Business Process Innovation

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Business Process Innovation Management

• Sri Sharma
• School of Business Administration
• Oakland University
• Winter 2003

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Industry

• Group of firms producing products and services
  that are close substitutes

3
Competitive Strategy

• Goal
• To find a position in the industry where the
  company can best defend itself against
  competitive forces or can influence them in its
  favor

4
Forces Driving Industry Competition
Potential Entrants
Threat of new entrants
Industry Competitors
Bargaining power Of suppliers
Bargaining power of buyers
Suppliers
Buyers
Rivalry Among Existing Firms
Threat of substitute products or services
Substitutes
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Threats of Entry

• Barriers of Entry
• Economies of Scale
• Product Differentiation
• Capital Requirements
• Switching Costs
• Access to Distribution Channels
• Cost Disadvantages Independent of Scale
• Government Policy

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Threats of Entry (continued)

• Expected Retaliation
• Entry Deterring Price
• Properties of Entry Barriers
• Experience and Scale Entry Barriers

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Intensity of Rivalry Among Existing Competitors

• Numerous or Equally Balanced Competitors
• Slow Industry Growth
• High Fixed or Storage Costs
• Lack of Differentiation or Switching Costs
• Capacity Augmented in Large Increments

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Intensity of Rivalry Among Existing Competitors
(continued)

• Diverse Competitors
• High Strategic Stakes
• High Exit Barriers
• Shifting Rivalry
• Exit Barriers and Entry Barriers

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Exit Barriers and Entry Barriers
Exit Barriers
Low
High
Low
Entry Barriers
High
10
Pressure from Substitute Products

• Substitutes limit the potential return on
  investment

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Bargaining Power of Buyers

• Concentrated or large volume purchases
• Small fraction of buyers cost or purchases
• Standard or undifferentiated products
• Low switching costs
• Backward integration threat
• Product unimportant to buyers product or service
  quality
• Buyer has full information

12
Bargaining Power of Suppliers

• Dominated by a few companies, concentrated
• No competition with substitute products
• Not important customer of supplier
• Important input to buyers business
• Differentiated suppliers products
• Built up switching cost
• Forward integration threat

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Competitive Strategy

• Process of
• taking offensive or defensive actions to create a
  defendable position in an industry
• coping successfully with the five competitive
  forces
• getting superior return on investment

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Types of Strategies

• Overall cost leadership
• Differentiation
• Focus

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Three Generic Strategies
Strategic Advantage
Uniqueness Perceived by Customer
Low Cost Position
Industry wide
Strategic Target
Particular Segment Only
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Overall Cost Leadership
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Differentiation
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Focus
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Risks of Generic Strategies
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Stuck in the Middle?

• Follows none of three strategies
• Low profitability

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Other Aspects of Generic Strategies

• Generic Strategies and Industry Evolution
• Generic Strategies and Organizational Structure
• Generic Strategies and the Strategic Planning
  Process

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The Value System
Single-Industry Firm
Firm Value Chain
Diversified Firm
Firm Value Chain
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The Generic Value Chain
Firm Infrastructure
Human Resources Development
Margin
Support Activities
Technology Development
Procurement
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
Service
Margin
Primary Activities
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Value Chain Activities

• Building blocks of competitive advantage
• Primary Activities
• Activities involved in the physical creation of
  the product/service and its sale and transfer to
  the buyer as well as after-sale support
• Support Activities
• Support the primary activities and each other by
  providing purchased inputs, technology, human
  resources, and other firm-wide functions

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Primary Activities

• Inbound Logistics
• Activities associated with receiving, storing,
  and disseminating inputs
• Operations
• Activities associated with transforming inputs
  into the final product
• Outbound Logistics
• Activities associated with collecting, storing,
  and physically distributing the product to the
  buyers

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Primary Activities (continued)

• Marketing and Sales
• Activities associated with providing a means by
  which buyers can purchase the product and
  inducing them to do so
• Service
• Activities associated with providing service to
  enhance or maintain the value of the product

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Support Activities

• Procurement
• activities associated with purchasing inputs
• Technology Development
• activities associated with improving the product
  and process

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Support Activities (continued)

• Human Resource Management
• activities associated with recruiting, hiring,
  training, development, and compensation of all
  types of personnel
• Firm Infrastructure
• includes general management, planning, finance,
  accounting, legal, governmental affairs, quality
  management, etc.

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Types of Activities

• Direct
• Create value for the buyer
• Indirect
• Facilitate direct activities
• Quality Assurance
• Assure quality of other activities

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Defining the Value Chain

• Do it for a particular industry
• Isolate and separate activities that have
• Different economics
• A high potential impact on differentiation
• Represent a significant or growing proportion of
  cost
• Disaggregate activities if needed

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Exploiting the Value Chain

• Individual activities in the value chain
• Linkages, interrelationship, and integration
• Scope
• Vertical, segment, geography, and industry