Technology & Organisational Change

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Technology & Organisational Change. Business Level Strategy Week 4. Outline. Customers, Who, What and How? Types of business level strategy Cost leadership Differentiation Focused cost leadership Focused Differentiation Cost leadership\differentiation. Strategic Competitiveness. - PowerPoint PPT Presentation

Text of Technology & Organisational Change

  • Technology & Organisational ChangeBusiness Level StrategyWeek 4

  • OutlineCustomers, Who, What and How?Types of business level strategyCost leadershipDifferentiationFocused cost leadershipFocused DifferentiationCost leadership\differentiation

  • Strategic CompetitivenessTo achieve strategic competitiveness, firms must:Identify who their customers areDetermine customer needs/preferencesFocus on satisfying the needs of some group of customersSelect a strategy that enables them to satisfy customer needs

  • Internet Competitive AdvantageIn the Internet age, firms can maintain competitiveadvantage by: Thinking continuously about accessing & connecting with customers (reach)Maintaining info with depth & detail for and from customers (richness)Determining how to build relationships with customers (relationship)

  • Determining which customers to serveNeed to identify customers on basis of needs or preferencesFirm must determine whether differences in needs/preferences are significantIf not, can offer a standardised product.

  • Basis for Customer SegmentationCustomer MarketsDemographic factorsSocio-economic factorsGeographic factorsPsychological factorsConsumption patternsPerceptual factors

  • Basis for Customer Segmentation (cont.)Industrial MarketsEnd-use segmentsProduct segmentsGeographic segmentsCommon buying factor segmentsCustomer Size segments

  • Standardised ProductWhen would a firm offer a standardised product? When it cant easily be customised or differentiatedOr when firms core competencies are best suited to producing standardised products.Typically offer them at lowest competitive price as they follow a cost leadership strategy.

  • Increasing segmentation of marketsAvailability of sophisticated info processing technologies allows firms to identify unique bundles of customer characteristics and needsCompetitors are becoming adept at identifying small but strategically relevant differences in customer needsTrend towards smaller and smaller segments

  • Determining what needs to satisfyCustomers want needs satisfied and they want valueNeed to identify key customer groups, needs and preferences.Thus customer knowledge must be a priority for top level managers since they determine policy, technology etc

  • Customer knowledgeBecomes more important as firms attempt to perpetuate or sustain competitive advantage. By listening to customers, firms can correctly anticipate their future needs and create product innovations ahead of competitors- first mover advantage

  • Core CompetenciesDetermining core Competencies to satisfycustomer needsNeed to decide how to bundle resources & core competencies to satisfy customer needs to by implementing value creating strategies

  • Core CompetenciesThis means that:Firms must improve their ability to convert innovation and new technologies into commercial productsNew products should be based on core competencies or technologyNew products must meet present or future needs

  • Generic StrategiesNow look at 4 generic strategies, and how they relate to the 5 competitive forces, the applicability of the value chain, risks associated with eachA firms position in an industry relative to competitors and to the 5 forces of competitionRivalry with existing competitorsBargaining power of suppliersBargaining power of buyersPotential entrantsProduct substitutes

  • Breadth of Competitive ScopeSource of Competitive AdvantageBroadTargetMarketNarrowTargetMarketCostFocused Differen-tiationCostLeadershipDifferen-tiationFocused Low CostGeneric Business-Level StrategiesUniqueness

  • Generic strategy: Cost-leadershipOffers relatively standardised product minimum differentiation at lowest competitive priceReducing price is not necessarily a cost leadership strategy- need to give consumer value- includes quality

  • Cost reduction strategiesBuilding efficient scale facilitiesTight control of production & overhead costsMinimising costs of sales, R&D and serviceState of the art manufacturing technologies

  • Critical focusEfficiencyCost reductionStill cant ignore sources of differentiation that customers value- e.g. styling, minimal levels of service, quality

  • Strategy 1:Cost LeadershipEven when competitive forces are strong, a firm that has cost leadership can still earn above average profits.

  • Rivalry with existing competitorsAchieving the lowest cost position means that competitors will hesitate to compete on basis of price because in a price war, the low cost firm will continue to earn profits after competitors have competed away their profits

  • Bargaining power of buyersAchieving low cost position provides some protection against powerful customers who attempt to drive down pricesIf customers drive prices below the cost of the next most efficient firm, the firm might choose to exit the market, leaving the low cost firm in a monopoly position

  • Bargaining power of suppliersCost leadership strategy enables a firm to absorb greater amount of cost increases fro powerful suppliers before it must raise pricesIf has dominant market share, might be able to force suppliers to lower prices

  • Potential EntrantsFirms generally must produce & sell in large volumes to have cost leadership- this acts as a barrier to entry why?

  • Product substitutesTo retain customers the low cost leader can more easily reduce prices to maintain the price-value relationship and maintain customers

  • Cost LeadershipCompetitive risks of the cost leadership strategy: Tech innovations by competitors could eliminate advantageOver focus on efficiency might cause lack of focus on consumer preferencesCompetitors might imitate low cost leaders value chain configuration

  • Strategy 2: DifferentiationValue is provided through the unique features of the productCan charge premium pricePrice charged must exceed the cost of the differentiationFocus on product innovation and product features

  • Means of differentiationSuperior qualityUnusual or unique featuresMore responsive customer serviceRapid product innovationAdvanced technological featuresEngineering designAdditional featuresImage of prestige

  • Achieving above average returnsEven when competitive forces are strong

  • Rivalry with existing competitorsBrand loyalty means that customers will be less sensitive to price increases. As long as the firm satisfies the differential needs of customers it may be insulated from price base competition

  • Bargaining power of buyersProduct considered uniqueReduces customer sensitivity to price

  • Bargaining power of suppliersDifferentiator can absorb a greater level of cost increase from powerful suppliers through its higher margins

  • Potential entrantsPrincipal barrier is customers loyalty

  • Product substitutesBrand loyalty insulates differentiated products

  • Differentiation StrategyCompetitive risks of differentiation strategy:Customers may decide the cost of uniqueness is too highFirms means of differentiation no longer of value to customersCustomer learning may influence customer perception of valuecounterfeiting

  • Strategy 3: focusFirms focus on small segments or nichesWhy follow a focus strategy?Able to serve niche more effectivelyNeeds are so special that industry wide competitors choose not to meet themCan be based on cost leadership or differentiation

  • Focused cost leadership strategyGenerally targets the smallest buyers in the industry

  • Focused differentiation strategyCustomised products for small segmentsSuccessful when quantities involved are too small for industry wide competitors, or when the degree of customisation requested is beyond capabilities of the industry wide differentiator

  • Competitive risks of focus strategiesCompetitors may successfully focus on an even smaller segment of the marketIndustry-wide competitor may recognise the attractiveness of the segmentPreferences of the narrow segment may become similar to those of the wider market

  • Integrated cost-leadership/differentiationIntegrating generic strategies may enable them to:Adapt quickly to environmental changeLearn new skills and technologyMore effectively leverage core competencies across business units and product linesProduce differentiated products at a relatively low cost

  • Integrated cost leadership/differentiationBenefitsDifferentiation enables firm to charge premium priceCost leadership allows firm to charge lowest price

  • Integrated cost leadership/differentiationProducts from integrated costleadership/differentiation strategy are: Less differentiated than if firm pursued just a differentiation strategy andCosts not as low as if pursued cost leadership strategy

  • Integrated cost leadership/differentiationTo overcome Competitive Risks must be able to:Focus consistently on reducing costsAdd differentiated features that customers value and for which they are willing to pay a higher priceAvoid becoming stuck in the middle by failing to consistently pay attention to the competitive requirements of either or both generic strategies.

  • Competitive dynamics

  • OutlineIncreased rivalry Model of competitive dynamics & rivalryLikelihood of attackLikelihood of responseFirms abilities to take action and respondOutcomes of inter-firm rivalry

  • New ways of competingBring new products to the market more quicklyUse of new technologyDiversifying product lineShifting product emphasisConsolidation of industriesCombining on-line selling with traditional

  • Changing Competitive EnvironmentRe