Transcript Key Concepts in Competitive Strategy

Key Concepts in Competitive Strategy
International Business
Dr. Attila Yaprak
Value Chain
Configuration of key company functions that are
designed to add value for customers. The way a
company organized key processes determines its
competitive advantage.
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Strategy should guide the firm in value-chain
configuration
 Enhancing core activities, externalizing others
can create value (including partnerships and
outsourcing)
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Core Competence
Organizational skills, knowledge, and capabilities
that account for past success and can ensure
future growth.
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These areas of strength need to be constantly
cultivated/nurtured, as part of deliberate strategy.
 Management must select core competencies
selectively and engage the entire organization in
continuous embellishment.
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Competitiveness
1. Key challenge of any business is to achieve and
sustain competitiveness. Other goals are
secondary.
What is Competitiveness?
Superior and consistent performance in terms of the
measures that matter--customer loyalty, good flow of
new products, profitability, share of market...all relative
to principal competitors.
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Competitiveness
2. Competitiveness is most meaningful in the context
of an industry and the global market.
– Key success factors vary according to industry
– More industries are becoming subject to global
competition.
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Competitiveness
3. Over time, different perspectives on managing
become popularized: JIT, TQM, BPR (Business
Process Reengineering), Teams, Learning
Organization, Empowerment...Management
emphasis shifts over time. Nevertheless, the
fundamental management process has not
changed.
Access
Define what
Seek and
Manage Your
Market
Opportunity
the Customer
Values
Cultivate
Core
Competence
Value Adding
Process
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Competitiveness
4. There is not a single determinant of competitive
advantage/marketplace success:
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Design
Cost leadership
Getting close to customer: Intimacy
Time to market: Speed
Ability to recruit best management talent
Market intelligence and customer research
Quick to respond to challenges/opportunities
Maintaining entrepreneurial spirit and fighting stifling bureaucracy
Ongoing configuration of firm’s value chain
Partnerships
Intangibles like vision, leadership
Luck?
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Competitiveness
5. Don’t always look for big, radical solutions.
Hundreds of little improvements, implemented
daily, will add up.
6. The environment of business enterprise
(technology, customer, regulation, competitive,
etc.) is constantly posing new challenges and
opportunities. Ongoing reexaminations and
change are unavoidable.
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Competitiveness
7. Senior leadership has the ultimate responsibility in
assessing the need for change, facilitating, and
providing directions for it. Ability to rally the entire
organization behind change is exceptional.
8. Ongoing benchmarking is essential and valuable.
– Systematic and comprehensive audit of company
capabilities can be accomplished through a tool like
COMPASS, developed by Michigan State University.
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Competitiveness
9. Knowledge essential for decision making in global
business in multidimensional--too daunting for any
one individual in the organization to possess.
10. Internalization, retention, and dissemination of
knowledge throughout the organization is just as
important as acquiring it.
– Decision Support Systems (DSSs) can help; knowledge
does not have to slip away as people leave the
organization; it can be institutionalized.
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Phase
1.
Product Orientation
How to enhance price and performance
features
2.
Productivity Orientation
How to achieve higher standards for
product cost and quality
3.
Process Orientation
How to re-engineer the corporation
Key Management Challenge
Innovation design
Consumer research
Brand management
Time to market
Manufacturing technology quality
enhancement
Organizing activities not around products
Or divisions but by key processes that create
customer value (new product development,
customer service, etc.)
Cultivating knowledge, skills, capabilities
(core competence) that set the firm apart
from competition.
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Illustrations of Internationalizing the Value Chain
Stage in Value Chain
Types of Collaboration
Company Examples
Research & Development
International strategic alliances
Licensing/cross licensing
Product Design
Design contracting
Manufacturing
Global procurement
Contract manufacturing
Equity joint ventures (FDI)
Agency agreements
Licensing
Marketing
Exporting to distributors/agents
Franchising
Distribution
Exporting to end-users
Business format franchising
Sales & Service
Agency/representative relationships
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Consideration in the Choice of Internalizing vs. Externalizing Selected
Value Adding Activities such as Manufacturing, R&D, & Distribution
in the Global Marketplace
Arguments for:
Internalization
(Vertical Integration)
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Avoid transaction costs (searching,
negotiating, communicating, monitoring)
Internal transaction costs may be lower
Retain proprietary knowledge
Reap the benefits of internal discovery,
organizational learning, strong
organizational culture
Avoid dependence on partners (e.g.,
suppliers, distributions)
Externalization
(Partnering)
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Achieve greater efficiency
Concentrate on what you do best (enhance
core competences)
Achieve flexibility in sourcing
Gain speed in getting products to market
Free scarce capital to employ where you
have competitive advantage
Establish long-term relationships with a
global network of suppliers, distributors and
other partners
Exploit national and/or differential
advantages of partners
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Value Chain for a Pharmaceutical Company
Basic
Research &
Discovery
Product
Development,
Testing, and
Approvals
• Knowledge and capital intensive
• Highly regulated (FDA)
• Typically 18% of sales revenues
• Centralized in a few locations
• Balance across product lines (e.g., cancer,
anti-infectives, CV, CNS)
Input
Sourcing &
Manufacturing
Marketing &
Distribution
Sales
• Business planning
• Gaining influence
• Speed if critical; market directly at home
and across TRIAD, license in other
markets
• Decentralized/alliances
• Regulated
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Value Chain for GM
Parts Production
(remain in-house)
Materials
Sourcing
• Batteries
• Catalytic Converters
• Lighting
• Electrical and wiring
• Ignition
• Suspension and steering
Joint Venture
with Toyota
Complete
Production
Final
Assembly
Marketing
Partner or Outsource
• Bearings
• Bumpers
• Stampings
• Axles
• Horns
Independent
Parts Suppliers
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Sales and
Service
Outsourced to
Dealers
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Value Chain for Sample Medical Device Company
R & D Partnership
with University
Design
Subcontracted to
Specialty
Manufacturer
Engineering
Production
Performed
Mostly by
Freight
Forwarder
Logistics
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Joint Venture
with large
Medical Device
Multinational
Marketing
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Value Chain for Little Caesars’ Enterprises, Inc.
Product
Development
• By Little
Caesars’ food
technologists
at Farmington
Hills
Development and
Refinement of
Little Caesars’
Business Format
(Systems)
• Unique competitive
positioning
• Quality assurance
Product
Sourcing and
Distribution
Franchisee
Partnering
• Blue Line
Distributing
• Food, equipment,
packaging
• National and
international
suppliers
• Considerable
economies
of scale
• Selection,
training,
developing
• Real estate
• Architecture/
design
• Supplier
selection
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Field
Support
• Promotion
• Training
• Managerial
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Questions to Ask in Value Chain Analysis
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How, where, and for whom value adding takes place?
What are key success factors (speed, efficiency, unique
design, etc.)? What are points of vulnerability?
How can the process be made more efficient, streamlined,
or rationalized?
What opportunities exist for outsourcing?
How can we ensure maximum coordination between
functions?
Which activities contribute to gross margins/profitability?
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Why Organizations are Vulnerable?
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Complacency/inertia
Management blinders: ignoring early warning signals
Aura of invincibility/arrogance
Past strategy becomes ingrained in organizational routines
Mixed motives of leadership/desire for status quo
Resistance to change from the rest of the organization
Organizational bureaucracy
Missing leadership and creative vision
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Attributes of Tomorrow’s Managers
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Motivators, advisers, facilitators
Be able to rally others in desired directions
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Instrumental in setting strategic direction
Vision for the future of the organization
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Managing trade-offs
Choices to make re: tech., customers, markets,…
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Good negotiators in diverse cultural areas
Also with regulators and government bodies
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Intuitive; able to detect weak signals
“Sixth” sense; more and readily available information, but reliable?
Bridge knowledge gaps
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Attributes of Tomorrow’s Managers
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Possessed with a sense of the product
Good knowledge of the industry; global architecture
Changing market applications
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Not obsessed with the management process
Not locked into one mental frame; flatter orp’s?
Flexible and adaptable. Many will change careers…
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Willing to gamble
Trader/Merchant mentality
Confident to take risks
Entrepreneurial; less like administrators
Good in managing small companies
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National Competitiveness
Why does a nation become a homebase for
successful international competitors in an industry?
Possible Answers
Macroeconomic
policy
Cheap and abundant labor
Bountiful natural resources
Government policy
Management practices… Workforce attitudes…
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Industry Competitiveness
A group of competitors that are able to achieve and
sustain world-class standards
Key Success Factors
Productivity
Innovation
and R&D
Manufacturing costs
Entrepreneurship/Long-term orientation
Industry structure and environment…
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Firm/Enterprise Competitiveness
Results from how the firm positions itself with
respect to choice of markets, products, and
competitors.
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