CHAPTER 6CHAPTER 6BUSINESS STRATEGYBUSINESS STRATEGY

BUSINESS STRATEGY

• Strategic Planning

• Strategic Analysis

STRATEGIC PLANNING

• Core Competency

• Outsourcing

• Sustainable Competitive Advantage

CORE COMPETENCY

The primary areas that an organization is excellent at in making decisions

CORE COMPETENCY EXAMPLES

• Pappas

• IBM

• DuPont

IBM CORE COMPETENCY

Mainframe Computers

Consulting Services

Cloud Software

OUTSOURCING

Transferring a business function to an external provider

REASONS FOR OUTSOURCING

• Cost savings

• Focus on core business

• Improve quality

OUTSOURCING EXAMPLES

• Call Centers

• Supply Chain Function

• Small Businesses

SUSTAINABLE COMPETITIVE ADVANTAGE

Maintaining a Competitive Advantage Over a Long Period of Time

SUSTAINABLE COMPETITIVE ADVANTAGE EXAMPLES

• Digging a moat strategy

•Patents/copyrights

• Brand equity

•Low cost organizations

DIGGING A MOAT STRATEGY

• Obtain a strong competitive advantage

•Fend off existing and new challenges

• Isolate firm from competition

• Maintain a low cost structure

LACK OF A GM MOAT

Situation GM ToyotaTotal Labor $1,000 per $800 perCost Vehicle Vehicle

Parts Sources 37% from On-site Michigan Suppliers

Hourly Labor $81 $35Cost

PATENTS/COPYRIGHTS

Patents and copyrights are monopoly awards given by the government for new technology and innovations

PATENT/COPYRIGHT EXAMPLES

• Lipitor drug patent

• Song/movie/book copyrights

• Dead moneymaker royalties

BRAND EQUITY

Brand equity is the goodwill of a brand

• Coca Cola

• Intel

• Google

LOW COST ORGANIZATIONS

• GEICO Low agent costs

• Walmart Low supply chain costs

• Amazon.com Low internet costs

STRATEGIC ANALYSIS

• Business Models

• Changing Business Models

• Cash Flow Business Models

• Threatened Business Models

BUSINESS MODELS

Traditional Business Model• Many Levels of Management• Focus on Command and Control

Entrepreneurial Business Model• Few Levels of Management• Focus on Recognition and Response

FOCUS ON RECOGNITION AND RESPONSE

• Changing Buyer Needs

• Changing Competition

• Environmental Threats and Opportunities

SWOT ANALYSIS

Controllable Uncontrollable

Strengths Opportunities

Weaknesses Threats

U.S. AVG LIFE EXPECTANCY AT 65

1950 13.6 years

2013 19.1 years

CONTROLLABLE AREAS

• Products

• Price

• Promotion

• Distribution

UNCONTROLLABLE AREAS

• Competition

• Changing buyer needs

• Environmental changes

• New technology

CONCEPT OF MISTAKES

• Mistakes can be valuable

• The worst mistake is to act as if you do not make mistakes

• Question: What did you learn?

NASA SLOGAN

“Failure is Not an Option.”

“Those Who Never Make Mistakes Work For Those of Us Who Do.”

Henry Ford

CHANGING BUSINESS MODELS

• General Motors

• Southwest Airlines

• Freemium Models

GENERAL MOTORS BUSINESS MODEL

• Union contract

• Health care costs

• # of car brands

• Excessive inventory

• Too many dealers

SOUTHWEST AIRLINES BUSINESS MODEL

• Use one type of plane – Being 737

• Avoid hub airports in favor of secondary airports

• Concentrate on short-haul flights

• Use low-fare pricing

FREEMIUM BUSINESS MODELS

• LinkedIn

• Hotmail

• Dropbox

LINKEDIN REVENUE(200 million members)

• Free standard use

• Premium subscriptions

• Online ads

CASH FLOW BUSINESS MODELS

• Geico

• Groupon

• Infomercials

GROUPON CASH FLOW

Collect Revenue

Pay Retailer (slowly)

Incur Costs

THREATENED BUSINESS MODELS

• Agents and Brokers

• Post Office

• Real Estate

POST OFFICE MAIL

2006 213 billion

2009 177 billion

2020 (est) 150 billion

POTENTIAL CHANGES IN POST OFFICE SERVICE

• Rent space in retail stores

• Stop home delivery on Saturday

• Close small rural post offices