Strategic Thinking for the Next Economy Chapter 10: A Dynamic View of Strategy.

Strategic Thinking for Strategic Thinking for the Next Economythe Next Economy

Chapter 10: Chapter 10:

A Dynamic View of StrategyA Dynamic View of Strategy

Strategic PositionStrategic Position

WhoWho should the company target as should the company target as customers?customers?

WhatWhat products or services should the products or services should the company offer?company offer?

HowHow can the company do this efficiently? can the company do this efficiently?

Edward JonesEdward JonesWho?Who? Individual investorsIndividual investors

Areas with ‘sense of community’Areas with ‘sense of community’

What?What? Long-term products (bonds)Long-term products (bonds) No risky IPO's or commodity futuresNo risky IPO's or commodity futures

How?How? Never manufacture, only distributeNever manufacture, only distribute Buy only from reputable suppliersBuy only from reputable suppliers One-person officesOne-person offices Remain a partnershipRemain a partnership Focus on the customer, not the brokersFocus on the customer, not the brokers

Who, What, and How?Who, What, and How?

1)1) Chemical Brothers, Inc.Chemical Brothers, Inc., a large chemical , a large chemical firm, has developed a new compound that can firm, has developed a new compound that can be used as a substitute for traditional candle be used as a substitute for traditional candle wax. It can be formulated for about twice the wax. It can be formulated for about twice the burn time of a wax candle, but will cost the burn time of a wax candle, but will cost the customer at least 25% more. customer at least 25% more.

Due to the nature of the compound, color Due to the nature of the compound, color options for the compound are limited to solid options for the compound are limited to solid colors like those found in an 8-pack of crayons.colors like those found in an 8-pack of crayons.


2)2) Chocotastic ProductionsChocotastic Productions, a small , a small chocolate shop in downtown New York, has chocolate shop in downtown New York, has stumbled upon a chocolate blend that contains stumbled upon a chocolate blend that contains only half the fat of regular milk chocolate but only half the fat of regular milk chocolate but provides the same great taste. provides the same great taste.

In order to accomplish this, high levels of In order to accomplish this, high levels of lactose sugars are used, making the product lactose sugars are used, making the product unsuitable for people who are lactose unsuitable for people who are lactose intolerant. Approximately 70% of adults intolerant. Approximately 70% of adults worldwide are lactose intolerant, but most worldwide are lactose intolerant, but most children under the age of 10 are not.children under the age of 10 are not.


3)3) Creswell-Riggs Auto ProductsCreswell-Riggs Auto Products, a motor , a motor wholesaler, has developed a new high-power wholesaler, has developed a new high-power and high-efficiency V8 engine that provides the and high-efficiency V8 engine that provides the power of a sports car with the efficiency of an power of a sports car with the efficiency of an economy car. economy car.

The engine, however, can only be sold to The engine, however, can only be sold to US auto makers due to existing trade US auto makers due to existing trade agreements, and because of the high level of agreements, and because of the high level of technological sophistication, the motor will technological sophistication, the motor will increase the price of the vehicle it is installed in increase the price of the vehicle it is installed in by 40%.by 40%.


4) 4) Amazonian Hair Co.Amazonian Hair Co. hired an ethno- hired an ethno-entomologist who, when studying native tribes entomologist who, when studying native tribes in the Amazon rain forest, has discovered a in the Amazon rain forest, has discovered a beetle that, when crushed, yields an extremely beetle that, when crushed, yields an extremely effective hair conditioner that could provide a effective hair conditioner that could provide a very profitable new product. very profitable new product.

The species can be raised in captivity, The species can be raised in captivity, but because of the company’s current but because of the company’s current marketing strategy of “environmentally friendly” marketing strategy of “environmentally friendly” hair products, management is unsure how to hair products, management is unsure how to proceed with the new product.proceed with the new product.


5) 5) Premier Pet ProductsPremier Pet Products has has developed a non-toxic chemical that developed a non-toxic chemical that tastes very bitter to dogs, but inexplicably tastes very bitter to dogs, but inexplicably tastes delicious to cats.tastes delicious to cats.

PremierPremier manufactures products for manufactures products for both dogs and cats, as well as other both dogs and cats, as well as other animals, and is able to expand current animals, and is able to expand current product lines if necessary.product lines if necessary.


6) 6) Music2u.comMusic2u.com and and SongsRus.comSongsRus.com are two are two competing online-music services that are competing online-music services that are nearly tied for market share and capitalization. nearly tied for market share and capitalization. Music2uMusic2u has developed a high speed has developed a high speed download protocol that halves the download download protocol that halves the download time from its website. time from its website.

Due to recent anti-trust legislation, Due to recent anti-trust legislation, however, they will be unable to protect the new however, they will be unable to protect the new protocol from imitation once it is released to the protocol from imitation once it is released to the public. public. Music2uMusic2u predicts that predicts that SongsRusSongsRus will will copy their protocol within 2 weeks of its launch.copy their protocol within 2 weeks of its launch.

Uniqueness is TransitoryUniqueness is Transitory

Success comes from an “Success comes from an “unparalleled unparalleled strategic positionstrategic position””

Uniqueness doesn’t last foreverUniqueness doesn’t last forever New positions challenge for dominanceNew positions challenge for dominance

Uniqueness is TransitoryUniqueness is Transitory

XeroxXerox example: example: Unique strategic position based on Unique strategic position based on

segmenting market by volumesegmenting market by volume Imitated by IBM and Kodak unsuccessfullyImitated by IBM and Kodak unsuccessfully Canon uses new strategic positionCanon uses new strategic position Canon eventually takes over as industry Canon eventually takes over as industry

leaderleader

Strategic InnovationStrategic Innovation

Proactively establishing a distinctive Proactively establishing a distinctive strategic position in order to:strategic position in order to: shift market shareshift market share create new marketscreate new markets

Break the rules of the game in the Break the rules of the game in the industryindustry


Strategic innovation brings increased Strategic innovation brings increased market sharemarket share Canon CopiersCanon Copiers Komatsu Heavy EquipmentKomatsu Heavy Equipment USA Today NewspapersUSA Today Newspapers Dell ComputerDell Computer First Direct BankFirst Direct Bank Starbucks CoffeeStarbucks Coffee Direct Line InsuranceDirect Line Insurance


Arises from changeArises from change in the following: in the following: Industry conditionsIndustry conditions Customer needs and preferencesCustomer needs and preferences DemographicsDemographics TechnologyTechnology Government PolicyGovernment Policy CompetitionCompetition Core competenciesCore competencies

Preparing for the Preparing for the UnknownUnknown Cannot predict emerging strategic Cannot predict emerging strategic

innovations so...innovations so...

Option 1:Option 1: Become the innovator Become the innovator

Option 2:Option 2: Exploit someone else’s innovation Exploit someone else’s innovation

1: Become the Innovator1: Become the Innovator

Cannibalize existing strategic position to Cannibalize existing strategic position to create “the next generation” positioncreate “the next generation” position

Old and new must exist simultaneouslyOld and new must exist simultaneously Two opposing forcesTwo opposing forces

Status quo makes money now, may not in Status quo makes money now, may not in the futurethe future

Innovation costs money now, may make Innovation costs money now, may make money in the futuremoney in the future

2: Exploit Someone Else2: Exploit Someone Else

Innovation most often comes from Innovation most often comes from outside the established firm outside the established firm

Must Must be readybe ready to identify the next to identify the next innovation from hundreds of ideasinnovation from hundreds of ideas

Being Ready for Being Ready for InnovationInnovation

11 – Build an early monitoring system – Build an early monitoring system

22 – Prevent cultural & structural inertia – Prevent cultural & structural inertia

33 – Allow experimenting with new ideas – Allow experimenting with new ideas

44 – Prepare core competencies – Prepare core competencies

55 – Manage the transition – Manage the transition

Elements ofElements of

Dynamic StrategyDynamic Strategy

Find unique strategic

position in current industry

Find unique strategic

position in current industry

Compete in this position by

becoming better than competition

Compete in this position by

becoming better than competition

Search for new strategic

positions

Search for new strategic

positionsManage old

and new positions

simultaneously

Manage old and new positions

simultaneously

Make transition from old position to

new

Make transition from old position to

new

Jump into different

industry, repeatprocess

Jump into different

industry, repeatprocess

Designing a successful Designing a successful strategy is a never strategy is a never ending process!ending process!

Review: Strategic Review: Strategic InnovationInnovation

Proactively establishing a distinctive Proactively establishing a distinctive strategic position in order to:strategic position in order to: shift market shareshift market share create new marketscreate new markets

Break the rules of the game in the Break the rules of the game in the industryindustry

Strategic InnovationStrategic Innovation Case 1: Cell phonesCase 1: Cell phones

In the Elbonian cell phone industry, the three In the Elbonian cell phone industry, the three remaining firms are in an oligopoly, and are probably remaining firms are in an oligopoly, and are probably involved in tacit collusion. The methods of service they involved in tacit collusion. The methods of service they provide are similar to those today, and have not really provide are similar to those today, and have not really changed since the advent of internet-capable phones changed since the advent of internet-capable phones several years ago.several years ago.

Shoyu Cellular Concern, a Japanese firm, wishes Shoyu Cellular Concern, a Japanese firm, wishes to enter the Elbonian market, but is unsure how to to enter the Elbonian market, but is unsure how to proceed. Since Shoyu will use similar phones as those proceed. Since Shoyu will use similar phones as those sold by established companies, they must figure out a sold by established companies, they must figure out a new strategic position with which to enter the market.new strategic position with which to enter the market.

Strategic InnovationStrategic Innovation Case 2: PharmaceuticalsCase 2: Pharmaceuticals

Nash Ultimate Tech, a small biotech startup, has Nash Ultimate Tech, a small biotech startup, has perfected the male contraceptive pill. Unfortunately, they perfected the male contraceptive pill. Unfortunately, they were beaten to the market by two large US pharmaceutical were beaten to the market by two large US pharmaceutical firms. firms.

While all three company’s products are essentially While all three company’s products are essentially the same in form and function, the first two companies to the same in form and function, the first two companies to market have met with dismal results using their traditional market have met with dismal results using their traditional marketing and distribution strategies (print and television marketing and distribution strategies (print and television advertising; pushed through doctors, hospitals and clinics). advertising; pushed through doctors, hospitals and clinics). There has also been considerable public backlash against There has also been considerable public backlash against the new product, especially from religious groups and the the new product, especially from religious groups and the writers of popular men’s magazines.writers of popular men’s magazines.

If Nash does not release their product, they are If Nash does not release their product, they are most likely going to go under anyway, so they must find a most likely going to go under anyway, so they must find a successful strategic position.successful strategic position.

Strategic InnovationStrategic Innovation Case 3: EducationCase 3: Education

Mary Beth Anderson has just graduated with her Mary Beth Anderson has just graduated with her masters degree in Business Administration, and to her masters degree in Business Administration, and to her surprise, she was offered the position of Dean of the surprise, she was offered the position of Dean of the College of Business at Crawford University, a small, College of Business at Crawford University, a small, private, and religiously unaffiliated 4-year university. private, and religiously unaffiliated 4-year university. When she asked why, the university president stated:When she asked why, the university president stated:

““You have outstanding credentials, and we need You have outstanding credentials, and we need some young blood to help us expand the College of some young blood to help us expand the College of Business and increase enrollment. As you know, there Business and increase enrollment. As you know, there are several large public universities nearby, all of whom are several large public universities nearby, all of whom have business schools. We need you to develop a have business schools. We need you to develop a drastic strategic innovation to save our floundering drastic strategic innovation to save our floundering business school.”business school.”

Mary pondered the situation carefully. How Mary pondered the situation carefully. How could she find a new strategic position for the business could she find a new strategic position for the business school that would pull applicants away from other school that would pull applicants away from other universities?universities?

Questions?Questions?

Strategic Thinking for the Next Economy Chapter 10: A Dynamic View of Strategy.

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