2. 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

3. Unit 5 Feedback

4. 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?

5. Chapter 8 McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

6. Strategic Management Model

7. 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

8. 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

9. Ex. 8.2 Evaluating a Business’s Cost Leadership Opportunities 8-9

10. Sustainable Low-Cost Activities 1. Some low-cost advantages reduce the likelihood of buyers’ pricing pressure 2. Truly sustained low-cost advantages may push rivals into other areas 3. New entrants competing on price must face an entrenched cost leader 4. Low-cost advantages should lessen the attractiveness of substitute products 5. Higher margins allow low-cost producers to withstand supplier cost increases 8-10

11. Risks of a Cost Leadership Strategy 1. Many cost-saving activities are easily duplicated 2. Exclusive cost leadership can be a trap 3. Obsessive cost cutting can shrink other competitive advantages 4. Cost differences often decline over time 8-11

12. 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

13. Ex. 8.3 Evaluating a Business’s Differentiation Opportunities 8-13

14. 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

15. Ex. 8.5 Evaluating a Business’s Rapid Response (Speed) Opportunities 8-15

16. Rivalry reduced with successful differentiation Decreased price sensitivity Increased brand loyalty Key considerations- Differentiation

17. 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

18. 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

19. Evaluating a Business’s Rapid Response (Speed) Opportunities

20. 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

21. 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

22. 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

23. Introduction/Emerging Growth Maturity Decline Stages

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. Four Generic Global Competitive Strategies Broad-line global competition Global focus strategy National focus strategy Protected niche strategy 8-34

35. Ex. 8.10 Grand Strategy Selection Matrix 8-35

36. Ex. 8.11 Model of Grand Strategy Clusters 8-36

37. 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

38. Chapter 9 McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

39. 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

40. Ex. 9.2 The BCG Growth-Share Matrix 9-40

41. Ex. 9.4 The Industry Attractiveness-Business Strength Matrix 9-41

42. Ex. 9.5 BCG’s Strategic Environments Matrix 9-42

43. 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

44. 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

45. 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

46. 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

47. 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

48. 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

49. 10 Sources of Parenting Opportunities Size & Age Management Business Definition Predictable Errors Linkages 9-49   Common capabilities   Specialized expertise   External relations   Major decisions   Major changes

50. 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

51. 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

52. Ex. 9.9 Three Approaches to Strategy 9-52