global management
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http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #1
MGT. 5491Session # 8
Strategic and
Global Management:
Corporate Strategies
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Corporate/Enterprise (Parent) Level Strategies
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Firms must learn to compete differently if they are to Firms must learn to compete differently if they are to achieve strategic competitiveness in the 21achieve strategic competitiveness in the 21stst-century -century competitive landscape. To provide an idea of what this competitive landscape. To provide an idea of what this means, new ways of competing may include:means, new ways of competing may include:
bringing new good and services to market more bringing new good and services to market more quicklyquickly
The use of new technologies (e.g., Amazon.com)The use of new technologies (e.g., Amazon.com)
Diversifying the product line (e.g., Barnes and Diversifying the product line (e.g., Barnes and Nobles into music as a catalyst for growth)Nobles into music as a catalyst for growth)
The New Reality - #1
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Shifting product emphasis (e.g., U-Haul’s new focus Shifting product emphasis (e.g., U-Haul’s new focus on accessory sales) (i.e., Dual Branding)on accessory sales) (i.e., Dual Branding)
Consolidation (e.g., the merger of Exxon and Mobil)Consolidation (e.g., the merger of Exxon and Mobil)
Combining online selling with physical stores (e.g., Combining online selling with physical stores (e.g., CompUSA’s new strategy)CompUSA’s new strategy)
The New Reality - #2
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Dell Model for GrowthDell Model for Growth
Have New Business Model (maybe changes every 5 Have New Business Model (maybe changes every 5 years?)years?)
Identify Core Competencies and then improve the Identify Core Competencies and then improve the four capabilitiesfour capabilities
Outsource non-core competenciesOutsource non-core competencies
Create a “Brand Management Company”Create a “Brand Management Company”
The New Reality - #3
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Brief Overview of Corporate Strategy
• Those strategies concerned with the broad and long-term questions of what business(es) the organization is in and what it wants to do with those businesses
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1. What businesses should the corporation/enterprise be in?
2. How should the corporate/G.O. office manage the array of business units (GBU’s/SBU’s/ Wholly owed subsidiaries)
Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts
Key Questions of Corporate/Firm-level Strategies
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21st Century Organization Strategies for Growth and Profitability Multi-International: One Consumer Products Company (Corporate Level)
DrivingGrowth (8)
FundingGrowth (5)
Creating theBest Place
To Work (10)
Global Scope
Consumer Promotion
3600 Marketing
Superior Knowledge ofCustomers/Consumers
Strong Alliances/Partnershipswith Customers
Coverage of Trade
Acquisitions/JV’s
Focus on ProductQuality
Innovative New Products/Services
Vision Direction: Guiding Core Values, Philosophies, Principles, Mission, & Others
RegionalizationWith Local Control
Lean & FlatStructures
Shared Leadership, Coaching & Feedback
Horizontal, Structures, Systems, & Processes: Integration/communication/coordination
Empower People
Stimulating Careers
Streamline and obtainA Seamless Supply Chain/Demand Side (Value Chain)Integration
Use of Technologies to create Cost Savings
IS/SAP/ConsolidatedPartnership
Move to “Global”And “Local” RegionalBusiness
HPWS
CommunityInvolvement
Recognition & Financial Rewards
Demand Side Strategies: Supply Chain Strategies:
Source: Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
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Corporate (and International) Strategies
• Three directions for corporate strategy– Growth
• M&A , JV, and SA (external growth)• International (internal growth)
– Stability (internal growth)– Renewal (internal growth)
• Retrenchment• Turnaround• Increase the four capabilities via core
competencies
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How does it fit together?How does it fit together?
Globalization(External Growth)
Globalization(External Growth)
Year 2009Success Factors
Year 2009Success Factors
Strategic Alliances
(External and/or Internal Growth)
Improvement inthe four Capabilities via Core
Competencies along Value Chain
Business Imperatives:
Capabilities:
Vision Direction and Strategies:
Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. (forthcoming)
Vision Direction
External and InternalStrategies
(Corporate & Business)
1st
2nd
3rd
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Organizational Growth: External and/or Internal
• External and Internal Growth Strategy– One that involves the attainment of specific
growth objectives by increasing the level of an organization’s capabilities
– Typical growth strategies include goals for:• Increase in sales revenues• Profits• Other balanced scorecard performance
measures
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Types of Growth Strategies
Organizational
Growth
HorizontalIntegration:
Along Value Chain
International Concentration
Diversification•Related Businesses•Unrelated Businesses
Vertical Integration•Related Businesses•Unrelated Businesses
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Concentration
Organization concentrates on its primary lines of business and looks for ways to meet its growth objectives through increasing its level of capability in this primary business
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Concentration
Product-Market Exploitation
Product Development
Market Focused Development
Product/Market Diversification
Cu
stom
ers
Product(s)
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Another Possible Way for Growth
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The “Right” People or the “Right” Organization?
• What are our basic Principles, Philosophies and Core Values?• What do we believe in?
• What policies and practices are consistent with these Values and Philosophies?
•What can we do for the customer better than our competitors?
• Given our core capabilities, how can we deliver value (EVA) to customers in a way our competitors cannot easily imitate?
• Senior management “manages” the values and culture of the firm.
A Values-Based View of Strategy
Fundamental Values or Beliefs
Design Management PracticesThat Reflect and Embody
These Values
Use These to Build Core Capabilities
Invent a Strategy That is Consistentwith the Values and Uses the
Talents & your four Capabilities toCompete in
New and Unusual Ways
Senior Management’s Role
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Possible Strategic FocusTrust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable?
The following examples are provided as evidence that the trust structures contribute to the above average performance of each firm. Anderson & Associates practices open-book management, meaning that all financial data are readily accessible on the firm’s Intranet. The company’s CEO claims that this practice contributes to employee loyalty.
Radius, a French restaurant in Boston, relies upon trust to sustain one of its competencies – excellent teamwork.
MTW Corp., a software and Internet applications provider, relies upon “expectation agreements” among the boss , an employee, and his or her work team.
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Possible Strategic FocusTrust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable?
3-18
What is the value of a friend who can be trusted compared to one who cannot be trusted?
Would you be willing to loan your car to the less-than-trustworthy acquaintance if they were going to need it for a few hours?
Would you trust them at all?
For firms, trust relationships can easily make the difference between a deal getting done or not, or it can impact the size of the deal that is done. Trust carries a great deal of weight, especially in an environment where it is in short supply. AND Today’s deal that is based on trust can lead to a sustainable edge when future deals are considered.
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Possible Strategic FocusTrust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable?
Trust and organizational success are closely linked. Trust benefits the organization in that it reduces the overall transaction costs.
There are many attributes to trust, the most prominent of which is risk. This risk can be divided into two categories:
Managerial Risk – the general risk of management decisions
Organizational Risk – characteristic of forms with volatile income streams
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Possible Strategic FocusTrust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable?
3-17
Davis, Schoorman, Mayer and Tan define trust as “the willingness of a party (trustor) to be vulnerable to the actions of another party (trustee) based on the expectation that the trustee will perform an action important to the trustor, regardless of the trustor’s ability to monitor
or control the trustee.”
Trust between general manager and employees may be a source of competitive advantage. This trust rests upon the trustor’s perception of the trustees:
ability – skills and competencies by which trustee may influence outcomes
benevolence – degree to which trustor believes trustee acts for the good of the trustor
integrity – belief that the trustee will follow a set of principles that are desired by the trustor
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Possible Strategic FocusTrust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable?
3-17
The Davis, et al. study suggests that these three factors of trust can contribute to competitive advantage of the firm. We can conclude that trust satisfies at least three of the four (and conceivably all four) criteria for sustainable competitive advantage.
Valuable – the study demonstrated that trust increased profitability and reduced turnover.
Rare – this relationship dynamic is uncommon.
Costly to imitate – trust is an intangible social construct that cannot easily be replicated.
Nonsubstitutable – possibility, since trust is difficult to observe
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Another Way: Diversification
Related
Diversification
Product
Similarities
Distribution
Channels
Value Chain Capabilities/
Core Competencies
Customer
Use
Similar
Technology
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Diversification
• Level
– Horizontal• Anti-trust laws prohibit a lot of these
– Vertical• Suppliers buying buyers (or vice versa)
• Two Types
– Related Businesses
– Unrelated Businesses
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Related Diversification and Competitive Advantage
• Competitive advantage can result from related diversification if opportunities exist to– Transfer expertise / capabilities / technology– Combine related activities into a single operation and
reduce costs– Leverage use of firm’s brand name reputation– Conduct related value chain activities in a
collaborative fashion to create valuable competitive capabilities
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What is Unrelated Diversification?
• Involves diversifying into businesses with
– NO strategic fit
– NO meaningful value chain relationship
– NO unifying strategic theme
• Approach is to venture into “any business in which we think we can make a profit”
• Firms pursuing unrelated diversification are often referred to as conglomerates
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Attractive Merger/Acquisition Targets
• Companies with undervalued assets– Capital gains may be realized
• Companies in financial distress– May be purchased at bargain prices and turned
around
• Appeal of Unrelated Diversification Strategy– Business risk scattered over different industries– Financial resources can be directed to those industries
offering the best profit prospects– If bargain-priced firms with big profit potential are
bought, shareholder wealth can be enhanced
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Drawbacks of Unrelated Diversification
• Difficulties of competently managing many diverse businesses
• Lack of strategic fits which can be leveraged into competitive advantage– Consolidated performance of unrelated businesses
tends to be no better than sum of individual businesses on their own (and it may be worse)
• Likely effect is 1 + 1 = 1.5, not 1 + 1 = 3
– Promise of greater sales-profit stability over business cycles seldom realized
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Combination Related-Unrelated Diversification Strategies
• Dominant-business firms– One major core business accounting for 50 –
80 percent of revenues, with several small related or unrelated businesses accounting for remainder
• Narrowly diversified firms– Diversification includes a few (2-5) related or
unrelated businesses
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Combination Related-Unrelated Diversification Strategies (cont.)
• Broadly diversified firms
– Diversification includes a wide ranging collection of either related or unrelated businesses or a mixture
• Multi-business firms
– Diversification portfolio includes several unrelated groups or related businesses
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Diversification and Corporate Strategy
• A company is diversified when it is in two or more lines of business
• Strategy-making in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business– A diversified company needs a multi-industry, multi-
business strategy– A strategic action plan must be developed and
implemented for several different businesses competing in diverse industry environment
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Levels and Types of DiversificationLow Levels of Diversification
Moderate to High Levels of Diversification
Very High Levels of Diversification
Related linked (mixed) < 70% of revenues from dominant business, and only limited links exist
AA
BB CC
Single business > 95% of revenues from a single business unit
AA
Dominant business Between 70% and 95% of revenues from a single business unit BB
AA
Unrelated-DiversifiedUnrelated-Diversified Business units not closely related
AA
BB CC
< 70% of revenues from dominant business; all businesses share product, technological and distribution linkages
Related constrainedAA
BB CC
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When to Diversify
• Some companies do EXCELLENTLY and are not diversified– McDonald’s, SWA, Coca-Cola, Domino’s Pizza,
Wal-Mart, FedEx, Timex, Gerber– Why stay single business
• Clear understanding of who we are/what we do• No Dilution of management’s attention
– Risks of a single business strategy• Putting all the “eggs” in one industry basket• Unforeseen changes can undermine a single
business firm’s prospects
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Adding Value by DiversificationDiversification most effectively adds value by either of three mechanisms:
By developing economies of scope between business units in the firms which leads to synergistic benefitsBy developing market power which leads to greater returnsECR (Efficient Consumer Response)• Efficient Assortment• Efficient Product Introduction• Efficient Replenishment• Efficient Promotion• TOTAL ECR SCORE = Sum of 4 above
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Assumptions:
Sharing ActivitiesAlternative Diversification Strategies
Strong sense of corporate identity
Clear corporate mission that emphasizes the importance of integrating business units
Incentive system that rewards more than just business unit performance (balanced scorecard)
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Alternative Diversification Strategies
Related Diversification Strategies
Unrelated Diversification Strategies
Sharing Activities (Shared Global Services)
Transferring Core Competencies
Efficient Internal Capital Market Allocation
Restructuring
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Key Characteristics:
Example: Using a common physical distribution system and sales force such as Procter & Gamble’s disposable diaper and paper towel divisions
Example: General Electric’s costs to advertise, sell and service major appliances are spread over many different products
Sharing ActivitiesAlternative Diversification Strategies
Achieves economies of scale
Boosts efficiency of utilization
Helps move more rapidly down Learning Curve
Sharing Activities often lowers costs or raises differentiation
Sharing Activities can lower costs if it:
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Example: Shared order processing system may allow new features customers value or make more advanced remote sensing technology available
Example: Procter & Gamble’s sharing of sales and physical distribution for disposable diapers and paper towels is effective because these items are so bulky and costly to ship
Key Characteristics:
Sharing ActivitiesAlternative Diversification Strategies
Sharing Activities can enhance potential for or reduce the cost of differentiation
Must involve activities that are crucial to competitive advantage
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Key Characteristics:
Transferring Core CompetenciesAlternative Diversification Strategies
Identify ability to transfer skills or expertise among similar value chains
Exploit ability to transfer activities
Exploits Interrelationships among divisions
Start with Value Chain analysis
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Summary Model of the Relationship Between FirmPerformance and Diversification
Resources
Incentives
ManagerialMotives
Capital MarketIntervention and
Market forManagerial Talent
DiversificationStrategy
StrategyImplementation
FirmPerformance
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Per
form
ance
Level of Diversification
Diversification and Firm Performance
DominantBusiness
UnrelatedBusiness
RelatedConstrained
http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #41Future Work TrendsFuture Work Trends
How does it fit together?How does it fit together?
Globalization(External Growth)
Globalization(External Growth)
Year 2009Success Factors
Year 2009Success Factors
Strategic Alliances
(External and/or Internal Growth)
Improvement inthe four Capabilities via Core
Competencies along Value Chain
Business Imperatives:
Capabilities:
Vision Direction and Strategies:
Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. (forthcoming)
Vision Direction
External and InternalStrategies
(Corporate & Business)
1st
2nd
3rd
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Questions for Strategyto Consider
Competitive Dynamics
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An organization’s size affects the An organization’s size affects the likelihood that it will take competitive likelihood that it will take competitive actions as well as the types of action it actions as well as the types of action it will take and their timing. will take and their timing. Small firmsSmall firms are more likely to launch competitive are more likely to launch competitive actions and tend to be quicker in doing actions and tend to be quicker in doing so.so.
5-10
Strategic Actions and Organizational Size - 1
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Large firmsLarge firms are likely to initiate more are likely to initiate more competitive actions as well as strategic competitive actions as well as strategic actions during a given time period. Thus, actions during a given time period. Thus, the competitive actions a firm will likely the competitive actions a firm will likely ecounter from larger competitors will be ecounter from larger competitors will be different than the competitive actions it different than the competitive actions it will encounter from smaller firms.will encounter from smaller firms.
5-10
Strategic Actions and Organizational Size - 2
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Large organizationsLarge organizations often have the often have the slack resources required to launch a slack resources required to launch a larger number of total competitive larger number of total competitive actions, and thus do. However, actions, and thus do. However, smaller smaller firmsfirms have the flexibility needed to have the flexibility needed to launch a greater variety of competitive launch a greater variety of competitive actions.actions.
5-10
Strategic Actions and Organizational Size - 3
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Declining emphasis on single, domestic markets and increasing emphasis on global markets
Advances in communication technology make coordination easier across multiple markets
Advances in technology and innovation have increased competitiveness of small and medium sized firmsNational barriers are falling due to the number and scope of trade agreements (GATT, NAFTA, EEC)
Factors Leading to More Complex Rivalry
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Competitive DynamicsResults from a series of competitive actions and competitive responses among firms competing within a particular industry
Competitive RivalryExists when two or more firms jockey with one another in the pursuit of better market position
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Actions and responses shape the
competitive positions of each firm’s business level
strategy
Actions taken by one firm elicit responses from competitors
A firm’s strategic conduct
is dynamic in nature
Competitive responses lead
to additional actions from the
firm that acted originally
Competitive Dynamics
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Drivers of Competitive
Behavior
Motivation
Capability
Awareness
Model of Interfirm Rivalry:Likelihood of Attack and Response
Do managers understand the key characteristics of competitors?
Awareness
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Does the firm have appropriate incentives to attack or respond?
Drivers of Competitive
Behavior
Motivation
Capability
Awareness
Model of Interfirm Rivalry:Likelihood of Attack and Response
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Does the firm have the necessary resources to attack or respond?
Drivers of Competitive
Behavior
Motivation
CapabilityCapability
Awareness
Model of Interfirm Rivalry:Likelihood of Attack and Response
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Competitor Analysis
Resource Similarity
Market Commonality
Model of Interfirm Rivalry:Likelihood of Attack and Response
Do firms compete with each other in multiple markets?Do firms compete with each other in multiple markets?
Market Commonality
Market Commonality
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Competitor Analysis
Resource Similarity
Market Commonality
Multipoint competition tends to reduce competitive interactions, but increases the likelihood of response where interaction occurs
For example, airlines price flights similarly but respond quickly when competitors introduce promotional prices
Model of Interfirm Rivalry:Likelihood of Attack and Response
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Competitor Analysis
Resource Similarity
Do competitors possess similar types or amounts of resources?
Market Commonality
Model of Interfirm Rivalry:Likelihood of Attack and Response
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Competitor Analysis
Resource Similarity
Market Commonality
Firms are less inclined to attack a firm that is likely to retaliate
Firms with dissimilar resources are more likely to attack
Firms with similar resources are more likely to be aware of each other’s competitive moves
Model of Interfirm Rivalry:Likelihood of Attack and Response
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Interfirm Rivalry:Attack & Response
Likelihood of Attack
First Mover IncentivesLikelihood of Response
Type of CompetitiveAction
Dependence on theMarket
Resource Availability
Actor’s Reputation
Model of Interfirm Rivalry:Likelihood of Attack and Response
Likelihood of Attack
First Mover IncentivesFirst Mover advantage can be substantial
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First Mover
Firms that take an initial competitive action
Generally possess the resources and capabilities that enable them to be pioneers in new products, new markets or new technologies
Can earn above average profits until competitors respond
Gain customer loyalty, helping to create a barrier to entry by competitors
Advantage depends upon difficulty of imitation
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Second Mover
Firms that respond to a First Mover’s actions
Second Movers frequently imitate First Movers
Speed of response often dictates success
Should evaluate customers’ response before moving
“Fast” Second Movers can capture some of initial customers and develop some brand loyalty
Avoid some of the risks associated with First Move
Must possess necessary capabilities to imitate
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TacticalActions
Major AcquisitionExample
Types of Competitive Actions
Strategic Actions
Price cutExample
Significant commitments of specific and distinctive organizational resources
Difficult to implement
Difficult to reverse
Relatively easy to implement
Relatively easy to reverse
Undertaken to “fine tune” strategy
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Relative Size
Quality
Innovation
Speed
Ability for Action and Response
Model of Interfirm Rivalry:Likelihood of Attack and Response
Relative SizeFirm size can have opposing effects on competitive dynamics
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Quality
Speed
Large firms may exert market power over rivals and erect barriers to entry against smaller competitors
However, smaller competitors may be more nimble and innovative
Ability for Action and Response
Relative Size
Innovation
Model of Interfirm Rivalry:Likelihood of Attack and Response
“Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.”
-- Herb Kelleher, CEO, Southwest Airlines
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Relative Size
Quality
Innovation
Speed
Quick response is crucial to both the first mover and the fast second mover
Ability for Action and Response
Model of Interfirm Rivalry:Likelihood of Attack and Response
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Consistent innovation is required for market leadership in many dynamic industries
Ability for Action and Response
Relative Size
Quality
Innovation
Speed
Model of Interfirm Rivalry:Likelihood of Attack and Response
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Exceeding customer expectations is a necessity to compete in the 21st century
Ability for Action and Response
Relative Size
Quality
Innovation
Speed
Model of Interfirm Rivalry:Likelihood of Attack and Response
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Outcomes
Evolutionary ActionsGrowth-Oriented Actions Market-Power Actions
Evolutionary Outcomes
Sustained Competitive
Competitive Market TypesSlow, Standard or Fast Cycle
Competitive Outcomes
Advantage
Temporary Advantage
Model of Interfirm Rivalry:Likelihood of Attack and Response
Slow cycle markets are frequently shielded by monopoly power or very strong brand loyalties
This market outcome and lack of interfirm rivalry may lead to sustained competitive advantage
Sustained Competitive
Competitive Market TypesSlow, Standard or Fast Cycle
Competitive Outcomes
Advantage
Temporary Advantage
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Outcomes
Evolutionary ActionsGrowth-Oriented Actions Market-Power Actions
Evolutionary Outcomes
Sustained competitive advantage is a possible outcome in this instance
Standard cycle markets often lead to highly competitive pressures despite world class products
Firms with multimarket competition may dampen rivalry somewhat
Sustained Competitive
Competitive Market TypesSlow, Standard or Fast Cycle
Competitive Outcomes
Advantage
Temporary Advantage
Model of Interfirm Rivalry:Likelihood of Attack and Response
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Sustained Competitive
Outcomes
Competitive Market TypesSlow, Standard or Fast Cycle
Competitive Outcomes
Advantage
Temporary Advantage
Evolutionary ActionsGrowth-Oriented Actions Market-Power Actions
Fast cycle markets are intensely dynamic and a first mover advantage is often unsustainable
Evolutionary Outcomes
Firms may cannibalize older generation products while introducing new innovative premium products
Sustainable competitive advantage is unilkely
Model of Interfirm Rivalry:Likelihood of Attack and Response