STRATEGY MAPS:A SPATIAL REPRESENTATION OF INTRA-INDUSTRY

COMPETITIVE STRATEGY

-Example of Multidimensional scaling-

Keiko Nakashima 29009701

OverviewsIntroductionPurpose of ResearchThe Basic Model (Literature Review)MethodologyApplicationAnalysis and ResultsDiscussionLimitation

Introduction Competitive Strategy is the search for an

advantage within a given competitive arena

Strategy and Performance are…

1. Complex2. Multidimensional3. Interrelated system of valuables

Strategy A

Strategy B

Strategy C

Profitability

Growth

Market position

… …

Performance

Introduction (con’t) Previous researches…

Strategy A

Strategy B

Strategy C

Strategy D

Growth

“Performance” as a Simple and Unidimensional construct

“Strategy” as Set of complex and Multidimensional interrelationship

Performance

Simple !!

Set of Complex

!!

Real world…

Introduction (con’t)

The performance of a Strategic Business Unit(SBU) can be evaluated in number of ways each of which indicates an entirely different dimension

Profitability Growth

Market PositionCash Flow

…Performance

In addition…

Performance dimensions are sometimes incompatible with one another (there is a complex trade-offs between performance)

Needs tools to guide managers in selecting various Performance and Strategies which better than just an intuition !!

Introduction (con’t)

The Purpose of this paper is... To develop a methodology that captures the

complex interplay of Strategy and Performance for given group of SBU’s or firms in an industry

a. Propose multidimensional scaring methodology to develop Strategy Map of inter-business competition for a given industry

b. Necessary trade-offs that a competitor must make in targeting its goals

c. Examine the relative importance of the competitive strategy variables in the derived competitive space

The Basic Model (Literature Review)

The Competitive Strategy Model

Competitive

Environment

Competitive Strategy

Performance

The Basic Model (Literature Review)

Competitive EnvironmentThe most common competitive environment (Porter

1980)1. Fragmented industries2. Global industries3. Emerging industries4. Transition to maturity dimensions5. Transition to maturity industries

This research focuses on… Business from one fragmented, mature,industrial supply industry

The Basic Model (Literature Review)

PerformancePerformance goals has three dimensions (Quinn and

Rohrbaugh 1983)

1st dimension captured external & internal focus2nd dimension reflected the organization desire for

flexibility VS control3rd dimension incorporated the degree to which

each performance objective was the mean to another, higher order objective (an interim end) VS an ultimate end in itself (final outcome)

Performance is a hierarchical system !!

The Basic Model (Literature Review)Performance (con’t)

Most competitive strategy research has focused on relationship between competitive strategy and individual measures of performance in isolation

The Method used in this research…

Strategy A

Strategy B

Strategy C

Profitability

Growth

Market position

Interrelationships

Assigns the various competitors their relative positions along these performance dimensions

……

The Basic Model (Literature Review)

Porter(1980) identified three generic strategies;1. Cost leadership2. Differentiation3. Focus

define the competitive strategy in terms of resource deployments

define it in terms of market scope

This research…

Competitive strategy is defined as the pattern of choices about resource deployment and market domains alongwith the distinctive competencies

Competitive Strategy

Competitive strategy chosen will depend on the nature of the competitive environment and the Performance objectives

Competitive Environment

A

Competitive Strategy

A

Performance A

The Basic Model (Literature Review)

Competitive Strategy (con’t)

Methodology Drawing the Map of the Business and

Performance measures in a Multidimensional space　　　　　

Basic model assumption…the performance of business is a DIRECT outcome of their strategy and the competitive environment

Competitive

Environment

Competitive Strategy

Performance

DIRECT

GENFOLD2…multidimensional unfolding procedure (DeSarbo and Rao 1984,1986)

Methodology Drawing the Map (example)

A

2

1

B

Firm Positions Relative to Performance in a Competitive Space

1 2

10 100100 10

AB

PerformanceMeasures

Firm2 is better performance

for A

The data used in this study were drawn from the Profit Impact of Marketing Strategies (PIMS) project

The sample was drawn from one single four digit SIC code to insure the homogeneity

Fourteen “clean” observations (samples) were found

Application (Sample)

Application (Sample)

Nature of competition and competitive strategies in Sample industries are…

Economies of scale are limited Competitors are at limits of their

production capacity Market are defined regionally Customer incur little or no switching cost

in moving from one competitor’s products to another’s

Application (Strategy measures)

Dimension of Performance construct and their operational measures were chosen based on 3 criteria:

1. Theoretical relevance2. Use in previous empirical studies3. Use by practicing manager in this

industry to evaluate business performance

Application (Performance measures)

Application (Performance measures)

Application (Strategy Map)

Strategy Map

Growth

Profitability

MarketPositio

n

Analysis and Results (Validation)

2 dimensional solution was performed on 13 business with one business as hold out case

The result are compared with previous result using canonical correlation analysis. All canonical correlation derived were greater than 0.99 valid

Predicted one business performance using existing 13 business performance. The result showed that predicted performance was 0.049 using 14 business analysis and 0.068 using 13 business analysis. Both goodness of fit measures are quite small indicating effective prediction valid

Discussion

“Strategy Map” has potential as a Strategic tool which manager can use to get a better picture of their competitive situation

The result consistent with Literature and Best Practices

LimitationStatic analysis developed for one

time period meaning that performance and level of strategy were measured in the same period

Dynamic approach is needed which all business are allowed to move in the competitive environment over time

All relevant variables may not have been included because PIMS lacked measures for them

Thank You!!