malaysia strategy09...
Transcript of malaysia strategy09...
CompetitiveStrategy
David J. Collis
QUIZ
�What is a Strategy?
Levels of Strategy
� How to compete in a distinct business
“Competitive” or “Business” Strategy
Corporate StrategyCorporate Strategy
• Overall strategy of a diversified firm that involves
two essential questions• What businesses the company should be in
• How strategically distinct business units should be
managed at the corporate level
Strategy is critical to performance
�External Positioning�Match internal resources and capabilities to the
external environment to achieve a sustainable competitive advantage
WINNING IN THE MARKETPLACE
� Internal alignment�Consistency of delegated functional decisions and
policies with the chosen competitive advantage
�WINNING THROUGH EXECUTION
EXTERNAL POSITIONING:Strategic Sweet Spot
CUSTOMERS-needs
COMPETITORS-offerings
CONTEXT
CAPABILITIES-companywide
GOALS
GENERICSTRATEGY
THE
OBJECTIVES
PROFITABILITY,
Internal Alignment
Marketing
Functions
Finance Finance Finance Finance
& & & &
Research & Research & Research & Research &
DevelopmenDevelopmenDevelopmenDevelopmen
tttt
Product Product Product Product
LineLineLineLine
Target Target Target Target
MarketsMarketsMarketsMarkets
AdvertisinAdvertisinAdvertisinAdvertisin
g & g & g & g &
PromotionPromotionPromotionPromotion
Sales Sales Sales Sales
ForceForceForceForceTHECOMPETITIVEADVANTAGETO BEACHIEVED
GROWTH,MARKETSHARE,ETC.
Operations
& Finance
& & & &
ControlControlControlControl
DistributiDistributiDistributiDistributi
on on on on
ChannelsChannelsChannelsChannels
CustomeCustomeCustomeCustome
r Servicer Servicer Servicer Service
Physical Physical Physical Physical
DistributiDistributiDistributiDistributi
onononon
ManufacturManufacturManufacturManufactur
inginginging
ProcuremeProcuremeProcuremeProcureme
ntntntnt
Human Human Human Human
Resource Resource Resource Resource
ManagemenManagemenManagemenManagemen
tttt
Elements of a Strategy
� Objective� The primary goal(s) that motivate behaviour in the
organisation
� Advantage�Description of what the firm does differently, �Description of what the firm does differently,
better, or uniquely compared to all other competitors� The value proposition that encourages customers to purchase
� The drivers or sources of that advantage including the functional policies and activities that support the advantage
� Scope�Definition of the domain in which we will operate
Strategy
�Strategy is about choice�strive for maximum performance,
but ultimately
�inherent tradeoffs�inherent tradeoffs
�Strategy is about consistency�across functions
�over time
Strategy Development Process
Sources of Competitive Advantage
Competitor Analysis(Prediction)
Internal Strengths and Weaknesses(Relative Position)(Prediction) (Relative Position)
Options(Sustainability and Timing)
Options(Sustainability and Timing)
Proposed Strategy
Organization StructureActionable Function Programs
Purposes of Industry Analysis
� Industry structural attractiveness
� Industry dynamics
�check list
� Strategic implications
� forces to overcome and exploit
Differences in Profitability Across Selected Industries
Petroleum / natural gas
Drug stores
Eating places
Dental equipment
Women's clothing stores
Semiconductors
Prepackaged software
Pharmaceuticals
-5 0 5 10 15 20 25
Scheduled air transport
Motor vehicles
Cable television service
Computer system design
Engineering services
Trucking except local
Race track operations
Petroleum / natural gas
Operating income / assets, 1988-95 (%)
Source: Pankaj Ghemawat and Jan W. Rivkin, “Creating Competitive Advantage”
Distribution ofIndustry Profitability
15
20
25
Percentage of Industries
Note: Return on equity is defined as net income divided by end of year shareholders’ equity: Labels on
horizontal axis represent lower boundaries of bins of two percentage points of return on equity.
Source: Dun & Bradstreet
0
5
10
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Return on Equity (Percent)
Percentage of Industries
Differences in ProfitabilityWithin Selected Industries
Motorola
Texas Instruments
Intel
Delta
United
American
Southwest
Semiconductor Industry Airline Industry
-5 0 5 10 15 20 25
National Semiconductor
Analog Devices
AMD
-5 0 5 10
TWA
Continental
US Airways
Delta
Source: Pankaj Ghemawat and Jan W. Rivkin, “Creating Competitive Advantage”
Operating income / assets, 1988-95 (%) Operating income / assets, 1988-95 (%)
Warren Buffet
� “When an industry with a reputation for difficult economics meets a manager with a reputation for excellence, it is usually the industry that keeps its usually the industry that keeps its reputation intact”
Competitive StrategyDeterminants of Industry Profitability
Threat of New Entrants
Rivalry AmongExisting Competitors
Threat of SubstituteProducts or Services
BargainingPower ofBuyers
BargainingPower ofSuppliers
Industry Analysis – The Five Forces
Threat of New Entry
Rivalry Among
Existing Competitors
Bargaining Power
of Customers
Bargaining Power
of Suppliers
• Economies of scale
• Proprietary product
differences
• Brand identity
• Switching costs
• Capital requirements
• Access to distribution
• Absolute cost advantages
• Government policy
• Expected retaliation
• Differentiation of inputs
• Switching costs
• Presence of substitute
• Buyer concentration
• Buyer volume
• Buyer switching costsExisting Competitors
Threat of Substitutes• Relative price performance of substitutes
• Switching costs
• Buyer propensity to substitute
• Industry growth
• Fixed costs / value
added
• Overcapacity
• Product differences
• Brand identity
• Switching costs
• Concentration and balance
• Informational complexity
• Diversity of competitors
• Corporate stakes
• Exit barriers
• Presence of substitute
inputs
• Supplier concentration
• Importance of volume to
supplier
• Cost relative to total
purchases
• Impact of inputs on cost or
differentiation
• Threat of forward
integration
• Buyer switching costs
• Buyer information
• Ability to integrate
backward
• Substitute products
• Price / total purchases
• Product differences
• Brand identity
• Impact of quality /
performance
• Buyer profits
Source: Porter, 1985
An Augmented Framework: Six Forces
RIVALRY AMONGBARGAINING BARGAINING
THREAT OFNEW ENTRANTS
RIVALRY AMONGEXISTING
COMPETITORS
BARGAINING POWER OF SUPPLIERS
BARGAINING POWER OF
CUSTOMERS
THREAT OFSUBSTITUTES
AVAILABILITY OF COMPLEMENTS
Three Phases inIndustry Structure Evolution
•Conception
– imagination
•Determination
– shape
– standard setting
– resources
•Competition
– static
– market share
– resources
Executive time spent
Ability to influencefuture profitability
Competitive Strategy
�Two key questions
1 How structurally attractive is the industry?
2 What is the firm’s relative position within the industry
Steel IndustryPerformance Differential, 1981-1990
$4.50
Industry
$0.07$0.26
$0.76
$1.29 $1.38
LTV Amoco Bethlehem Inland U.S. Steel Nucor
Industry
Average
Returns
Average
$1.38
Superior Performance isAchieved in Two Ways
Margin
MarginIndustry Average
Price
Sustainable Competitive AdvantageSustainable Competitive Advantage
CostCost
Cost Leadership Strategy
� Deliver a GOOD product or service at the lowest possible cost
� Create advantage through superior management of key cost drivers
� Make the volume-margin tradeoff
BUT
� Cost leaders must maintain parity or proximity in satisfying buyer needs
� Cost leadership often requires tradeoffswith differentiation
Differentiation Strategy
� Uniquely satisfy one or more widely valued customer needs�additional costs incurred
�premium price
BUTBUT
� Remain cost competitive in providing basic features�selectively add cost
�choose differentiation features that yield a cost advantage
What Differentiation Means
Gratuitous Services
Add Cost toDifferentiate
Recover Costs ofDifferentiation
Plus a Premium
Meet MinimumRequirements
Realize IndustryAveragePrices
CostCost PricePrice
Generic Strategies
Overall CostDifferentiationBroad Target
Lower Cost Differentiation
Competitive Advantage
Overall CostLeadership
Focus Low Cost
Differentiation
Focus Differentiation
Broad Target
Narrow Target
CompetitiveScope
Competitive Advantage
�Two critical aspects to competitive advantage�Unique value proposition
�Why customers should buy from us�Why customers should buy from us
- Increase willingness to pay
- Decrease supplier opportunity cost
�Distinctive configuration of activities
�Why we alone can deliver that source of value
- Choices and tradeoffs
- Structural determinants
Low prices
Selection across categories
Rural convenience
Reliable prices
Wal-Mart Stores: Competitive Positioning
Wal-Mart
• A value proposition diagram is a simple tool for recording how a company performs relative to competition on the attributes that Reliable prices
Merchandise quality
Suburban convenience
Selection within categories
Sales help
Ambiance
1 2 3 4 5
Mom & Pop
Sears
on the attributes that customers consider as they choose among rivals
• Successful companies rarely are (or try to be) superior on all attributes
Configuring Activities throughout the Value Chain
�Strong competitive advantages are typically supported by distinctive activities that pervade the value chain and reinforce one another
�The activity map (blob chart) capture the key differences in the firm’s choices of activities
� Not a laundry list of everything the firm does
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� Not a laundry list of everything the firm does
� Clearly identifying what the firm does differently from competitors, and what it does not do that competitors do
�Description should be adequate to allow every function in the organization to understand how they must be configured to contribute to the chosen source of competitive advantage
Southwest AirlinesActivity System
Limited
Passenger
Service
Limited use
No seat
assignments
No meals
No
baggage
transfers
No
connections
with other
airlines
Very Low
Ticket Prices
Short-haul, point-
to-point routes between
medium-sized cities &
secondary airports
High
Aircraft
Utilization
Lean, Highly
Productive
Ground & Gate
Crews
Frequent,
Reliable
Departures
Limited use
of travel
agents
Automatic
Ticket
Machines
15 minute
Gate Turns
Standardized
fleet of 737
aircraft
High
employee
compensation
Flexible
union
contracts
High
employee
stock
ownership
“Southwest
the low-fare
airline”
Elements of a Strategy
� Objective� The primary goal(s) that motivate behaviour in the
organisation
� Advantage�Description of what the firm does differently, �Description of what the firm does differently,
better, or uniquely compared to all other competitors� The value proposition that encourages customers to purchase
� The drivers or sources of that advantage including the functional policies and activities that support the advantage
� Scope�Definition of the domain in which we will operate
Southwest Airlines Strategy Statement
�To grow at 12-15% per annum
�By providing low price air travel
�On point to point routes between �On point to point routes between second tier airports
�With simple, frequent service that allows for rapid gate turns
Objective
� The primary goal(s) that motivate behavior in the organization and that will be rewarded�Simple, stretch, proximate, measurable
� Dimensions can be chosen from a wide range of targets�Profitability, size, market share….�Profitability, size, market share….
�Can be defined in absolute or relative terms
� Involve a time horizon
� Ideally should be a single target�Multiple targets confuse the organization
� If there is more than one goal, the hierarchy should be clear
Objective
�Choice of objective can have dramatic impact on the firm�Boeing commercial aircraft redefines its objective
from being #1 to being the most profitable firmfrom being #1 to being the most profitable firm
�Objective selection addresses the fundamental long / short term tradeoff
Scope
� Definition of the domain in which we will operate
�Can be defined in multiple dimensions
�Customers, channels, technologies, geographies, products and services, value chain activities
�Not a precise statement of what we will do
�A delineation of the boundaries we will not go beyond
Scope
�Three dimensions
Product/Customer
Valuechain
Southwest Airlines: Business Scope
Excluded Activities Major
Airports
Non-stop long haul flights
Interconnections
FIRM
International flights
Hub and spoke
Continuous price changes
OAS
�The combination defines �What we are trying to achieve, and how we measure
our progress
�What sandbox we will operate in
�What means we have to realize our goals�What means we have to realize our goals
�The combination �Wins in the marketplace
�Compels precision about competitive positioning
�Drives execution� Facilitates understanding of required behaviors throughout
the organization
CHALLENGE
�Can you articulate the strategy for your business in less than forty words?!