Competitive Strategy Essay Example for Free

Competitive outline EssaySuccessful and unprofitable strategies shape a companys destiny R.A. Burgelman, dodging is Destiny Competitive Strategy is the superior dodging used by the house to give its p bentage goals, and in peculiar(a), profitability, in the face of argument. We get a line free-enterprise(a) scheme within the over wholly context of engineering science pie-eyeds, which operate within a supposed industry, e.g., the figurer industry, the consumer electronic industry, the cellular ph maven industry. Each industry, ideally, serves a food commercialize, which denotes the buyers or customers of the proceedss and services offered by the industry. The decease of dodge, which has a time horizon of years, is, in general, to set the long-term direction or position of the firm, for casing define the engine room, product, or service that the firm intends to develop, and determine the intended mart for the product or service. The escape of planning, wh ich, in general, has a time horizon of several months to years, is to translate long-term scheme into medium-term activities, e.g., the portfolio of projects that the firm should be amaze the time-phased planning of these projects, and resource allocation. The function of operations, which has the time-horizon of days to months, is, in general, to translate medium-term planning activities into short-term product design, development, and sales talk activities such as prototyping, manufacturing, product release, and shipment. No company can fol pocket-size-t matchlessd only one outline. For example, Johnson Johnson uses one merchandise scheme for its common product such as BAND-AID Johnsons baby products and different market strategy for its High Tech healthcare products such as Vicryl Plus, antibacterial surgical sutures or NeuFlex palpate joint implants. There are several different types of strategy, including agonistic strategy, technology strategy, product market str ategy, pecuniary strategy, and depict-chain strategy. For a technology company to be successful all these strategies deprivation to be ordained with for from each one one other, and with the task goals of the firm. Competitive strategy, is the highest take of strategy in the firm, and is intimately related to the mission and vision of the firm and also to setting the direction for all the other strategies in the firm. There are several schools of strategy formation design, planning, positioning (Mintzberg, 1998). We focus on ii of the essence(p) schools or frameworks for strategy- being or strategy-making that are in particular of import for high-technologycompanies.The first framework is the so-called positioning cost due to hall porter ( ostiary, 1980), In this flak strategy is viewed as taking a generic position in a combative market and which views strategy-making as an analytic go performed at the industry-market geomorphological level (Porter, 1980) and the yielding dynamics between operational groups of players (e.g., competitors, suppliers) in the industry. The second framework analyzes strategy-making at the industry-level, company level, and intra-company level using underdevelopedary organization theory (Burgelman 2002). In this evolutionary organizational theory approach, each company is an organizational ecology within which strategy emerges by dint of twain basic mechanisms, external filling and internal selection. When companies start, because they are bare-ass and small the external selection mechanism dominates. As a company grows in size and becomes more established, internal selection plays an important manipulation. Based on evolutionary organization theory, views strategy-making as an evolutionary process performed at 3 levels industry-company level, company-level, and intra-company level. When these two frameworks are combined, an integrated approach to militant strategy emerges from industry-market level all t he way to intra-company level. A curious aspect of creating hawkish strategy for a company, and in particular, a high-technology company, is that the time-scales for the evolution of markets, industries, and technologies are, in general, much shorter (quicker) compared to other industries. Therefore, the strategy frameworks of the positioning school needs to be augmented with available symbolises (Clark and Wheelwright, 1993), which capture the evolution of the market, industry, and technology relevant to the company, and which can then be used to create strategy. The objectives of this chapter are as follows1. name the positioning framework for the creation of competitive strategy. 2. Provide an integrated competitive strategy process which is efficacious in appendage competitive strategy in a technology company. 3. Demonstrate the application of the process of competitive strategy The objective of technology strategy (Clark and Wheelwright, 1993) is to guide the technolo gy company in developing, acquiring, and applying technology for competitive advantage. An important part of technologystrategy is the definition of technical capabilities (e.g., advanced device design, rapid prototyping, automated assembly) that offer competitive advantage. The objective of product/market strategy is to cl archeozoic establish the following define what differentiates the product from its competitors identify market segments for the product, the customer needs of these segments, and the corresponding products (i.e., product lines) that will be offered to these segments etc. An important outcome of product/market strategy is to define the product road affair, including sales volume and price, necessary to realize the business goals.However, in the rapidly evolving industry and market landscape of high-technology, competitive strategy, in turn, depends on ternion levels of strategy-making as follows (Burgelman, 2002) 1. Industry-company level. At this level the firm must determine its strategic position, its effect competencies, and its strategic action. 2. society level At this level strategy-making involves bring forth strategy and autonomous strategy. 3. Intra-company level At this the internal level autonomous strategy is created. In successful companies, it is the tight coupling of strategy these three levels of strategy-making with the highest-level (i.e., industry-market level) competitive strategy that, results in successful strategic action where what the company actually does, e.g., the product lines it develops and markets, results in the realization of its business goals. It is also utile to mention two other strategies that are closely related to competitive strategy. monetary strategy includes issues such as capital budgeting and portfolio management, i.e., deciding on which technology and product development projects to broth in hostel to maximize the cumulative expected profit. Another important and related strategy is s upply chain strategy (Chopra), which specifies the service, distribution, and operations functions, performed any in-house or outsourced, that the company should do well in order to successfully realize its intended competitive strategy.The Positioning FrameworkWe first present a historic overview of the positioning or analytic school of strategy. Then, we develop the quin rips framework (Porter, 1980) andthe approach to creation of competitive strategy that is closely related to the volt passs framework. We will use the personal computing device industry to expound the approach. The positioning school of strategy which emerges from the competitive school is based on the following assumptions (Mintzberg, 1998) the marketplace is competitive strategy is a generic position in the marketplace strategy formation is the selection of a generic position based on synopsis. The underlying assumption is that industry or market twist drives position which drives the organizational str ucture of the firm. Matrices like the Boston Consulting Group (BCG) introduced two techniques the development-share intercellular substance, and the experience curve.The growth-share matrix for a firm, genuine in the archeozoic 1970s, is a 22 matrix with growth on one dimension, and market share along the other dimension. Each of these variables can take two values, high or low resulting in a 22 matrix. Therefore, the product portfolio of a firm can be decomposed into four combinations of growth and market share, each with a well delineate meaning (High growth, high market share) or stars, (high growth, low share) or question marks, (slow growth, high share) or specie cows, and (slow growth, low share) or dogs. The approach to strategy using this matrix would be to have a portfolio balanced mainly between cash cows (the stable business of the firm, e.g., MAC computers in the case of Apple) and stars (e.g., the iPod, in the case of Apple). The experience curve, developed in 1965 -66, is based on the idea that accumulated experience by a firm influences cost and prices. The claim for the experience curve was that for each cumulative doubling of experience, total costs would decline nearly 20% to 30% because of economies of scale, organizational learning, and technical innovation (Ghemawat, 1999). In 1971, the consulting firm McKinsey came up with the GE/McKinsey nine-block matrix called the Industry Attractiveness- disdain Strength matrix (Ghemawat, 1999), which plotted business dominance High, Medium, upset along one axis, and industry seduceive phalanx High, Medium, Low along the other axis. The basic idea was to divide the company into strategic business units (SBUs), and then give way off the appropriate strategic recommendations for each SBU depending on its location in the matrix.TheFive rams Framework and Competitive StrategyIn this framework there are two high-level comprises in the creation of competitive strategy, each stage corresponding to a high-level determinant of profitability mentioned in the previous section. The first stage is the esteemment of the attractiveness of the industry in which a given company is embedded based on a structural analysis of the industry. In this stage, called the tailfin forces framework, five forces that influence industry attractiveness are identified, as well as the factors (e.g., number of competitors, size of competitors, capital requirements) that determine the transport of each force and therefore the cumulative persuasiveness of the five forces. The purpose of the five forces framework is to relate the degree (or intensity) of competition in a given industry, as qualitatively measured by the combined strength (or intensity) of five forces, to the attractiveness of the industry, defined as its ability to sustain profitability. Based on the structural analysis, a particular company may be in a very attractive industry (e.g., pharmaceuticals) or in an unattractive industry (e.g., nerve). However, though a firm exists in an unattractive industry, it can still be highly profitable by choosing the proper competitive position within the industry, for example, e.g., a mini-mill such as Nucor in the steel industry in the nineteen-eighties (Ghemawat). The second stage of strategy creation addresses the competitive strategy available to the firm in order to achieve a unwavering competitive position. Ideally, a firm would want to be in a very attractive industry (e.g., pharmaceuticals) and have a strong competitive position (e.g., large pharmaceutical firms such as Smith Klein or Glaxo) within the industry. The five forces framework for the structural analysis of an industry is as follows. First, we define the following terms used in the structural analysis of the industry industry, market, competitors, new entrants, substitutes, buyers, and sellers. The term industry denotes (1) the manufacturers (or producers) and (2) the suppliers of a primary product or service, as well as (3) the manufacturers of alternate(a) products and services that could serve as a substitute.For example, the (conventional) personal computer (PC) industry would include PC manufacturers like Dell and Apple, suppliers of semiconductor device chips like Intel and Micron, suppliers ofdisc drives like Seagate, suppliers of software such as Microsoft, etc. Substitute products could be pen-based tablet PCs or small hand-held personal digital assistants (PDAs). In the five forces framework described below, manufacturers and producers will designated as (1) competitors in the industry if they already have established products, or (2) new-entrants if they are trying to enter the industry, or (3) substitutes, if they provide alternative (substitute) products. The term market denotes the buyers (or customers) of the product or service. For example, the market for PCs would include enterprises and individual consumers. The analytical process of strategy analysis and crea tion can be decomposed into the following five steps. 1. Create a symbolize of the industry in which the technology company is embedded. There are five key sets of players that constitute the business landscape competitors, new entrants, substitutes, suppliers, and buyers. hear key players (companies) for each industry. 2. Perform a five forces analysis of the industry structure. The five forces that influence the intensity of competition in a particular industry, and therefore the profitability of the firms within the industry Force 1 the degree of rivalry (or competition) between the competitors Force 2 the threat of new entrants (or the inverse of this force, the barrier to entry) Force 3 the threat of substitutes Force 4 purchaser Power (to demand lower prices) Force 5 Supplier Power (to increase material prices). For each force, determine the key structural determinants which affect the intensity of the force. Porter and Ghemawat provide a detailed set of the determinants fo r each force, some of which are given in the table below. In the last editorial of this table we indicate plausible values of each force for the PC industry in the nineteen nineties.Table 1 Force Key Determinants Strength of the force Rivalry between competitors Concentration (number) and size of Medium to high competitors Fixed costs/value added shuffling indentity Barrier to entry Economies of scale Medium to high Brand identity Capital requirements Threat of substitutes expenditure/Performance of substitutes Low to medium Switching costs Buyer Power Buyer concentration Buyer size (volume) Medium to high Switching costs Supplier Power Supplier concentration Low to medium Supplier size (volume) Switching costs In theory, one would, qualitatively determine the strength of each force, as indicated in the third column of the above table, and then determine the cumulative or combined intensity of the five forces. The collective intensity or strength of the forces will determine the structural strength of the industry, as characterized by attractiveness, or the profit potential of the industry. The profit potential is measured by the long term return on invested capital (ROIC). If the collective strength of the forces is high, as in the steel industry, then the corresponding profit potential or attractiveness is low, and vice-versa. At one extreme of this analysis is the perfectly competitive free market, where there are numerous firms alloffering very similar products that cannot be identify (therefore, the force of rivalry is high), entry is free (therefore, the threat of two new entrants and substitutes is high), and bargaining power of both suppliers and buyers is low.Using the PC industry of the 1990s as an example, the qualitative values of the forces sh possess in the last column of the above table would lead one to conclude that the cumulative strength of the five forces was medium to high, and therefore the attractiv eness of the industry, i.e., its profitability, was medium to low. The PC industry in the nineteen-nineties would therefore not be attractive to new entrants, and in fact, in the early 2000s, HPs computer business was unprofitable, and IBM sold its computer business to Lenovo. (It is important to note that HPs unprofitability in computer business in the early 2000s cannot be attributed solely to industry attractiveness being low, but is also due to issues associated with its acquisition of the computer company Compaq.) 3. Select a competitive positioning strategy The basic premise of Porter and anteroom was that for a firm to be successful (in a market) it had to compete based on one of two sources of competitive advantage cost, i.e., by providing low cost products, or differentiation, i.e., by differentiating its products from its competitors with respect to quality and performance.Porter also proposed that a firm needs to select its strategic target either offering a product to t he entire market (market-wide), or offering a product for a particular market segment. Using these two dimensions (source of competitive advantage, and strategic target), Porter proposed the following three generic competitive strategies 1. be Leadership offering the lowest costs products to the entire market 2. Differentiated offering highly unique products (as perceived by the customer) to the entire market 3. Focus offering products which serve the needs of a street corner segment of the market Porters claim is that for a company to be successful in the industry in which it operates it must choose between one of the three generic strategies cost leadership, differentiated, and focus. If one uses the personal computer industry in the US during the 1990s as an example, then the competitive strategies of the study players was as follows Dell was the low-cost leader HP had a differentiated strategy with high-quality products Apple had a focus strategy, targeting a narrow marketseg ment of users who whom the user-experience (look, feel, and graphical user interfaces) were extremely important and IBM had a mixed strategy. 4. affiliation competitive strategy to strategic planning (Ghemawat 1999) In order for a company to derive competitive advantage (or position) within its industry, the company needs to maximize, relative to it competitors, the difference between the buyers willingness to pay and the costs incurred in delivering the product to the buyer. Therefore, the next step in the competitive analysis is for the company to bond competitive strategy to strategic planning by analyzing all the activities involved in differentiation and cost, and, to this end, a value chain (Porter, 1985) is an extremely important tool.According to Porter, the value chain disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. A three step process for using these a ctivities, first to analyze costs, then to analyze buyers willingness to pay, and in the end to explore different strategic planning options to maximize the difference between willingness to pay and cost, is developed in (Ghemawat, 1999). 5. Competitive strategy needs to evolve, especially in a high-technology company where markets, industries, and technologies, are changing relatively rapidly. A good example of the evolution of competitive strategy is IBMs strategic decisions to evolve from a product-based company in the early nineties to a services-led company at the present time. In the early nineties, when the company was in trouble, IBM closely examined its business model and strategic direction, and decided to stay whole by moving its focus from products and hardware to solutions. One result of this strategic shift was the creation of IBM Global work in the mid-nineties. By the late-nineties the company moved into e-business solutions, and extended this model in the 2000s t o business-on-demand. One result of these shifts in strategy was IBMs decision to exit the Personal Computer Market by selling its PC business to Lenovo.Functional MapsA functional map essentially is a time-based evolutionary map of a key metric for an important organizational function, e.g., a product performance metric map for the engineering function in a technology firm, e.g., the well-known Moores Law in the semiconductor industry. Since the time-scales for the evolution of markets, industries and technologies for technology companies, especially high-tech companies, is short compared to other industries, the creation of the appropriate functional maps is critical to strategy formation in a technology company. As an example, in the relatively short suspender of four decades, information technology evolved from mainframes through workstations, servers and personal computers to internet-based and mobile computing. An important feature of our approach to developing competitive strategy in a technology firm is the integrated approach to strategy for a technology company, which relates company strategy to the companys business goals, business strategy, technology strategy, and product marketing strategy. Since, markets, industries, technologies, and products for a technology company are continually evolving, an important concept that plays a vital role in the creation of strategy, and, in particular, competitive strategy, is the functional map (Clark and Wheelwright, 1993).Here are some useful dimensions along which to create functional maps for strategy creation a) Evolution of the industry in which the enterprise operates ( mixed bags in technology, customer needs, competitive landscape, etc.) b) Evolution of strategy business, technology, and market of the enterprise c) Evolution of technology (including manufacturing), product platforms, and product lines of the enterprise. The processes used for technology, product, and process development within the enterprise. d) Growth (or decline) of the enterprise with respect to of market share, revenues, costs, profits, etc. e) organizational structure of the enterprisef) Key decisions made at different stages in the life of enterprise, and the drivers for these decisions g) The interconnections and relationships between all the above dimensions A multi-dimensional functional map for Intel is given in the next section. A very truthful example of how functionalmaps can shape strategy is in the information technology industry. A functional map of the Information Technology Industry from the 1990s to the 2000s would reveal a shift from products to services. The service business in 2007-08 is approximately $750 billion, with IBM, whose share of this market is $54 billion, being the leader. HP, whose own share in the market is $17 billion seeing this shift in the industry and the need to build competitive strength, acquired EDS, whose share of the market is $21 billion. The combined share o f HP and EDS would then be $38 billion, allowing it to compete more strongly with IBM. Another simple example of the use of a functional map in creating strategy is in the software industry. In the 2000s the software market is moving from a packaged product to online software, where individuals can get software that is mostly free, supported by advertising. Google is using its leadership on the Web to provide online software that competes with Microsofts packaged software. Understanding this shift from packaged to online, and the corresponding change in the revenue model from direct sales (of product) to advertising, Microsoft is aggressively entering the online advertising business.Process for developing competitive strategy in a companyIf we combine the positioning framework for competitive strategy due to Porter, the evolutionary organization theoretic framework due to Burgelman, and augment these with the creation of relevant functional maps, then the resulting process of devel oping competitive strategy in a company can be decomposed into four stages, as follows. deliver 1 Company Analysis1. Establish the business goals and objectives (ROI, %market share, revenue, and growth aspirations). 2. Determine the technology strategy and product market strategy for the company. 3. Define the boilersuit development goals and objectives to align business goals, technology, and market strategies. 4. Develop the functional evolutionary maps of the markets and industry in which the company is embedded. Create functional maps (time-based evolutionary maps) for technology, product market, and manufacturingstrategy of the firm. These maps will be useful in the process of assessing and creating competitive strategy. Stage 2 Industry Analysis1. Perform the structural analysis of the industry in which the company is either an active competitor, or a new entrant, or a substitute. 2. Determine the existing competitive strategy of the company within the industry. 3. Determine the relationships between the company and the other players in the industry Stage 3 Assessment and Evolution of the companys strategy within the relevant markets and industries 1. Using the functional maps of the overall markets and industry in which the company is embedded, as well as the company specific functional maps, assess the evolution of the companys competitive strategy. 2. Decide on what the companys future competitive strategy should be, and the corresponding technology strategy, product market strategy, and manufacturing strategy. GlossaryAutonomous Strategy (also see induced strategy). Autonomous strategy refers to actions of individuals or small groups within the company that are outside the scope of stream high-level corporate strategy. While autonomous strategy is constrained by the companys characteristic (core) competencies, it usually (1) involves new competencies that are not the focus of the firm, and (2) results in so-called disruptive technologies that could change the strategic direction of the firm (Burgelman, 2002). Company Structure ( upended vs. horizontal). A vertical company is one which uses only its own proprietary technologies. A horizontal company is one which (usually because of the existence of open-standards) which does not solely rely on its own proprietary technologies, but usually uses technologies and products from other suppliers. In the computer industry, traditionally, Apple is an example of a vertical company, while Dell is an example of a horizontal company. The computer industry, itself, moved from a vertical structure to a horizontal structure in the 1980s (Ghemawhat, 1999). incorporated Strategy (official corporate strategy). Corporate strategy is top managements view of the basis of the companys success.It includes distinctive (core) competencies, product-market domains, and core values (Burgelman, 2002) Industry. The term industry, e.g., the consumer electronics industry,denotes (1) the manufacturers (or pr oducers) and (2) the suppliers of a primary product or service, as well as (3) the manufacturers of alternative products and services that could serve as a substitute (Porter, 1980). Market. The term market denotes the buyers (or customers) of the product or service. typically markets are segmented, for example, a two-dimensional segmentation based on the types of product (product segmentation) along one axis, and the types of customers (customer segmentation) along the other axis. The market, as represented by Buyers is an important part of the industry analysis in Porters framework. Once youve established the key assets and skills necessary to succeed in this business and have defined your distinct competitive advantage, you need to communicate them in a strategic form that will attract market share as well as defend it. Competitive strategies usually fall into these five areas1. Product2. Distribution3. Pricing4. Promotion5. AdvertisingMany of the factors leading to the formation of a strategy should already have been highlighted in previous sections, specifically in marketing strategies. Strategies primarily revolve just about establishing the point of entry in the product life cycle and an endurable competitive advantage. As weve already discussed, this involves defining the elements that will set your product or service apart from your competitors or strategic groups. You need to establish this competitive advantage clearly so the reader understands not only how you will chance upon your goals, but why your strategy will work.picReferencesBurgelman, R.A., Strategy is Destiny, The Free Press, novel York, 2002. Chopra, Sunil, and Peter Meindl, write out Chain Management, Strategy,Planning, and Operations, Third Edition, Pearson Prentice-Hall, 2007. Clark, K. B., and S.C. Wheelwright, Managing New Product and Process Development, Text and Cases, The Free Press, New York, 1993. Edwards, Cliff, Intel, Business Week, March 8, 2004, Pages 56-64. Ghemawat, P ankaj, Strategy and the Business Landscape, Text and Cases, Addison Wesley, 1999. Mintzberg, Henry and Bruce Ahlstrand, and Joseph Lampel, Strategy Safari, The Free Press, New York, 1998 Porter, Michael, Competitive Strategy, New York, The Free Press, 1980 Porter, Michael, Competitive Advantage, The Free Press, New York, 1985Figure 1 A strategic view of the technology firm, showing different types of strategyRevenue ($),Growth (%),Etc.Purpose of the companyFinancial StrategyCompetitiveStrategyMarketStrategyTechnologyStrategyBusiness Goals Vision Mission