Key Concepts in Competitive Strategy

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Key Concepts in Competitive Strategy

• International Business
• Dr. Attila Yaprak

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Value Chain

• Configuration of key company functions that are
  designed to add value for customers. The way a
  company organized key processes determines its
  competitive advantage.
• Strategy should guide the firm in value-chain
  configuration
• Enhancing core activities, externalizing others
  can create value (including partnerships and
  outsourcing)

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Core Competence

• Organizational skills, knowledge, and
  capabilities that account for past success and
  can ensure future growth.
• These areas of strength need to be constantly
  cultivated/nurtured, as part of deliberate
  strategy.
• Management must select core competencies
  selectively and engage the entire organization in
  continuous embellishment.

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Competitiveness

• 1. Key challenge of any business is to achieve
  and sustain competitiveness. Other goals are
  secondary.
• What is Competitiveness?
• Superior and consistent performance in terms of
  the measures that matter--customer loyalty, good
  flow of new products, profitability, share of
  market...all relative to principal competitors.

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Competitiveness

• 2. Competitiveness is most meaningful in the
  context of an industry and the global market.
• Key success factors vary according to industry
• More industries are becoming subject to global
  competition.

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Competitiveness

• 3. Over time, different perspectives on managing
  become popularized JIT, TQM, BPR (Business
  Process Reengineering), Teams, Learning
  Organization, Empowerment...Management emphasis
  shifts over time. Nevertheless, the fundamental
  management process has not changed.
• Access Define what Seek and Manage Your
• Market the Customer Cultivate Value Adding
• Opportunity Values Core Process
• Competence

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Competitiveness

• 4. There is not a single determinant of
  competitive advantage/marketplace success
• Design
• Cost leadership
• Getting close to customer Intimacy
• Time to market Speed
• Ability to recruit best management talent
• Market intelligence and customer research
• Quick to respond to challenges/opportunities
• Maintaining entrepreneurial spirit and fighting
  stifling bureaucracy
• Ongoing configuration of firms value chain
• Partnerships
• Intangibles like vision, leadership
• Luck?

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Competitiveness

• 5. Dont always look for big, radical solutions.
  Hundreds of little improvements, implemented
  daily, will add up.
• 6. The environment of business enterprise
  (technology, customer, regulation, competitive,
  etc.) is constantly posing new challenges and
  opportunities. Ongoing reexaminations and change
  are unavoidable.

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Competitiveness

• 7. Senior leadership has the ultimate
  responsibility in assessing the need for change,
  facilitating, and providing directions for it.
  Ability to rally the entire organization behind
  change is exceptional.
• 8. Ongoing benchmarking is essential and
  valuable.
• Systematic and comprehensive audit of company
  capabilities can be accomplished through a tool
  like COMPASS, developed by Michigan State
  University.

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Competitiveness

• 9. Knowledge essential for decision making in
  global business in multidimensional--too daunting
  for any one individual in the organization to
  possess.
• 10. Internalization, retention, and dissemination
  of knowledge throughout the organization is just
  as important as acquiring it.
• Decision Support Systems (DSSs) can help
  knowledge does not have to slip away as people
  leave the organization it can be
  institutionalized.

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Phase Key Management Challenge
Product Orientation How to enhance price and performance features Innovation design Consumer research Brand management Time to market
Productivity Orientation How to achieve higher standards for product cost and quality Manufacturing technology quality enhancement
Process Orientation How to re-engineer the corporation Organizing activities not around products Or divisions but by key processes that create customer value (new product development, customer service, etc.) Cultivating knowledge, skills, capabilities (core competence) that set the firm apart from competition.
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Illustrations of Internationalizing the Value
Chain

• Stage in Value Chain Types of Collaboration Compa
  ny Examples
• Research Development International strategic
  alliances
• Licensing/cross licensing
• Product Design Design contracting
• Manufacturing Global procurement
• Contract manufacturing
• Equity joint ventures (FDI)
• Agency agreements
• Licensing
• Marketing Exporting to distributors/agents
• Franchising
• Distribution Exporting to end-users
• Business format franchising

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Consideration in the Choice of Internalizing vs.
Externalizing Selected Value Adding Activities
such as Manufacturing, RD, Distributionin the
Global Marketplace
Arguments for Arguments for
Internalization (Vertical Integration) Externalization (Partnering)
Avoid transaction costs (searching, negotiating, communicating, monitoring) Internal transaction costs may be lower Retain proprietary knowledge Reap the benefits of internal discovery, organizational learning, strong organizational culture Avoid dependence on partners (e.g., suppliers, distributions) Achieve greater efficiency Concentrate on what you do best (enhance core competences) Achieve flexibility in sourcing Gain speed in getting products to market Free scarce capital to employ where you have competitive advantage Establish long-term relationships with a global network of suppliers, distributors and other partners Exploit national and/or differential advantages of partners
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Value Chain for a Pharmaceutical Company
Product Development, Testing, and Approvals
Basic Research Discovery
Input Sourcing Manufacturing
Marketing Distribution
Sales

• Knowledge and capital intensive
• Highly regulated (FDA)
• Typically 18 of sales revenues
• Centralized in a few locations
• Balance across product lines (e.g., cancer,
• anti-infectives, CV, CNS)

• Business planning
• Gaining influence
• Speed if critical market directly at home
• and across TRIAD, license in other
• markets
• Decentralized/alliances
• Regulated

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Value Chain for GM

• Parts Production
• (remain in-house)
• Batteries
• Catalytic Converters
• Lighting
• Electrical and wiring
• Ignition
• Suspension and steering
• Partner or Outsource
• Bearings
• Bumpers
• Stampings
• Axles
• Horns

Joint Venture with Toyota
Complete Production
Final Assembly
Marketing
Materials Sourcing
Sales and Service Outsourced to Dealers
Independent Parts Suppliers
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Value Chain for Sample Medical Device Company
Performed Mostly by Freight Forwarder
Joint Venture with large Medical
Device Multinational
R D Partnership with University
Subcontracted to Specialty Manufacturer
Design
Engineering
Production
Logistics
Marketing
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Value Chain for Little Caesars Enterprises, Inc.
Development and Refinement of Little
Caesars Business Format (Systems)
Product Sourcing and Distribution
Franchisee Partnering
Product Development
Field Support

• By Little
• Caesars food
• technologists
• at Farmington
• Hills

• Unique competitive
• positioning
• Quality assurance

• Blue Line
• Distributing
• Food, equipment,
• packaging
• National and
• international
• suppliers
• Considerable
• economies
• of scale

• Selection,
• training,
• developing
• Real estate
• Architecture/
• design
• Supplier
• selection

• Promotion
• Training
• Managerial

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Questions to Ask in Value Chain Analysis

• How, where, and for whom value adding takes
  place?
• What are key success factors (speed, efficiency,
  unique design, etc.)? What are points of
  vulnerability?
• How can the process be made more efficient,
  streamlined, or rationalized?
• What opportunities exist for outsourcing?
• How can we ensure maximum coordination between
  functions?
• Which activities contribute to gross
  margins/profitability?

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Why Organizations are Vulnerable?

• Complacency/inertia
• Management blinders ignoring early warning
  signals
• Aura of invincibility/arrogance
• Past strategy becomes ingrained in organizational
  routines
• Mixed motives of leadership/desire for status quo
• Resistance to change from the rest of the
  organization
• Organizational bureaucracy
• Missing leadership and creative vision

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Attributes of Tomorrows Managers

• Motivators, advisers, facilitators
• Be able to rally others in desired directions
• Instrumental in setting strategic direction
• Vision for the future of the organization
• Managing trade-offs
• Choices to make re tech., customers, markets,
• Good negotiators in diverse cultural areas
• Also with regulators and government bodies
• Intuitive able to detect weak signals
• Sixth sense more and readily available
  information, but reliable?
• Bridge knowledge gaps

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Attributes of Tomorrows Managers

• Possessed with a sense of the product
• Good knowledge of the industry global
  architecture
• Changing market applications
• Not obsessed with the management process
• Not locked into one mental frame flatter orps?
• Flexible and adaptable. Many will change careers
• Willing to gamble
• Trader/Merchant mentality
• Confident to take risks
• Entrepreneurial less like administrators
• Good in managing small companies

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National Competitiveness

• Why does a nation become a homebase for
  successful international competitors in an
  industry?
• Possible Answers
• Macroeconomic policy
• Cheap and abundant labor
• Bountiful natural resources
• Government policy
• Management practices Workforce attitudes

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Industry Competitiveness

• A group of competitors that are able to achieve
  and sustain world-class standards
• Key Success Factors
• Productivity
• Innovation and RD
• Manufacturing costs
• Entrepreneurship/Long-term orientation
• Industry structure and environment

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Firm/Enterprise Competitiveness

• Results from how the firm positions itself with
  respect to choice of markets, products, and
  competitors.