Dell's Strategic Business Objectives

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					Strategy a View from the Top:
          Chapter 6

 Formulating Business Unity Strategy

   Sometimes called, “competitive strategy”
    business unit strategy’s principal focus is on
    how a firm should compete in a given
    competitive setting
   In contrast, corporate strategy is identification
    of market arenas where a corporation can
    compete successfully and how to add value
    to Strategic Business Units (SBOs)
Factors Concerning Business Unit

   Nature of the Industry
   Company’s Mission, Goals and Objectives
   Current position
   Core competencies
   Competitors’ strategic choices

   Firm success is explained by two factors:
    –   Attractiveness of the industry in which a firm
    –   Relative position

    Why has FedEx enjoyed success?
Attractiveness of the Industry

   Industry directly accounted for 36% of the
    explained total variation in aggregate
   Globalization has made the shipping industry
    a very attractive one
Porter’s Five Forces-Shipping Industry

                           Potential Entrants

                          LOW to MODERATE

Supplier’s Power          Industry Competitors          Buyers’ Power


     LOW                         HIGH                   -large buyers
                                                 -low switching cost
                   - FedEx, UPS, DHL



   Now that we’ve established the viability of the
    shipping industry as a whole, let’s consider
    how one achieves profitability in that industry
          –   Competitive position
                 Ability to create a sustainable competitive advantage

          –   Lowering cost
          –   Differentiation
Market Share

   FedEx and UPS face a very fierce
    competition, bet they’re the only two firms
    vying in the global shipping market with large
    market share.
   Large market share is both a reward for
    providing better value and a means of
    realizing lower costs
PIMS findings
(Profit Impact of Market Strategy)

   Market share is strongly correlated with ROI
   Product quality is key to market leadership
   ROI is positively correlated with market
   High investment intensity tends to depress
    ROI, as do high inventory levels
   Capacity use is critical for businesses with a
    high level of capital intensity.

   Project undertaken by Harvard Business
    School to ascertain profitability of different
    market strategies.
   Study becoming less and less relevant due
    to dynamic, technology driven experiences of
    the last 20 years.
Formulating a Competitive
Challenges in Forming Competitive

   Analyzing the competitive environment.
   Anticipating key competitors actions.
   Generating strategic options.
   Choosing among alternatives.
What is Competitive Advantage?

   Design and implement a value-creating
    strategy that competitors are not currently
    –   Sustainable
    –   Combination of Strengths
    –   Manager Awareness
    –   Keeping most valuable resource, Employees!
Competitive Advantage - FedEX

   SQI – Service Quality Index
    –   Sustainable
            Unmatched by Competitors
    –   Combines Strengths
            Monitors all the strengths FedEx competes on.
    –   Manager Awareness
            Examined daily by managers at every level.
    –   Employee Retention
            Allows employees to see how there work is directly
             effecting the company as a whole.
INDICATOR                          WEIGHT

1. Damaged Packages                10

2. Lost Packages                   10

3. Missed Pickups                  10

4. Complaints Reopened             5

5. Overgoods (lost and found)      5

6. Wrong-day late deliveries       5

7. Abandoned Calls                 1

8. International                   1

9. Invoice Adjustments Requested   1

10. Missing Proofs of Delivery     1

11. Right-day late deliveries      1

12. Traces                         1
Value Chain Analysis

   Value is a perceived benefit.
   Value Chain
    –   Begins with raw materials ends with sales.
   Analysis provides value creating activities.
    –   ABC Accounting
    Accounting for costs in ABC

                           Activity 1
                                                 Product A         Direct Costs

                           Activity 2           Product B          Direct Costs

                                                Product C          Direct Costs
                           Activity 3

   Indirect costs are           Activity costs are    The individual products
  assigned (traced &              allocated to        are the final cost objects
 allocated) to various              products          & direct costs are traced
pools of activity costs.                             to the individual products.
What are activities, and how are they

   Activity
    Any type of task, or function performed by a
    firm to manufacture a product

   Activity Identification
    –   Tracking the use of resources
    –   Using the cost hierarchy
Example of Activities in Factories

   Process customer orders
   Purchasing materials                       Expenses on each activity are
   Schedule production                        assigned into a distinct cost pool
   Receiving and handling materials           of overhead costs. Then, expenses
   Moving materials to the production floor   are allocated to products based on
   Setting up machines
                                               their demand for the activities.
   Inspection of products
   Maintain product information
   Perform engineering changes
   Expedite orders
   Shipping finished products
   Respond to customers
   Introduce new products
ABC Cost Hierarchy

ABC uses the following cost hierarchy to classify overhead
   costs among five main categories of activities:
  1. Facility (organization)-sustaining activities
  2. Customer-sustaining activities
  3. Product-sustaining activities
  4. Batch-level activities
  5. Unit-level activities
Porter and his Generic Business
         Unit Strategies
Two Generic Strategies

   Low cost
   Differentiation
   Global application
   With all the choices, which one do you
Identifying the Specifics

   Cost leadership
    –   A constant battle
    –   Focus
    –   Targeting customers in the niche
    –   Dell computers
            Going too far…?
Indentifying the Specifics

   Differentiation
    –   Trying to be unique, constantly.
    –   Targeting customers in the niche
            Yellow Tail
Requirements for Success

   Cost leadership
    –   Tenacious improvements
    –   Tight controls
    –   Discipline
Requirements for Success

   Differentiation
    –   Adding value
    –   Remaking the rules of the game
            Still provide high value
    –   Similar to Blue Ocean Strategy
            Cirque du Soleil
    –   Understanding where value is needed and not
The Risks

   Cost leadership
    –   A constant watch on technology
    –   Vulnerable position
            Remember, the world is flat.
    –   Differentiation
            Imitation
            Very fickle customers
Criticisms of Porter

   Industry norms
    –   Low cost
    –   Current PC industry
    –   Comparing Apple computers
   The real world
    –   Mixture of strategies
    –   Not mutually exclusive

   No strategy is associated with instant
   Firms have to maintain FLEXIBILITY!!
Value Disciplines

    Strategic Focus         Competitive Drivers/Needs
                      • Search for new
     Product          • Experiment with trends
    Leadership        • Initiate change to which competitors
                        must respond
                      • Narrow product line
    Operational       • Higher expertise in area of focus
                      • Moderate change in technology or
   Effectiveness        structure
                      • Focus on cost, efficiency/volume
                      • Strong customer focus
                      • Relationship driven
    Customer          • Two competitive requirements
    Intimacy            • Quick movement in developing markets
                        • Efficient operations as markets mature
Product Leadership

   Has four disciplines:
      1). Encouragement of innovation.
      2). A risk-oriented management style.
      3). Recognition that the company’s current
      success and future prospects lie in its talented
      product design people.
      4). Recognition of need to educate and lead the
      market regarding the use and benefits of new
Companies that use Product
Operational Excellence

   Aimed at better production and delivery
   Companies that pursue operational
    –   Wal-Mart
    –   FedEx
    –   American Airlines
    –   Starwood Hotels & Resorts
FedEx and Operational Excellence

   Philosophy of leadership, teamwork, and
    problem solving resulting in continuous
    improvement, by focusing on the needs of
    the customer and empowering employees.
   People-Service-Profits
Starwood Hotels and Operational

   Biggest changes to Sheraton hotel chain
    –   “Did away with flowered bedspreads in favor of Ralph
        Lauren style”

    - This revamping was immediately successful, 4 straight
       quarters following led Marriott & Hilton
    - Increased operating income by 26%
Customer Intimacy

   Concentrates on building customer loyalty

   Companies that provide customer intimacy:
Different Value Disciplines Call for
Different Competencies
 Strategic Focus          Work Environment           Employee Competencies
 Customer Intimacy        Values-driven, dynamic,    Relationship-building,
                          challenging, informal,     listening, rapid problem-
                          service-oriented,          solving, independent
                          qualitative, employee as   action, initiative
                          customer, “whatever it     collaboration, quality-
                          takes”                     focused
 Operational excellence   Predictable, measurable,   Process control,
                          hierarchical, cost-        continuous improvement,
                          conscious, team-based,     teamwork, analysis,
                          formal                     financial/operational
 Product leadership       Experimental, learning-    Information sharing,
                          focused, technical,        creativity, group problem
                          informal, fast-paced,      solving, breakthrough
                          resource-rich              thinking, artistic, visionary
Designing a Profitable Business Model
(A Preview)

   Product Pyramid Profit Model             High price,
                                            low volume

                                          Low price, high

   Multi-component System Profit Model
   Blockbuster Profit Model
   Profit Multiplier model

   Chris
   Competitive Advantage
    –   The Value chain
            ABC Accounting
   Phil
   Lindsey

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