1. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-1 Shifts in Competitive Advantage: Responding to Environmental Change by Robert Pitts & David Lei Slides prepared by John P. Orr Cameron University Chapter 6

2. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-2 What you will learn… How and why a firm’s competitive advantage can change over time Some important sources or triggers of change Strategies that firms can undertake to respond to change

3. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-3 Ex. 6-1. The Rise of New Music Platforms Slide 1 of 2 CD-Based Captured in disc form Dependent on retailers to sell Companies determine/ select offerings on CD Requires advanced manufacturing to produce disks MP3-Variants Portable in digital code form Downloadable directly through the Internet Listeners choose what they want to pay for Listener able to “burn” disks through PC/other device

4. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-4 Ex. 6-1. The Rise of New Music Platforms Slide 2 of 2 CD-Based Pricing set by label company Marketing and promotion drive disk sales MP3-Variants Pricing varies by demand/popularity Music “communities” may evolve over chat rooms on Web

5. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-5 Eastman Kodak and Digital Photography Semiconductors and digital imaging Impact of new technology on Kodak Searching for an effective response

6. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-6 Digital Photography Rivals Canon Toshiba Ricoh Sony Epson Sharp Kodak Hewlett-Packard Polaroid Motorola IBM Intel

7. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-7 New Developments Affecting Competitive Advantage New technology New distribution channels Shifts in economic variables Changes in related industries Changes in government regulation

8. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-8 New Developments Competence-Changing Technology A competence that markedly changes or redefines the structure of an industry Often, new processes or innovations that disrupt and erode the marketfor existing products

9. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-9 Ex. 6-3. Emergence of New Technology Industry Old Technology New Technology Electronics Shoe materials Appliances Airframes Automotive bodies Automobile body frames Computers Transistors Leather Discrete controls Steel, metal Aluminum Welded parts Mainframes Integrated circuits Engineered polymers Fuzzy logic Composite materials Ceramics Unibody, single piece construction Personal computers Networked systems CAT scans, MRI Automated insertion Flash memory cards Medical equipment TV manufacturing Cameras Stand-alone x-ray Handcrafted Silver halide film

10. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-10 Response Options Slide 1 of 2 Prospecting An activity designed to help the firm search, understand, and accommodate environmental change; a proactive attempt by the firm to make an environmental change favorable to itself Defending An activity designed to help the firm shield or insulate itself from environmental change

11. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-11 Response Options Slide 2 of 2 Harvesting The systematic removal of cash and other assets from slow- growth or declining business; may be thought of as “milking” a business before it loses its value

12. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-12 Ex. 6-4. Implementing Strategic Response Response Option Typical Implementing Actions Prospect Develop new distinctive competence Initiate R&D in new technology Learn new manufacturing processes Learn how to design/promote new product Defend Preserve existing distinctive competence Reduce price on existing product Increase promotion of existing product Intensify R&D in existing technology

13. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-13 Ex. 6-5. Major Response Options 1 Prospect 4 Defend 3 Prospect Defend 2 Prospect Harvest Magnitude of Threat/Opportunity Ability to Respond High Low

14. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-14 Response-Option Cells: Examples Intel: The PC market Microsoft: Open-systems software Boeing: Subsonic jets Timex: Electronic watches IBM: Beyond mainframes Steelmakers: Shifts in technologies 1 Prospect 2 Prospect Harvest

15. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-15 Response-Option Cells: Examples Merrill Lynch: LBOs Music industry alliances AT&T: Cable acquisitions GE: Compressor efficiency Big Three automakers: alternative fuels 4 Defend 3 Prospect Defend

16. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 6-16 Factors of Uncertainty Ability to Adjust Ability to Adjust Impact of Environmental Development Impact of Environmental Development