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Where we are...
External Analysis Internal Analysis
Competitive Positioning(Business-level strategy formulation)
Business level strategy
Actions taken to provide value to
customers and gain a competitive advantage (playing offense and defense)
How should we compete effectively in the businesses that we are in?
The Distribution of Economic Contribution between a Firm & a Buyer
Buyer’sBuyer’sSurplusSurplus
Firm’sFirm’sSurplus Surplus or or ProfitProfit
CostCost
PricePrice
ValueValue
A Firm’s TotalA Firm’s TotalEconomicEconomicContributionContribution
• Value = Willingness to Pay = price a buyer is willing to pay Value = Willingness to Pay = price a buyer is willing to pay in the absence of a competing product and in the context of in the absence of a competing product and in the context of other purchasing opportunities.other purchasing opportunities. The buyer always determines a product’s value.The buyer always determines a product’s value.
• Buyer’s surplus = Product’s Value to the Buyer - Market Buyer’s surplus = Product’s Value to the Buyer - Market PricePrice• Firm’s surplus = Market Price - Unit CostFirm’s surplus = Market Price - Unit Cost
In competitive markets, buyers capture part of the overall economic contribution a firmproduces.
Cost Drivers
Economies of scale Economies of scope Learning Curve Low input costs Organizational practices Vertical integration
SupportActivities
Primary Activities
Value Chain AnalysisValue Chain Analysis
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
Inb
oun
d
Inb
oun
d
Log
isti
csL
ogis
tics
Op
erat
ion
sO
per
atio
ns
Ou
tbou
nd
Ou
tbou
nd
Log
isti
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ogis
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Mar
ket
ing
Mar
ket
ing
& S
ales
& S
ales
Ser
vice
Ser
vice
helps to identify which resources and capabilities can add value
MARG
IN
MARG
IN
MARGIN
MARGIN
Isolating mechanisms
Property rights Dedicated assets Causal ambiguity (organization
specific practices) Switching costs
Creating new market space
• Typically in an industry, strategies tend to converge along the same basic dimensions of competition
• Creating new market space involves identifying unoccupied territory that represents a real breakthrough in value(capturing the “best of both worlds”)
Creating new market space
Old MarketOld MarketOld
Market
New Market Space
From Head-to-head competition to creating new From Head-to-head competition to creating new market spacemarket space
11
Four actions framework: The value curve
ReduceWhat factors should be reduced well below the industry standard?
Raise
What factors should be raised well above the industry standard?
The key to discovering a new value curve lies in answering four basic questions
Source:Adapted from W.C. Kim and R. Mauborgne, “Blue Ocean Strategy,”
Creating new markets:A new value curve
Creating new markets:A new value curve
Eliminate
What factors that the industry has taken for granted should be eliminated?
Create/Add
What factors that the industry has never offered should be created or added?
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Conventional vs. new market creation strategic mindsets
Strategic group and industry segments
Industry
Buyers
Business model
Time
Product and service offerings
Emphasizes competitive position within group and segments
Emphasizes rivalry
Emphasizes better buyer service
Emphasizes efficient operation of the model
Emphasizes adaptation and capabilities that support competitive retaliation
Emphasizes product or service value and offerings within industry definition
Dimensions of competition Head-to-Head competition New-market creation
Looks across groups and segments
Emphasizes substitutes across industries
Emphasizes redefinition of the buyer and buyer’s preferences
Emphasizes rethinking of the industry business model
Emphasizes strategic intent-seeking to shape the external environment over time
Emphasizes complementary products and services within and across industries
Creating shared value
Companies are trapped in a narrow vision of value creation
- optimize short term financial performance
- ignore broader influences of long-term success
Assumed tradeoff between economic efficiency and social progress (Friedman view)
Creating shared value
Reconceiving products and services
Redefining productivity in the value chain
Enabling local cluster development
Create a Win-Win for Business and Society
Choose which social issues to address
Create a social dimension to the company’s value proposition
Orchestrate heightened forms of collaboration
A more sophisticated form of capitalism