Crafting Business Strategy for Dynamic Contexts

1
Chapter 6
Crafting Business Strategy for Dynamic Contexts
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OBJECTIVES
Distinguish the ways in which firms strategies
are related to dynamic contexts

1
Identify, compare, and contrast the various
routes to revolutionary strategies
2
Evaluate the advantages and disadvantages of
choosing a first-mover strategy
3
Recognize when an incumbent is caught off guard
by revolutionary strategy and identify defensive
tactics to reduce the effects of this competition
4
Explain the difficulties and solutions to
implementing revolutionary strategies
5
3
THE TALE OF NAPSTER
Business model options
Napster
Music
Software and music
Software
Music
Roxio
Sonic solutions
4
SOUTHWEST AIRLINES
Think and act big and well get smaller. Think
and act small and well get bigger. Herb
Kelleher
5
THREE CAUSES OF DYNAMIC CONTEXTS
Examples
CompetitiveInteraction
Industryevolution
Technologicalchange
6
REVERSE ENGINEERING
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PHASES OF COMPETITIVE INTERACTION
Source Adapted from K.G. Smith, W.J. Ferrier,
and C.M. Grimm, King of the Hill Dethroning the
Industry Leader, Academy of Management Executive
152 (2001), 59-70
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COMMODITIZATION
Based on price
?
Making a choice for a gas station
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THE IMPORTANCE OF SPEED
What counts most in expeditionary marketing is
not hitting a bulls eye the first time, but how
quickly one can improve ones aim and get another
arrow on the way to the target. Hamel and
Prahalad
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HIGH AND LOW-END DISRUPTION
Strategy that may result in huge new markets in
which new players redefine industry rules to
unseat the largest incumbents
Strategy that appears at the low end of industry
offerings, targeting the least desirable of
incumbents customers
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FOUR ACTIONS FRAMEWORK KEY TO THE VALUE CURVE
Reduce
The key to discovering a new value curve lies in
answering four basic questions
What factors should be reduced well below the
industry standard?
Creating new markets A new value curve
Raise
What factors should be raised well above the
industry standard?
Source Adapted from W.C. Kim and R. Mauborgne,
Blue Ocean Strategy, California Management
Review 473 (2005), 105-121
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COMPETITOR OR COMPLEMENTOR?
Competitor if customers value your product less
when they have the other firms product than when
they have your product alone OR it is less
attractive for a supplier to provide resources to
you when it is also supplying the other firm than
when it is supplying you alone.

Complementor if customers value your product more
when they have the other players product than
when they have your product alone OR if it is
more attractive for a supplier to provide
resources to you when it is also supplying the
other firm than when it is supplying you alone.
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CONVENTIONAL VS. NEW MARKET-CREATION STRATEGIC
MINDSETS
Dimensions of competition
Head-to-Head competition
New-market creation
Industry
Strategic group andindustry segments
Buyers
Product and service offerings
Business model
Time
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PROS AND CONS OF FIRST MOVERS
A first-follower is often better off than a first
mover when
A first-mover is often better off than a fast
follower when

• Rapid technology advances allow a fast-follower
  to leapfrog the first mover

• It achieves absolute cost advantage

• The first movers offering strikes a chord but is
  flawed

• Its reputation and image advantages are hard to
  copy

• The first mover lacks a key complement (e.g.,
  channel access) that the follower possesses

• Its customers are locked in (i.e., switching
  costs exist)

• First-mover costs outweigh the advantages of
  being the first-move

• Scale of the first move makes imitation unlikely

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A GALLERY OF FIRST-MOVERS AND FAST FOLLOWERS
Imitators/fast followers
Product
Pioneer(s)
Comments
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A GALLERY OF FIRST-MOVERS AND FAST FOLLOWERS
(CONT.)
Imitators/fast followers
Product
Pioneer(s)
Comments
Source Adapted from S. Schnaars, Managing
Imitation Strategies (New York Free Press, 1994),
37-43
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EVALUATING A FIRMS FIRST-MOVER DEPENDENCIESON
INDUSTRY COMPLEMENTS
Status of complementary assets
Tightly held and important
Freely available or unimportant
Weak protection from imitation
Bases of first mover advantages
Strong protection from imitation
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THE SPECTRUM OF COMPETITIVE RESPONSES STRATEGIES
Difficult
Ease with threat can be controlled
Containment/Neutralization/Shaping/Absorption/Annu
lment
Great
Limited
Extensive
Scope of response
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CONTAINMENT
Containment
Limit the extent to which the new entrants
innovation impacts your business For example
American Airlines can partially contain Southwest
by using its bargaining power to secure more
exclusive airport gates
Neutralization
Shaping
Absorption
Annulment
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NEUTRALIZATION
Containment
Try to short-circuit the moves of innovators or
new entrants before they make them For example
The Recording Industry Association of America
launched such a fierce legal attack on Napster
that it forced even smaller Napster-like firms to
stay out of the fray
Neutralization
Shaping
Absorption
Annulment
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SHAPING
Containment
Shape the innovation so it becomes something the
incumbent can live with or even benefit from For
example For years the American Medical
Association used regulators to attack
chiropractors now they shape chiropractic
medicine to become a complement to traditional
medicine
Neutralization
Shaping
Absorption
Annulment
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ABSORPTION
Containment
Minimize the risks entailed by being either a
first mover or an imitator For example In the
late 1980s Microsoft purchased Intuit, the maker
of Quicken and QuickBooks because it identified
money-management software as a high-growth
opportunity.
Neutralization
Shaping
Absorption
Annulment
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ANNULMENT
Containment
Improve incumbent products and services to annul
an innovation or new entrants offering For
example Kodak has improved the quality of its
film-based prints so that they are superior to
many digital-based alternatives
Neutralization
Shaping
Absorption
Annulment
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REAL OPTIONS FIVE CATEGORIES
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CREATING OPTIONS FOR FUTURE COMPETITIVE ADVANTAGE
AND PROFITABILITY
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STAGING AND PACING IN THE REAL WORLD
Five years is the maximum that you can go
without refreshing the brand ... We did it
(relaunched Club Europe Service) because we
wanted to stay ahead so that we could continue to
win customers
British Airways
In each of the last three years weve introduced
more than 100 major new products, which is about
70 above our pace of the early 1990s. We plan
to maintain this rate and, overall, have targeted
increasing new products to (equal) 35 of total
sales
Emerson Electric
The inventor of Moores Law stated that the power
of the computer chip would double every 18
months. IBM builds a new manufacturing facility
every nine months. We build factories two years
in advance of needing them, before we have the
products to run in them, and before we know the
industry is going to grow
Intel
40 of Gillettes sales every five years must
come from entirely new products (prior to its
acquisition by PG). Gillette raises prices at a
pace set to match price increases in a basket of
market goods (which includes items such as a
newspaper, a candy bar, and a can of soda).
Gillette prices are never raised faster than the
price of the market basket.
Gillette
30 of sales must come from products that are
fewer than 4 years old
3M
Source S. Brown and K. Eisenhardt, Competing on
the Edge Strategy as Structure Chaos (Boston
Harvard Business School Press, 1998)