BUSN Strategy 2

1. Sek: Few management layers; Minimiye employee turnover; Automated technolgoy; Ensure low cost raw materials Prim: Effecive layout, Effective use of QC to minimiye rework; Sales force utiliyation is maximized; Through service repair guidelines to minimiye repeat maintenance calls
2. Position (vis a vis the five forces)
   1. Protects a firm against rivalry form competitors
   2. Provides substantial (wesentliche) entry barriers from economies of scale and cost advantages
   3. Puts the firm in a favorable position with respect to substitute products
   4. Allows for flexibility from price increases from powerful suppliers
3. Pitfalls
   1. All rivals share a common input/ raw material
   2. Is imitated too easily
   3. Lack of differentiation
   4. Erosion of cost advantages when the pricing information available to customers increases

1. Value Chain
   1. Facilities that promote the firm image, CEO with reputation; Programms to attract talented workforce,Provide training; superior material handling and sorting technology; Purchase of high-quality components to enhance product image
2. Improving Competitive Position (5 Forces)
   1. Creates higher entry barriers due to customer loyalty
   2. Provides higher margins that enable the firm to deal with supplier power
   3. Reduces buyer power because buyers lack suitable alternative and due to prestige associated with supplying to highly differentiated products
   4. Establishes customer loyalty and hence less threat from substitutes
3. Pitfalls
   1. Uniqueness that is not valuable
   2. Too much differentiation
   3. Too high a price premium
   4. Differentiation that is easily imitated
4. 1.   

Based on the choice of a narrow competitive scope within an industry

• Firm selects a segment and tailors its strategy to serve them (Niche)
• Firm achieves competitive advantages by dedicating itself to these segments exclusively

Improving (5 Forces)

• Creates barriers of either cost leadership or differentiation or both
• Also focus is used to select niches that are least vulnerable to substitutes or where competitors are weakest

Pitfalls

• Erosion of cost advantages within the narrow segment
• Still subject to competition form new entrants and from imitation
• Can become too focused to satify buyer needs

Goal is to provide unique value

If successful so difficult for competitors to duplicate or imitate strategy

Improving (5 Forces)

• High entry barriers, Bargaining power over suppliers,reduces power of buyers, value position reduces threat from substitute products, reduces the possibility of head-to-head rivalry

Pitfalls

• End up with neither -> Become stuck in the middle
• Underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain

Introduction

• Strategy: Develop product and get users to try it. Generate exposure so product becomes standard.
  • Products are unfamiliar to consumers
  • Market segments not well defined
  • Prodcut features not clearly specified
  • Competition tends to be limited

Growth

• Strategy: Brand recognition, Differentiated products, Financial resources to support value-chain activities
  • Characteriyed by strong increases in sales
  • Attractive to potential competitors
  • Primary key to success is to build consumer preferences for specific brands

Maturity Stage

• Strategy: Efficient manufacturing operations and process engineering, Low costs(Customers become price sensitive)
  • Aggregate industry demand slows
  • Market becomes saturated, few new adopters

Decline

• Maintaining, Exiting the market, consolidation
  • Industry sales and profits begin to fall
  •  Strategic options become dependent on the actions of rivals

1. Asset and cost surgery (asset sale)
2. Selective product and market pruning (divest)
3. Piecemeal (stueckweise) productivity improvements (BPR)

Why diversification?

• Synergy (working together) Can be achieved in many different ways
  • Related business - Sharing intangible and tangible resources. Spread their cost over a larger revenue base and enhance their market power by increasing dominance in a market, becoming a more critical supllier to their customers
  • Unrelated business - Leveraging some of the support activities in the value chain, such as information systems or humen resource practices.

1. Core competencies must enhance competitive advantage by creating superior customer value.
2. Different businesses similar in at least one important way to leverage core competence
3. Core competencies difficult for competitors to imitate or find substitutes for

1. Economies of Scope
   • Cost savings from leveraging core competencies or sharing related activities among businesses in the corporation
   • Leverage or reuse (wiederverwendung) key resources
     • Favorable reputation, Expert staff, Management skills, Efficient purchasing operations
2. Sharing Activities
   • Achieve synergy by sharing tangible and value-creating avtivities avross their business units:
     • Common manufacturing facilities; Distribution channels
   • Cost savings
     • Eliminating duplicate jobs; duplicate facilities and related expenses
   • Acquiring firm and its target may achieve a higher level of sales growth together than either could have achieved on its own
     • Comibined distribution channels can escalate sales of the acquiring company's products
     • Enhanced effectiveness of differentiation strategies
3. Market power
   • Strenghtening the parent company's bargaining power with suppliers, buyers reducing threats from competitors

Represents an expansion or extension of the firm by integrating preceding (vorhergehende) or successive productive processes

The firm incorporates more processes toward the original source of raw materials (backward integration) or toward the ultimate consumer (forward integration)

Benefits:

• Secure source of supply of raw materials
• Secure distribution channels
• Protection and control over assets and services
• Access to new business opportunities and technologies
• Simplified procurement and administrative procedures

Risks:

• Costs associated with increased capital and overhead expenditures
• Loss of flexibility from inability to respond quickly to changes in the external environment.

Issues before making a decision

• Are we satisfied with the quality of the value that our present suppliers and distributors are providing
• Are there activities in our industry value chain presently being outsourced or performed independently by others that are a viable source of future profits?
• Is there a source of core competency in the activity that is considered for outsourcing?

Related Business

• Synergy
• Core competency
• Vertical Integration

Unrelated Business

• Parenting
• Restructuring
• Porfolio management

creating value within business units

Advantages: Experience of the corporate (Firmen) office and support of the corporate office.

Corporate office helps the business units with E.G. Plans, Budgets, Procurement, Legal functions,...

Creation of synergies and shareholder value by portfolio management and the corporate office

• Allocate resources (cash cows to stars and some question marks)
• Expertise of corporate office in locating attravtive firms to acquire
• Provide Financial resources to business units on favorable terms reflecting the corporation's overall ability to raise funds.
• Provide high quality review and coaching for units.
• Book P. 164

1. Acquisitions or mergers
2. Pooling resources of other companies with a firm's own resource base
   1. Joint venture
   2. Strategic alliance
3. Internal development
   1. New products, New markets, New technology

Entering new markets

• Introduce successful product or service into a new market
  • Lacks requisite marketing expertise
    • Doesn't understand customer needs or how to promote the product

Reducing cost in value chain

• Join toher firms to reduce manufacturing cost in the value chain
  • Pool (Fonds) of capital, Value creating activities and facilities.

Strategic alliances

• Cooperative relationships between two or more firms. Can be either formal or informal, that is, involving written contracts.

Joint ventures

• Are special types of alliances in that the firms contribute assets to form a new legal entity.

Relationships have many potential advantages:

• Entering new markets, reducing purchasing, manufacturing and other costs in the values chain and developing and diffusing new technologies.

• Stock options (Financial assets)
• Real options (real assets or physical things)
  • Investments can be staged
  • Strategic decision-makers have tollgates (Gebuehrenstelle)
  • Increased knowledge about outcomes at the time of the next investment decision.