise Trade Chapter 2: Business Strategy and Global Competivevess 49
Exchange Rates US competitiveness reflected in value of dollar relative to other currencies l As US increases its imports relative to its exports, a surplus of US dollars accumulates abroad reducing the desirability of holding US dollars l Price adjusted broad dollar index l Chapter 2: Business Strategy and Global Competivevess 50
Purchasing Power of the Dollar Chapter 2: Business Strategy and Global Competivevess 51
Implications of Exchange Rate A large value of the price adjusted broad dollar index indicates a strong dollar making it easier for Americans to afford imports. l A weaker value of the price adjusted broad dollar index makes American products more competitive in foreign markets. l Economic relationship can be mediated by government actions. l Chapter 2: Business Strategy and Global Competivevess 52
International Markets and Producers l Three Major Trading Regions l l l Europe North America Pacific Rim Previously firms classified as domestic, exporters, or international l Now have global firms, joint ventures, foreign subsidiaries l Chapter 2: Business Strategy and Global Competivevess 53
Three Major Trading Regions Chapter 2: Business Strategy and Global Competivevess 54
Reasons to Produce Offshore Circumvent governmental regulations l Avoid effects of currency fluctuations l Avoid fees and quotas l Placate local customers l Chapter 2: Business Strategy and Global Competivevess 55
Supply Chain Management Cost of labor decreasing l Cost of logistics becoming more significant l Total value chain of global production l Coordination l l Information flows Finding efficient suppliers Identifying and evaluating transportation options Chapter 2: Business Strategy and Global Competivevess 56
New Technologies ERP l EDI l Bar coding l Internet l Chapter 2: Business Strategy and Global Competivevess 57
Six Primary Characteristics of Transformation Process Efficiency l Effectiveness l Capacity l Quality l Response time l Flexibility l Chapter 2: Business Strategy and Global Competivevess 58
Productivity Definitions and Measures Normally defined as output per worker hour l This is a partial measure of productivity l Total Factor Productivity includes all factors of production: l Chapter 2: Business Strategy and Global Competivevess 59
Improving Productivity Growth Estimated that technology has been responsible for at least half the productivity gains in the U. S. l Mechanization l Automation l Chapter 2: Business Strategy and Global Competivevess 60
International Comparisons of Productivity Chapter 2: Business Strategy and Global Competivevess 61
International Comparisons of Growth in Productivity Chapter 2: Business Strategy and Global Competivevess 62
Why is Productivity Important? For a society to increase its standard of living it must increase its productivity l How has the standard of living changed since 1970 in the US? l Chapter 2: Business Strategy and Global Competivevess 63
Living Standards in 1970 Compared to 1990 (Source: Reason, December 1995) Chapter 2: Business Strategy and Global Competivevess 64
Living Standards in 1970 Compared to 1990 (Source: Reason, December 1995) Chapter 2: Business Strategy and Global Competivevess 65
Living Standards in 1970 Compared to 1990 (Source: Reason, December 1995) Chapter 2: Business Strategy and Global Competivevess 66
Living Standards in 1970 Compared to 1990 (Source: Reason, December 1995) Chapter 2: Business Strategy and Global Competivevess 67
Living Standards in 1970 Compared to 1990 (Source: Reason, December 1995) Chapter 2: Business Strategy and Global Competivevess 68
Responsiveness Customization, Response Time, and Quality Chapter 2: Business Strategy and Global Competivevess 69
Customization Ability to offer a product or service exactly suited to the customer’s desires or needs l Closer matches to customers needs l Ability of offer full product line with minimal inventory l Faster design-to-market time to meet new customer needs l Chapter 2: Business Strategy and Global Competivevess 70
Continuum of Customization Chapter 2: Business Strategy and Global Competivevess 71
Mass Customization Goal is to produce low cost, high quality outputs in high variety l Mass customization strategies l l l Collaborative customizers Adaptive customizers Cosmetic customizers Transparent customizers Chapter 2: Business Strategy and Global Competivevess 72
Prerequisites and Advantages of Rapid Response Sharper focus on the customer l Better management l Efficient processing l Higher quality l Overhead elimination l Improved focus l Reduced charges l Faster revenue generation l Better communication l Improved morale l Chapter 2: Business Strategy and Global Competivevess 73
Cost Reductions with Decreases in Response Time Chapter 2: Business Strategy and Global Competivevess 74
Defining and Measuring Quality Conformance to specifications l Performance l Quick response l Quick-change expertise l Features l Reliability l Durability l Chapter 2: Business Strategy and Global Competivevess 75
Defining and Measuring Quality continued Serviceability l Aesthetics l Perceived quality l Humanity l Value l Chapter 2: Business Strategy and Global Competivevess 76
Benefits of High Quality More satisfied customers l Enhanced reputation l Increased profitability and higher market shares l Protection from competition l Minimizes safety risks and liability l Higher worker morale l Reduced production costs l Chapter 2: Business Strategy and Global Competivevess 77
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