Global Enterprise and Competition 66.511.202 Fall 2007 Ashwin Mehta, Visiting Faculty
Download ReportTranscript Global Enterprise and Competition 66.511.202 Fall 2007 Ashwin Mehta, Visiting Faculty
Global Enterprise and Competition 66.511.202 Fall 2007 Ashwin Mehta, Visiting Faculty 1 Approach to Global Enterprise Global Strategy Business Strategy International Strategy Differences arise from Business to International strategy (market variations, cultures differences, etc.) Global strategy must address these variations and create a strategy to eliminate/minimize differences 2 Strategy --- Global to Regional/Local Corporate/ Global Strategy Corporate Structure & Integration Business Strategy Business Structure & Integration International Strategy, Structure & Integration 3 Strategy Process Mission/Vision Environmental Assessment -Macro Trends -Industry Analysis -Completion -Internal Analysis (Resource, Capabilities, etc. Objectives/Goals Strategy Options Strategy Selection -Corporate -Business -International Implementation -Structure -Leadership -Staffing -Incentives -Evaluation -Control 4 Strategy - Results from Industry Analysis Competitor Analysis Development of resources and capabilities External Analysis Situation Analysis Internal Analysis 5 The External Environment Economic Demographic Industry Environment Socio Cultural The Firm Political/Legal Competitive Forces Competitive Environment Global Technological 6 KEY QUESTION TO ASK •What macro environmental conditions will have a material effect on our ability to implement our strategy successfully? •How stable are these characteristics? •What is our firm’s industry? •What are the characteristics of the industry? •What is our strategic group? •Who are key competitors? •And, many more These questions must be asked at national and Global levels 7 UNDERSTANDING THE MACRO ENVIRONMENT – How stable is the political environment? •Political – Tax policies – Etc. – Projected interest rates? •Economic – Inflation? – Etc. – Lifestyle trends? •Socio-cultural – Demographic changes? – Etc. – Level of government research funding? •Technological – How mature is technology? – Etc. – Is intellectual property protected? •Legal – Relevant consumer laws? – Etc. 8 PRESSURES FAVORING INDUSTRY GLOBALIZATION •Markets •Costs •Governments •Competition – Homogeneous customer needs – Large scale and scope economies – Favorable trade policies – Interdependent countries – Global customer needs – Learning and experience – Common technological standards – Global competitors – Global channels – Sourcing efficiencies – Common manufacturing and marketing regulations – Transferable marketing approaches – Favorable logistics – Arbitrage opportunities – High R&D costs Source: Adapted from M.E. Porter, Competition in Global industries (Boston: Harvard Business School Press, 1986); G. Yip, “Global Strategy in a World of Nations, “ Sloan Management review 31:1 (1989), 29-40 9 Group Project - Template 2. Major Environmental Trends Describe major (between 5 and 10) environmental trends affecting Your Company and its industry. These trends can be related to economic (such as GDP, interest rates, unemployment, taxes, etc.), governmental (e.g. regulation, trade laws, etc.), technological (e.g. new technologies, R&D spending, etc.), socio-cultural (e.g. demographics, Trend Assessment* 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. *: Scale: 1=very negative impact; 5=very positive impact 10 Industry Analysis Porter’s Model: Assess the six forces -• • • • • • Threat of new entrants Rivalry among existing firms Threat of substitute products Bargaining power of buyers Bargaining power of suppliers Relative power of other stakeholders 11 ANALYSIS OF COMPETITIVE FORCES To identify Main SOURCES of competitive forces and STRENGTH of these pressures Objective COMPETITIVE FORCES MATTER BECAUSE: To be successful, strategy must be designed to cope effectively with competitive pressures - objective must be to build a strong, market position based on competitive advantage! 12 COMPETITIVE FORCE OF POTENTIAL ENTRY New entrants boost competitive pressures By bringing new production capacity into play Through actions to build market share Seriousness of threat of entry depends on BARRIERS to entry Expected REACTION of existing firms to entry Barriers to entry exist WHEN It is difficult for newcomers to enter market A new entrant’s small sales volume puts it a price/cost disadvantage 13 Threat of New Entrants -Barriers to entry: • Economies of Scale (Intel in microprocessors) • Product Differentiation (hi advertising in consumer goods) • Capital Requirements (airplane mfg) • Switching Costs (Windows to Linux) • Access to Distribution Channels (store shelf space) • Cost Disadvantages Independent of Size (V high mkt share) • Government Policy (oil drilling) 14 Competitive threat of outsiders entering a market is stronger when Entry barriers are low Incumbent firms do not vigorously fight newcomer Newcomer can expect to earn attractive profits 15 KEY SUCCESS FACTORS AS BARRIERS TO ENTRY •SOFT DRINK EXAMPLE •Key success factor (KSF) •KSFs: •Key asset or requisite skill that all firms in an industry must possess in order to be a viable competitor Ability to meet competitive pricing Extensive distribution Ability to raise consumer awareness Broad product mix Global presence Well positioned bottlers and bottling capacity 16 Bargaining Power of Suppliers -Supplier is powerful when: • Supplier industry is dominated by a few companies but sells to many • Its product is unique and/or has high switching costs • Substitutes are not readily available • Suppliers are able to integrate forward and compete directly with present customers • Purchasing industry buys only a small portion of the supplier’s goods. 17 Bargaining Power of Buyers -Buyer is powerful when: • • • • • Buyer purchases large proportion of seller’s products Buyer has the potential to integrate backward Alternative suppliers are plentiful Changing suppliers costs very little Purchased product represents a high percentage of a buyer’s costs • Buyer earns low profits • Purchased product is unimportant to the final quality or price of a buyer’s products 18 Threat of Substitute Products/Services Substitute Products: Those products that appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on an industry. 19 THREAT OF SUBSTITUTES Soft drinks Movie rentals Block buster Coke Pepsi Cable TV Bottled water Hollywood video 20 PRINCIPLE OF COMPETITIVE MARKETS Competitive threat of substitute products is strong when Prices of substitutes are viewed attractive by buyers Buyers’ costs of switching to substitutes are low Buyers view substitutes as having equal or better performance features 21 IMPACT OF COMPLEMENTOR Complementor: Three Any factor that makes it more attractive for suppliers to supply an industry on favorable terms or that makes it more attractive for buyers to purchase products or services from an industry at prices higher than it would pay absent the complementor Examples Hot dogs + More sales Buns Music + More attractive offering MP3 player Microsoft + Market dominance/standard Intel 22 Rivalry Among Existing Firms -Intense rivalry related to: • • • • • • • Number of competitors Rate of Industry Growth Product or Service Characteristics Amount of Fixed Costs Capacity Height of Exit Barriers Diversity of Rivals 23 Rivalry Among Existing Firms -Usually the MOST POWERFUL of the competitive forces Weapons of COMPETITIVE RIVALRY Price Quality Performance features offered Customer service Warranties and guarantees Advertising & special promotions Dealer networks Product innovation 24 Relative Power of other Stakeholders Government Communities Creditors Trade Associations Unions Complementors (Intel and Microsoft) 25 Competitive environment is unattractive when: Rivalry is very strong Entry barriers are low Competition from substitutes is strong Suppliers & customers have considerable bargaining power 26 Competitive environment is ideal when: Rivalry is only moderate Entry barriers are relatively high There are no good substitutes Suppliers & customers are in a weak bargaining position The weaker the competitive forces, the GREATER an industry’s PROFITS! 27 COPING WITH THE COMPETITIVE FORCES Objective is to craft a strategy that will Insulate company from competitive forces Influence industry’s competitive rules in company’s favor Provide a strong position from which “to play the game” of competition Help create sustainable competitive advantage 28 Market Size INDUSTRY LIFE CYCLE Time Source: Embryonic Growing Mature In Decline Niche market – selected products for selected markets Market expands beyond niche Proliferation of products and markets served Product/market contraction Participants emphasize problem solving – product as “solution” More competitors enter Market volatility and beginnings of industry consolidation Further consolidation and industry regeneration Technological uncertainty Customers become better informed Aggressive customers Adapted from K. Rangan and G. Bowman, “Beating the Commodity Magnet,” Industrial Marketing Management 21 (1992), 215-224; P. Kotler, 29 “Managing Products through their Product Life Cycle,” in Marketing Management: Planning, Implementation, and Control, 7th ed (Upper Saddle River, NJ: Prentice Hall, 1991) Strategic Groups Strategic group 1 Competitor A Competitor B Competitor C ..... Attribute B (Quality, Perf, etc.) Strategic group 2 Competitor X Competitor Y Competitor Z ..... Attribute A (e.g. price) 30 Group Project - Template 3. Industry: ___________________________ (name company’s industry) 4. Industry size: ______________ (in $M) Domestic _____________ (Your Company Home Country) International _____________ 5. Industry growth rate: _____% (last few years) _____% (next few years) 31 Group Project - Template 6. Industry Evolution 6.1 Industry life cycle stage: (check one) Emerging ___ Growth ___ Consolidation ___ Mature ___ Declining ___ 6.2 Industry Globalization Stage (Check one) Domestic Multi-Domestic Global _____ _____ _____ 32 Group Project - Template 7. Industry Profitability* 0 – 5% ___ 5.1-10% ___ 10.1-15% ___ 15.1-20% ___ Over 20% ___ (*: take top 5 to 10 companies to calculate average profitability) 8. Industry driving forces: List key 5 to 7 forces that impact the company’s industry most (example: foreign competition, change in technology, consolidation, shifting user demands, etc.). Briefly describe each force and its impact on the company Industry Driving Force Description Assessment* 1. 2. 3. 4. 5. 6. 7. *: use a scale of 1 (=highly negative impact) to 10 (=very positive impact) 33 Group Project - Template 9. Industry Attractiveness Matrix Factor Weight (W) Rating (R) WxR Industry Size Industry Growth Industry profitability Competitiveness Entry barriers Regulations Total 100 34 Group Project - Template 10. Industry Critical Success factors List and briefly describe 5 to 8 industry success factors, such as distribution channels, price, supply chain management, information technology, etc. Critical Success Factors Description 35 Group Project - Template 11. Company’s competitive position: Critical success factors Weight Total Rating WxR 100 36 Group Project - Template 12. Market Share Competitors Home Country Market Share% Comments Your Company Competitor 1 Competitor 2 Competitor 3 Competitor 4 Competitor 5 Competitor 6 37 Group Project - Template 13. Competitive Analysis CSF Your Company Competitor1 Competitor2 Competitor3 1. 2. 3. 4. 5. 6. Provide weighting of each CSF for your company’s competitors. 38 Group Project - Template 14. Additional Competitive Data and Analysis You can add any other information that you may have collected, such as competitors’ strategies, differentiators, anticipated strategic moves in future, etc. Competitor Additional Comments 39 COMPARATIVE INDUSTRY REFORMANCE ROA ROS Global Auto •Semiconductor Grocery Store How do such differences in profitability materialize? 40 Session 3 TWO THEORIES FOR HOW AND WHY SOME FIRMS PERFORM BETTER THAN OTHERS •A firm’s resources and capabilities determine performance •Success issues from fundamental differences in what firms own and what they can do •A firm’s activities determine performance •Success is driven by a firm’s value chain activities: How it configures these activities to add more value than competitors 41 RESOURCES AND CAPABILITIES: BUILDING BLOCKS OF STRATEGY Strategy •The inputs that firms use to create goods and services • Undifferentiated or firms-specific • Tangible or intangible • Easy to acquire or difficult A firm’s skill in using its resources to create goods and services. The combination of procedures and expertise that the firm relies on to engage in distinct activities in the process of producing goods and services 42 TYPES OF CORE COMPETENCIES Superior skills in producing high quality product Superior system for delivering customer orders accurately & swiftly Better after-sale service capability More skill in achieving low operating costs Unique formula for selecting good retail locations Unusual innovativeness in developing new products Better merchandising & product display skills Superior mastery of an important technology Unusually effective sales force 45 What made Wal-Mart a BIG Success?* Why is Wal-Mart able to justify bigger stores? Why Wal-Mart alone have cost structure low? Capabilities-based competitor Cross docking Investments in interlocking support systems Transportation system Managerial controls Human resources system *: Competing on Capabilities, Stalk, Evans; Shulman 46 Value Chain – another strategy development factor Linked set of value-creating activities THE VALUE CHAIN CONCEPT A VALUE CHAIN identifies: Activities, functions, & business processes that have to be performed in Designing, producing, marketing, delivering, & supporting a product or service Industry Value Chain and Firm Value Chain 48 Industry Value Chain Upstream Value Chain Suppliers Company’s Value Chain Downstream Value Chain Company Forward Channels Buyer/User Value Chain Distributors, retail Internally Performed Functions etc. Activities, Costs, Margins 49 Value Chain System Cost competitiveness depends on Costs of internally performed activities Costs of value chains of suppliers and forward channel allies 50 The Value Chain System SUPPLIERS value chain matter - suppliers incur costs in creating and delivering inputs used in Firms’ value chain - cost and quality of inputs influence Firm’s cost &/or differentiation capabilities FORWARD CHANNEL value chain matter - costs and margins of downstream firms are part of price paid by ultimate end user - activities Channel allies perform affect satisfaction of end user 51 Firm Value Chain Firm Infrastructure Support Activities Financing, legal support, accounting Human Resources Recruiting, training, incentive system, employee feedback Technology Development Inventory system Site software Procurement CDs Shipping Computers Telecom lines Inbound shipment of top titles Server operations Warehousing Billing Collections Inbound Logistics Operations Pick & pack procedures Shipping services Picking and shipment of top titles from warehouse Shipment of other titles from third- party distributors Site look & feel Return Customer researchprocedures Media Pricing Promotions Advertising Returned items Customer feedback Product information and reviews Affiliations with other websites Outbound Logistics Marketing & Sales After-Sales Service Primary Activities 52 USING VALUE CHAINS TO GAIN COMPETITIVE ADVANTAGE Identical Differentiated Find a different way to perform activities Longer-lasting advantage Find a better way to perform the same activities Shorter-term advantage (competitors catch up) 53 TRADE OFF PROTECTION YOUR RIVALS CHOOSE NOT TO COPY YOU Selected difference between Southwest and large Airlines Southwest Major Airlines Technology and design • Single aircraft • Multiple types of aircrafts Operations • Short segment flights • Smaller markets and secondary airports in major markets • No baggage transfers to others airlines • No meals • Single class of service Marketing • Hub and spoke system • Meals • Seat assignments • Multiple classes of service • No seat assignments • Baggage transfer to other airlines • Limited use of travel agents • Word of mouth • Extensive use of travel agents Southwest made choices so that competitors did not copy because copying would require them to abandon activities essential to their strategies 54 INNOVATION AND INTEGRATION OF THE VALUE CHAIN Area of innovation IKEA Transferred assembly and delivery to the consumer Dell Choose an entirely direct distribution model (rather than through retailers) and outsourced component manufacturing 55 STRATEGIC LEADERSHIP “Companies that overlook the role of leadership in the early phases of strategic planning often find themselves scrambling when it’s time to execute. No matter how thorough the plan, without the right leaders it is unlikely to succeed” – McKinsey & Company 56 SENIOR VS. MIDDLE MANAGERS Decide how to use other resources and capabilities, configure their firm’s valueSenior chain activities, and set the context which determines how front-line and middle managers can add value Are better positioned than senior managers to contribute to competitive advantage and Middle firm success in four areas • Entrepreneurship • Communications • Psychoanalyst • Tightrope walker Source: Quy Nguyen Huy 57 SWOT Analysis External factors Opportunities Threats Situation Analysis Internal factors Strengths Weaknesses Widely used tool Detailed analysis of the environment Manageable list Prioritized list Inclusive of ALL factors 58 Situational Analysis: Process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses. 59 Environmental (Macro) Trends Economic Technological Political Socio-Cultural Opportunities - External Analysis Industry Trends Industry Evolution Competitive Forces Threats - 60 Resources Financial Physical Human Management Organization Culture Tangibles Intangibles Internal Analysis Value Chain Strengths - Weaknesses - In-house activities Suppliers Partners Distributors Customers 61 Business Acumen* linking insightful assessment of external environment with keen awareness of how money can be made … most important management skill Changes: complex; linear/continuous or exponential/abrupt Information Technology industry…mainframe/mini to PC and Internet Qualitative Vs Quantitative assessment Questions: What is happening in the World today? What does it mean to others? What does it mean to us? What would have to happen first (for the results we want to occur)? What do we have to do to play a role? What do we do next? *: Sharpening Your Business Acumen, Ram Charan 62 Competitive Forces --- Exercises and Questions 1: Discuss Porter’s Competitive Forces in the Budget Airline Industry (Budget Airline industry consists of players such as SouthWest, JetBlue, etc.) 2: Discuss Porter’s Competitive Forces in the PC Industry 3: Discuss different Strategic Groups in the PC industry and name a few players in each group 4: What competitive conditions will create an ideal industry scenario? 63 Push for Cosmopolitanism: The Gillette Case* World class company – cosmopolitan mindset that demands global culture of management Cosmopolitans Globalization Gillette Markets in 200 countries and Territories 58 facilities in 28 countries 75% of employees outside the US 70% of revenues from outside the US Classic International/Global company 64 *: Global Cosmopolitans, Rosabeth Moss Kanter, Strategy+Business Push for Cosmopolitanism: The Gillette Case* Pre 1980’s – “Stone Age” Theory of marketing slow spread from home to hinterlands Sophisticated and more informed consumers required a global approach Retail trade getting more advanced --- retails chains (e.g. Wal-Mart) and Internet Evolved from International to global Global strategy --- 50 states to 500 states Imperatives Innovation Organizations Standardization World Sourcing Leadership Coordination 65 *: Global Cosmopolitans, Rosabeth Moss Kanter, Strategy+Business