How Do We Compete-PPT

Business-Level Strategy:How do we compete?Breadth of Competitive ScopeSource of Competitive AdvantageBroadTargetMarketNarrowTargetMarketCostCostLeadershipGeneric Business Level StrategiesUniquenessBreadth of Competitive ScopeSource of Competitive AdvantageBroadTargetMarketNarrowTargetMarketCostCost LeadershipDifferentiationGeneric Business Level StrategiesUniquenessBreadth of Competitive ScopeSource of Competitive AdvantageBroadTargetMarketNarrowTargetMarketCostCostLeadershipDifferentiationGeneric Business Level StrategiesFocused DifferentiationFocused Low CostUniquenessBreadth of Competitive ScopeSource of Competitive AdvantageBroadTargetMarketNarrowTargetMarketCostCostLeadershipDifferen-tiationGeneric Business Level StrategiesFocused Differen-tiationFocused Low CostIntegrated Low Cost/DifferentiationUniquenessProfit = (P –C) QThe Experience CurveThe “Law of Experience”The unit cost value added to a standard product declines by a constant % (typically 20-30%) each time cumulative output doubles.Cost per unit of outputCumulative Output1994199519961997199819992000Examples of Experience Curves100K200K500K 1,000K51050Accumulated unit productionAccumulated units(millions)(millions)1960 Yen15K 20K 30KPrice Index50 100 200 30070% slope75%Japanese clocks & watches, 1962-72UK refrigerators, 1957-71Choices that Drive CostsEconomies of scaleAsset utilizationCapacity utilization patternValue chain linkagesProduct featuresInterrelationships-Advertising & Sales-Logistics & Operations-Seasonal, cyclical-Order processing and distributionProduct featuresPerformanceMix & variety of productsService levelsSmall vs. large buyersProcess technologyWage levelsHiring, training, motivationTechnological DevelopmentHuman Resource ManagementFirm InfrastructureProcurementInbound LogisticsOperationsOutboundLogisticsMarketing & SalesServiceMARGINMARGINValue Chain of Firm ActivitiesValue Creating Activitiescommon to a Cost Leadership Business Level StrategyPrimary ActivitiesSupportActivitiesInbound LogisticsInbound LogisticsHighly Efficient Systems to Link Suppliers’ Products with the Firm’s Production ProcessesLocated in Close Proximity with SuppliersValue Creating Activitiescommon to a Cost Leadership Business Level StrategyPrimary ActivitiesSupportActivitiesTechnological DevelopmentHuman Resource ManagementFirm InfrastructureProcurementInbound LogisticsOperationsOutboundLogisticsServiceMARGINMARGINRelatively Few Management Layers to Reduce OverheadEffective Training Programs to Improve Worker Efficiency and Effectiveness Timing of Asset PurchasesEfficient Plant Scale to Minimize Manufacturing CostsSelection of Low Cost Transport CarriersDelivery Schedule that Reduces CostsProducts Priced to Generate Sales VolumeSmall, Highly Trained Sales ForceInvestments in Technology in order to Reduce Costs Associated with Manufacturing ProcessesFrequent Evaluation Processes to Monitor Suppliers’ PerformancesPolicy Choice of Plant TechnologyOrganizational LearningEfficient Order SizesOperationsOperationsEfficient Plant Scale to Minimize Mfg. CostsTiming of Asset PurchasesPolicy Choice of Plant TechnologyOrganizational LearningValue Creating Activitiescommon to a Cost Leadership Business Level StrategyPrimary ActivitiesSupportActivitiesTechnological DevelopmentHuman Resource ManagementFirm InfrastructureProcurementOutboundLogisticsMarketing & SalesServiceMARGINMARGINSelection of Low Cost Transport CarriersDelivery Schedule that Reduces CostsNational Scale AdvertisingProducts Priced to Generate Sales VolumeSmall, Highly Trained Sales ForceEffective Product Installations to Reduce Frequency and Severity of RecallsFrequent Evaluation Processes to Monitor Suppliers’ PerformancesEfficient Order SizesInterrelationships with Sister UnitsOutboundLogisticsOutbound LogisticsSelection of Low Cost Transport CarriersDelivery Schedule that Reduces CostsEfficient Order SizesInterrelationships with Sister UnitsValue Creating Activitiescommon to a Cost Leadership Business Level StrategyPrimary ActivitiesSupportActivitiesTechnological DevelopmentHuman Resource ManagementFirm InfrastructureProcurementInbound LogisticsOperationsOutboundLogisticsMarketing & SalesServiceMARGINMARGINMarketing & SalesNational Scale AdvertisingProducts Priced to Generate Sales VolumeSmall, Highly Trained Sales ForceMarketing & SalesPrimary ActivitiesSupportActivitiesTechnological DevelopmentHuman Resource ManagementFirm InfrastructureProcurementInbound LogisticsOperationsOutboundLogisticsMarketing & SalesServiceMARGINMARGINServiceServiceEffective Product Installations to Reduce RecallsValue Creating Activitiescommon to a Cost Leadership Business Level StrategyPrimary ActivitiesSupportActivitiesTechnological DevelopmentHuman Resource ManagementFirm InfrastructureProcurementInbound LogisticsOperationsOutboundLogisticsMarketing & SalesServiceMARGINMARGINProcurementSystems and Procedures to Find the Lowest Cost Products to Purchase Raw MaterialsFrequent Evaluation Processes to Monitor Suppliers’ PerformancesProcurementValue Creating Activitiescommon to a Cost Leadership Business Level StrategyPrimary ActivitiesSupportActivitiesTechnological DevelopmentHuman Resource ManagementFirm InfrastructureProcurementInbound LogisticsOperationsOutboundLogisticsMarketing & SalesServiceMARGINMARGINTechnological DevelopmentTechnological DevelopmentEasy-to-Use Manufacturing TechnologiesInvestments in Technology in order to Reduce Costs Associated with Manufacturing ProcessesValue Creating Activitiescommon to a Cost Leadership Business Level StrategyPrimary ActivitiesSupportActivitiesTechnological DevelopmentHuman ManagementFirm InfrastructureProcurementInbound LogisticsOperationsOutboundLogisticsMarketing & SalesServiceMARGINMARGINHuman Resource ManagementHuman Resource ManagementConsistent Policies to Reduce Turnover CostsEffective Training Programs to Improve Worker Efficiency and Effectiveness Value Creating Activitiescommon to a Cost Leadership Business Level StrategyPrimary ActivitiesSupportActivitiesTechnological DevelopmentHuman Resource ManagementFirm InfrastructureProcurementInbound LogisticsOperationsOutboundLogisticsMarketing & SalesServiceMARGINMARGINFirm InfrastructureFirm InfrastructureCost Effective MIS SystemsRelatively Few Management Layers to Reduce OverheadSimplified Planning Practices to Reduce Planning CostsValue Creating Activitiescommon to a Cost Leadership Business Level StrategyThreat of New EntrantsBargaining Power of SuppliersThreat of Substitute ProductsEffective Cost Leaders can remain profitable even when the Five Forcesappear unattractiveRivalry Among Competing Firms in IndustryBargaining Power of BuyersEffective Cost Leaders can remain profitable even when the Five Forcesappear unattractiveThreat of New EntrantsCan frighten off New Entrants due to the need to: Enter at large scale to be Cost Competitive*Take time to move down the “Learning Curve”*Bargaining Power of BuyersCan mitigate Buyer Power by:*Effective Cost Leaders can remain profitable even when the Five Forcesappear unattractiveThreat of New EntrantsDriving prices far below competitors may cause exit and shift power back to firmThreat of Substitute ProductsWell positioned relative toSubstitutesin order to:Make investments to create substitutes first*Buy patents developed by potential substitutes*Lower prices to maintain value position*Effective Cost Leaders can remain profitable even when the Five Forcesappear unattractiveThreat of New EntrantsBargaining Power of BuyersBargaining Power of SuppliersEffective Cost Leaders can remain profitable even when the Five Forcesappear unattractiveThreat of New EntrantsThreat of Substitute ProductsBargaining Power of BuyersCan mitigate Supplier Power by:Low cost position makes them better able to absorb cost increases*More likely to make very large purchases which reduces chance of supplier power*Threat of New EntrantsBargaining Power of SuppliersThreat of Substitute ProductsEffective Cost Leaders can remain profitable even when the Five Forcesappear unattractiveCompetitors avoid price wars with Cost Leaders, which creates higher profits for entire industryRivalry Among Competing Firms in IndustryBargaining Power of BuyersThe Major Risks involved with a Cost Leadership Business Level StrategyDramatic technological change could take away your cost advantageFocus on efficiency could cause Cost Leader to overlook changes in customer preferencesCompetitors may learn how to imitate Value Chain