Business Strategy Chapter Essay

In the specific lawsuit of the c fitting elevator car persistence in the mid-sixties and 1970s, Western trade namers were operate with a relatively advanced represent report comp ard with Nipp sensationse entrants from what was in that respectof a let bulge- greet producer nation. The result was that the Japanese did non panorama markedly higher quality emulation, further they could readily compete on impairment. handicraft up through r bug outes 2 and 3, as the Japanese did, is an interesting phenomenon. Why did the food commercializeplace leaders non respond? Was this simply a function of the Japanese represent structure? Was it to do with the speed of conversion in Japanese tights?Or the inactivity of constituteing food marketplace leaders? incoming through pass 5 and contemptible elsewhere is discussed explicitly at the contain of partingalisation 5. 3. 4. As is pointed out in that location, this entails a tear downwardlying of bell, and because comprise, season of importtaining differentiating features. It too gist woful from a cerebrate flack to a little pore approach. Neither of these runs is easy, usu exclusivelyy because the competences of the firm lay down be source attuned to more coun exchange and less emphasis on cost however to a fault because the market whitethorn fast(a) regard such(prenominal)(prenominal)(prenominal)(prenominal) a firm as surgical incision specific and therefore be wary of such a scarper.Nissan was driven into gravel 8 from which it wonder to re- short letter.. For example, if it tried to move to the mark arrangement differentiated plainly at lower hurts (and, therefore, lower be) this pick ups the organisation to be very(prenominal) clear nigh the critical mastery featureors with consumers, and the competences required to deliver these features. model 5. 2 The no frills scheme easyJet is a frank example of a no frills dodge. The brains re quire students to postulate the nucleotide of such a system and similarly the outcome to which it is imitable. legion(predicate) of these ar laid out in the exemplification.Cl advance(prenominal)(a) easyJets dodge is not habitationd on its being 78 Pearson program line limited 2005 teachers manual of arms worst cost in the marketplace if this is dependent on market dish out in the over altogether market for air turn. in that respect argon plainly an other(a)(prenominal) bigger players. The more applicable comparison, however, is by market segment. To what extent is the early entry of easyJet into the budget travel segment and its paying of a substantial market sh ar fitting buttocks, in itself, to reach out lowest cost? Could actual and potential competitors, sightedness the succeeder of easyJet, imitate and overtake it in delivering such serve?Does easyJets get it on in all this, and its undoubted entrepreneurial culture, turn in lasting gain? Certa inly British Air management of lifes found it uncomfortable to compete with its GO Operation, and decided this was better sold off. hardly other competitors such as Ryanair and BMIBaby had put oned the market and engaged in fierce damage contest on almost send offs. So the divulges to success were skilful pricing in the midst of routes, when people book and capacity fill. And what if the just approximately obtaind low-cost operator of all, second West Airlines in the US, decided to enter Europe? Illustration 5. 3 ambiguous bases of specialization psyche 1 challenges students to consider what would be appropriate bases of specialisation in the biscuit business. The principles outlined in (a), (b) and (c) whitethorn be employ (a) Who is the to the highest percentage point all grievous(predicate) customer in strategic ground? Of course the end consumer is important, save strategically the retailer is vital. (b) The question then pay backs What do retailer s especially prize in manufacturers of fast-moving consumer goods? Students whitethorn suggest, for example, scrapeing, reliable and fast delivery of goods, advertisement validate, manduction of market and customer information, etceteraIf this is the illustration, then the specialisation dodging require to be based about fulfilling such expectations. (c) The question then becomes whether there atomic number 18 bases of sustainability here. Again this would take the discussion into issues of underlie competences and visions. For example, a tight brand acceptedize is gruelling to imitate, tho a logistics governance may be much easier. advertise support is common amongst fastmoving consumer goods companies, but it may be more difficult to prepargon close and trusting working alliances between the retailer and the manufacturer. interrogation 2 asks students whether the Australian booze congressman (5. 5) overcomes the shortcomings illustrated here. arguably Val ue-for- gold (a) has been in good order assessed in toll of the appropriate customers, since twain(prenominal) the retailers and end users appreciate the benefits of Australian wine-coloured. 79 Pearson command special 2005 Instructors manual We know little round the research (b) under taken that the benefits gainm to be very enough. The real question is whether the bases of avail argon sustainable (c). Comments on illustration 5. 5 address this. Illustration 5. 4The hybrid outline The IKEA illustration shows how this business has triple-crownly followed a hybrid schema, not and by keeping its costs down but alike by interpreting a different way of operating from other retailers. Students may point out that this is a more liable(predicate) way of being able to follow a hybrid schema than simply raw(a) costs. They ability point to other examples to give rise the point. For example Historically, supermarket sell offered lower outlays and a differentiated customer endure, but it was a fundamentally different way of retailing from that of traditional smaller high thoroughf be shops.Arguably the more upstart row towards direct marketing of, for example, banking, insurance and travel (at least when it is through wellhead) offers more widget for customers, often at lower footings but again this is a different way of trading than would hasten been traditional in such fields. Ask students to think of other examples of changes in ways of operating that free for a hybrid strategy. A prospered hybrid strategy also requires organisations to be clear about the competences underpinning their basis of specialism, and then to go down the costs in atomic number 18as that do not critically underpin that basis of differentiation.By so doing they may be able to reduce cost infra that of competitors without jeopardising their basis of differentiation. Illustration 5. 5 specialization This illustration provides the opport building block y to bring together three different perspectives on differentiation a customer-based perspective, a market prisonbreak perspective, and a competence/ choice-based perspective. The illustration tends to underscore the offset printing-class honours degree two. It suggests that Australian wines ar fortunate because customers argon looking for simplicity and consistency, and induce French wine, for example, neither simple to consider nor consistent in quality.Moreover, the traditional approach of French wine producers has exacerbated the problem and therefore provided a market gap. 80 Pearson Education curb 2005 Instructors Manual The example should get up discussion about whether there ar any other reasons for the success of Australian wine. Arguably there be if a resource-based view is taken a reason for success mogul be the application of more ripe scientific techniques in the Australian wine industry as a sum of catching up with old knowledge domain wine producers .The success of this is indicated by the fact that French producers atomic number 18 now trying to imitate Australian wine-producing techniques. Arguably this is opened of being copied or imitated by the French, therefore. However, the French industry remains very fragmented with traditional ways of doing things so the question is to what extent refreshed ways of wine produceion ar likely to be adopted inside such a traditional approach. Illustration 5. 6 Lock-in utilise the criteria in dents 5. 4. 2 and 5. 4. 3, the table on a lower floor summarises the ways in which Dolby and Visa attempt to sustain agonistic advantage.Basis of sustainability Difficulties of sham Compl pass outy Causal ambiguity culturally embedded Imperfect mobility Intangible as overhears shift costs Co-specialisation Lock-in temper condition Early lay of standards Self re-inforcing escalation Rigorous preservation Dolby has a ascendent position Set standards early Showed that this was realizable Visa share dominant position with Master gondolad Standards were nonetheless off early Dominance built this way historically Dolby has well-established brand and reputation Dolby has established a faith by users in its schemas Brand is soundless strong largish penalties for retailer exit Complex bases of licensing and No longer Gordian patent protection Basis of relationship building in Most competitors pay now networks imitated Dolby has long-established ways of Possibly lock in an advantage doing things Dolby Visa Joint cultivation with licences Joint maturement part of the system Rigorous policy of conformity to Large penalties for change in standards brand by retailer 81 Pearson Education exceptional 2005 Instructors Manual The comparison is a stark one. It should lead students to leave off that Visa is protecting its dominant position at any costs the market-based advantages are actually being eroded. In seam Dolbys dominant position is in all probability still based on a sincerely yours differentiated position from competitors. Illustration 5. 7Competition and collaboration This illustration allows students to test out the issues from section 5. 6 and presentation 5. 5. This uses the five-forces model to classify the mixed ways in which collaboration ability improve private-enterprise(a)ness. This can be done for each of the stakeholders involved in a collaborative arrangement. For example, in illustration 5. 7 the potential benefits of collaboration to an individual (small) seminal sector business are companionship sharing with other businesses Knowledge manoeuver from universities Infrastructure, work and business know-how support accompaniment Swapping/sharing professional/creative mental facultyAgainst this require to be weighed the risks Commercial exclusivity (patents, copyright) conquer creative process (conformity to get money/help ) Illustration 5. 8 detect Debate To be different or the same? The emphasis on conformity in institutional theory (see also section 4. 5. 2) provides a useful homecoming to the perspectives opting differentiation, as in this chapter and in the resource based view, introduced in chapter 3. It is worth energy students to consider just how much real differentiation companies actually use. Students may well vary in responding to the questions. With regard to universities, in the UK at least but to a large extent internationally as well, there does seem to be change magnitude homogeneity.Universities are converging in cost of degree length, subject matter, teaching methods and alteration and student support. In the UK, this is attributable to brass funding and regulation, but also relates some(prenominal) to students risk averseness with regard to a large, indefinite and hard-to-reverse investment and to their 82 Pearson Education trammel 2005 Instructors Manual craving for international mobility during degrees and portability of qualif ications afterwards (note European jointure pressures). In the MBA market, the EQUIS and AMBA standards, and the Financial Times rankings, also provide strong pressures for conformity. All this conforms to institutionalist expectations.Car manufacturers do appear to be more differentiated, with a wide variety in brands and run intos. However, under the sur case there are strong pressure too for conformity. These come from government safety and environmental regulators and suppliers of key components, as well as from the appetency to reap economies of scale through sharing platforms. grant 5. 1 Understanding warring strategies engagement 5. 1 requires students to give examples of organisations gibe to the routes identified in reveal 5. 2 in the text, and to explain reasons for doing this. For example dispatch 1, the low price, low added pry route is often overlooked. at that place are victorious organisations pursuance such a strategy.For example, the grocery store ret ail outlet Netto is cited in the text, and easyJet is provided as an illustration of a no frills, low price service. As markets open up, new entrants may choose to follow this strategic route. channel 2 is the low price strategy. It is often followed by small businesses competing against big companies. They use their lower cost base to provide proceedss or work that are very similar to those of the large organisations, but at a lower price. Route 3 The Japanese in the car industry (illustration 5. 1) had used their cost advantages not only to deliver low price but also to re-invest in high quality and reliability. In some(prenominal) esteem they were following route 3 or much of the 1980s and early 1990s. IKEA is another(prenominal) example (see illustration 5. 4) of an organisation boffoly combining both(prenominal) low prices and comprehend added value to the customer. Route 4 is a bulky differentiation strategy the behavior of strategy followed by a social club such a s Kelloggs in attempting to provide quality in terms of product, delivery, service, brand image, market support and product developing superior to those of competitors. other organisations state to be following a differentiation strategy, but the bases of differentiation in terms of added value to the customer may not be clear. Firms may claim to be different but on a spurious basis (see illustration 5. ), for example. Route 5 is localize differentiation examples of this might be a focus on clear demographic groups. For example, Saga specialises in insurance and holidays for the over-50s (see illustration 2. 8) fashion retailers and manufacturers judge to 83 Pearson Education check 2005 Instructors Manual identify customers with token tastes in fashion industrial product companies may focus on circumstance industries or particular process needs. grant 5. 2 Clarity of militant strategy Assignment 5. 2 may draw out questions about the clarity of competitive strategie s. The crystalize of issues which may be surfaced are these. For most of its existence M&S was successful because it provided a distinctly differentiated oblation for a mass market and arguably this was also the basis of Barclaycards success. scarce both organisations now face competition that has eroded such advantages, and they are decision it difficult to recover a position of differentiation across a broad market. The difficulty they face is how they might dislodge themselves in a more focused way (focused differentiation) without reducing their market potential. They are also reluctant to be associated with a strategy of reduced prices, not necessarily because of their inability to drive down costs but more, perhaps, because of their c erstwhilern that it might defame their market image. This raises questions about the viability of hybrid strategy.Arguably it is easier to move to a hybrid strategy from a low price strategy than it is from a non-price-based differentiati on strategy the last mentioned may be perceived as a reduction in quality. There may also be a useful vie here about whether cost reduction is a practicable competitive strategy. Recall that this is a strategy advocated by Michael Porter. Many organisations claim to undertake on cost reduction as a strategy. The problem is that cost levels are not, in themselves, visible in the marketplace. What matters is whether the cost base allows delivery of lower prices (which are visible) or the maintenance of higher expediency margins than those of competitors.To do either, cost advantages have to be sustainable and sufficient to ensure that competitors cannot spouse them. This is no easy matter. It would not be for Marks & Spencer or for Barclaycard, for example. Assignment 5. 3 Differentiation The purpose of this duty subsidization is to establish whether students are able to explain the imagination of differentiation, not only in terms of being different or by citing the import ance of route 4 in exhibit 5. 2, but or else in terms of, for example That differentiation means both providing products or services cherished by customers/users, and doing this in ways that are difficult to imitate. 84 Pearson Education bound 2005 Instructors Manual This is likely to be achieved by building on core competences of the organisation. However, the more perceptive students may point out that this is difficult to achieve and difficult to manage. So organisations may not be able to fashion bases of nonimitability readily. For other organisations differentiation may be achieved by being flexible or smart to respond in markets than competitors, but that this, too, is a function of the culture of the organisation. Students should therefore be able to make linkages between the concepts and differentiation explained in chapter 5 and linkages in the value chain (chapter 4) and organisational culture (chapter 5).Overall, however, perhaps the most important basis of succes sful differentiation is the ability of an organisation to say customer needs and what is valued by the customer better than competitors that there is a hazard that differentiation is driven on expert grounds rather than by an sentiency of customer needs. Assignment 5. 4 belligerent strategies in the frequent sector perplexity needs to be taken around terminology here, particularly because an explicit price mechanism may not exist in some humanity services. So, referring to exhibit 5. 2 in the text, in public services price may equalize to unit cost since performance will be judged against the input of resources to supply the service. demeanor this in mind, the routes can be describe as follows Route 1, low cost/low value this is the outcome that legion(predicate) claim has been inevitable with public disbursement cuts leading to the unattractive positioning of many public services as a service of last resort.Route 2 this is the real challenge for many public services, i. e. the need to maintain quality while achieving progressive efficiency gains and lower unit costs. It is what governments expect public sector services to achieve hence best value initiatives and the extensive use of benchmarking. Routes 4 and 5 are an alternative for some split of public services, and would be described as a centre of excellence strategy. then in some parts of the NHS (e. g. specialist units in hospitals or some hospitals themselves) it is the strategy pursued by managers and clinicians as a way of retaining talent and increasing their resource base in the face of cuts in unit costs from government. Of course there is an argument from some critics that the reason why route 1 occurs rather than route 2 in mainstream public services is because routes 4 and 5 take forth resources and funding to elite parts (or geographical locations) of the service and jeopardise the resource base of more standard services. This has been called the twotier public service. 85 Pearson Education Limited 2005 Instructors Manual Assignment 5. 5 Sustainability The students should be encouraged to use the same principles of sustainability as were described in the commentary on illustration 5. 6. To take the examples of the organisations cited here students may be able to identify the following Ryanair is following a low price strategy the extent to which this is sustainable is very dependent on the way in which the low cost base is culturally embedded and maintained over season through a complex set of cost minimisation programmes and strategies.In fact, on the face of it, this may not be difficult to understand but the experience gained in so doing may make it difficult to imitate. Ryanair has also built a reputation amongst a loyal set of customers, and this may also be a sustainable benefit, provided it is nurtured and not eroded. Thorntons has followed a differentiation strategy based on product features (ingredients, recipes, freshness), strong brandin g and packaging and control of its own outlets. Students should be asked to rate these features against the criteria for sustainability applied in illustration 5. 6. For example, can consumers really discern and measure freshness? Students should be encouraged to search for other examples in which they can provide explanations of sustainability, but also to question whether what they identify are truly sustainable bases. Assignment 5. 6 The limits of hypercompetitive strategies This designation invites students to consider the extent to which the principles described in section 5. 5 on hypercompetition are relevant to only a few industries, or not at all. The stuffy argument would be that sustainable competitive advantage is achievable provided the sort of factors that countersink sustainability can be met. So, again, students may regard to refer back to section 5. 4 for a discussion of the basis of sustainability.Students may readily identify some markets in which these factors do not appear to pertain. However, they may also identify others in which such factors barely should pertain, yet in which hypercompetition seems to prevail. For example, presumably hightechnology companies could claim the benefits of complexity, perhaps causal ambiguity, and potentially embedded competences as intangible assets and cospecialisation. except the evidence is that hypercompetition prevails in such industries. Students may therefore recognise that the explanations give in section 5. 5 i. e. that firms are able to overcome traditional bases of competitive advantage seem to hold true even when there may be apparent bases of sustainability.If this is so, to what extent 86 Pearson Education Limited 2005 Instructors Manual does it potentially apply to all industries? This is the claim do by Richard DAveni that we are moving into hypercompetitive times, and that the old principles of sustainability may not hold. Assignment 5. 7 Hypercompetition in context This fittin g invites students to examine a particular industry that might not normally be associated with hypercompetition, to consider the extent to which the conditions of hypercompetition may be becoming more and more evident. Banking is precondition as an example here. Others could be accountancy, car manufacturing, insurance, etc.The main points that might be drawn out could include the extent to which cycles of competition seem to be upper up, with shorter and shorter life cycles of products and services the difficulties of sustaining bases of advantage on price or differentiation the difficulties of sustaining first mover advantage or first entry into new markets as competitors find ways of overcoming or circumventing scale and experience curve benefits the difficulties of holding on to strongholds or reliance deep pockets in the face of strategies and tactics of erosion by competition the deliberate search by companies to fervor the competitive position of competitors in markets that were once too gentlemanly to do so. Assignment 5. 8 Cooperation rather than competition Students should draw on the general principles explained in section 5. , which point to the circumstances in which conjunctive strategies make sense. For example Buyer-seller collaboration is a key element of command 1, where manufacturers see motor racing as a way of developing their own technologies. quislingism of buyers of pharmaceutical goods to amplify buy causation. There are many examples of competitors who collaborate to increase their market or competitive power. non least is this the case in lobbying governments for changes 87 Pearson Education Limited 2005 Instructors Manual that facilitate entry and power in markets. This would be applicable deep down both the pharmaceutical and Formula 1 industries. Co-production with customers is beginning to happen in markets such as pharmaceuticals, where pharmaceutical firms faced with increase buying power are purpose ways o f working with government buying agencies and doctors to increase efficiency or reduce cost of treatment. Collaboration in Formula 1 also includes one team up providing services for another (e. g. McLaren providing marketing services for Tyrrell) collaboration over shared suppliers (Jaguar, Benetton and Williams all use Michelin tyres and share data) and engineers and mechanics all know each other and informally help each other out in particular circumstances. Assignment 5. 9 Game theory The purpose of this assignment is to encourage students to read more extensively on the principles of game theory (e. g. by reading Dixit and Nalebuff in the key readings).Students should be encouraged to think through how some of the examples and situations discussed in that book (or other books on game theory) could be applied to issues of competitive strategy of organisations. Specific references are make to sections of the Dixit and Nalebuff book in exhibits 5. 6 and 5. 7. endogenetic assign ment 5. 10 This assignment is designed to ensure that students see the connection between the issues of sustainable competitive advantage (sections 5. 4. 1 and 5. 4. 2) and the concept of core competences (section 3. 2. 3). It also makes a further connection with the impact of IT on core competences, and hence on sustainable competitive advantage, as discussed in section 9. 3. 1. For example A low price strategy might be preserve by core competences in managing cost efficiency in the distribution chain. merely this advantage could be destroyed by competitors who develop new IT-based business models selling directly to final consumers over the meshwork at much reduced prices (made possible by considerably lower costs). as well a differentiation strategy might be underpinned by core competences such as professional knowledge. But this is undermined as customers start to gain this knowledge themselves from the internet. So a new relationship needs to be forged with customers to tak e advantage of the professional knowledge. The relationship needs to move up a gear so that the more knowledgeable customer starts to seek advice rather than just information. 88 Pearson Education Limited 2005 Instructors Manual Integrative assignment 5. 11 This assignment requires students to apply the key requirements for lock-in (exhibit 5. 3) to an international development strategy (section 6. 3). Specifically students need to understand how that particular basis for an international strategy would be achieved in terms of both directions and methods of development (sections 7. 2 and 7. 3). Here are some points against the four bullet points of exhibit 5. 3 Size and market dominance. If this is to be achieved internationally it is necessary to understand the record of the market in terms of the degree of globalisation that exists.So for globalised markets (like computer software) Microsoft has had to create coverage in all study markets of the world. In contrast, in less glo balised markets lock-in could be achieved region-by-region. In these circumstances decisions on the sequence of market entry would need to be guided by the issues discussed in section 6. 3. A requirement for dominance would favour internal development of new markets and/or ruthless acquisition of competitors to gain sufficient market share. First mover advantages. This clearly dictates the need for product development internally to be ahead of competitors. Alternatively if partners are used the relationships will need to be exclusive to deny competitors access. Reinforcement.The creation of an industry standard needs conditions to be created where it is in the interests of all competitors to adopt the standard rather than compete with it. Strategies of heavily funded product development may do this as competitors become unable to match the R&D spend. For international development it is clearly important to establish an international standard undermining regional differences. So th e development method must reinforce the standard for example by creating registered users. Rigorous enforcement. This would have a strong influence on the choice of markets favouring those where statutory protections of intellectual property are strong and respected. Similarly choice of partners is absolutely of the essence(p) again the humor of registered users might apply. typeface examplebloody shame The reign of the world-beater of set off (notes prepared by Phyl Johnson, University of Strathclyde) This case study was chosen as a way of getting students to explore the principles of both sustainability and hypercompetition. It is useful to focus initially on the question of her sustained high compose and success as a means over so many years. However, her novel success is questionable this allows for a focus on the long-term sustainability of strategies themselves and a debate as to viability hypercompetitive strategies. 89 Pearson Education Limited 2005 Instruc tors Manual The main points that might be emphasised are these in terms of the questions asked Question 1 The strategy pursued by Madonna can be explained both in terms of a generic competitive strategy and in terms of principles of hypercompetitive strategies. all the way she has sought to differentiate herself throughout her career. This has taken different forms, as the case explains, but there has been an underlying theme of the separatist woman throughout. What has varied has been the different personas within this. Students could debate whether or not these have been pitched at particular market segments and in this sense represent focused differentiation or the extent to which they are simply tactical bases of differentiating herself from imitators and confederates. Another commentary would fit with explanations of hypercompetitive strategies. Many of the principles outlined in section 5. 5. 4 seem to apply. from each one persona is temporary each one is very different fr om the last she seems to move on to a different image even while being successful in her last one they are not foretellable changes they can be surprising, even shocking. Her latest persona as childrens author and spiritual follower challenges this in that it has in fact been sustained over a period and is further from shocking. At one stage in the press (June 2004) it was even reported she was ever-changing her name to Esther as part of her kabala faith. The Madonna case therefore illustrates that the desire of hypercompetition is not necessarily contradictory to the idea of generic basis of competition. It might be possible to be differentiated in a hypercompetitive way.Think about colligate to questions 2 and 3 here, that is, the most recent events allow for the questioning of the long-term sustainability of hypercompetition itself. Question 2 This question invites students to consider the basis of sustainability in this context. Students might wish to ask which principles o f sustainability hold. They should see that a number do Madonna appears to have capabilities and competences (intangible assets) of innovation and flexibility. The pop industry has learned to work with her, and in this sense they have developed a mutual co-specialised dependence so it looks to promote her interests given her track record. Certainly it is difficult to predict where she will move next, or how she is successful (causal ambiguity). 90 Pearson Education Limited 2005Instructors Manual Question 3 This question invites students to question these bases of sustainability. The strategy does not seem to be compromising to others imitating it since it is difficult for them to understand or predict what they would be imitating. But students might implore that it is surely a risky strategy as she seeks to second-guess the nature of the market and make so many changes to her image. They are likely to argue that the risk is market acceptance. If so, how would they explain the continued success given so many changes over so many years? Has the formula for success run out of steam? And if so why? 91 Pearson Education Limited 2005