introduction to business: strategy lecture 4 (Porter's generic…
introduction to business: strategy lecture 4
gives rough ingredients or inspiration or input or content for strategy formulation.
not just a list of SWOT
A proper SWOT analysis forces you to confront OT with SW: for each of the threats/opportunities: which strenghts/ weeknesses are relevant and need to be exploited or compensated.
produce at lowest cost; strong focus on efficiency
Compete on a very limited set of attributes with minimum level of satisfaction (aldi)
How does porter generic strategies (thus this position) protect from porter's five forces?
to protect from does not mean these forces become low!
Threat of entrants: a likely reason for your cost leader postion is because of scame economies: these scale economies act as a barrier to entry;
Rivalry: low cost leaves you with enough margin to engage in rivalry (LOW COST IS NOT LOW PRICE)
Supplier power: even if suppliers threaten to raise prices this will affect the profitability of your competitors more than yours.
Low cost does not always mean determent (
threat of substitutes
another one i forgot
be different (better at something) than your competitors
How you are differentiated should be explained in the value proposition. Differentiation does not allow firms to ignore price and costs, but these are not of primary strategic concern
how does this protect from porter's five forces?
Rivalry: only happens if someone is competiting on similar attributes, however you are not rivaling on price (thats the most damaging on profit!)
Buyer power: differentiation might enhance customer switching costs reducing buyer power for your product. Also, building brand loyalty might reduce price sensitivity.
Supplier power: differentiation allows you to ask higher prices and therefore higher margins. Higher margins give you room to deal with powerful supplers. Also if suppliers raise prices, you might pass on this price raise to your customers/
Threat of new entrance: differentiation might imply switching costs and loyalty for your customers. This acts as a barrier to entry and discourages potential entrants
threat of substitutes: what are the switch of costs. This discourages potential substitutes, also the differentiated product features might not even be present in substitutes.
Porter's generic strategies
addressing the needs of one particular group of buyers. Within focus either differentiation or cost leader
thus the strategy concentrates on a particular customer, product line etc....
strategy statement : definition!!
Scope: a description of product and customers (markets or segments, geographic locations); choice for scope is informed by choice for generic strategy (Focus or not?)
Competitive advantage: what are you doing differently, or better, or cheaper than you competitors?
value proposition: explains why the targeted customer should buy your product above all the alternatives (external) and a description of how internal activities must be aligned so that only your firm can deliver that value proposition (standardization of work)
the other thing
strategic objective: a quantifiable target (in terms of market share, sales, growth etc); time bound; can be used to evaluate performance (did we achieve the objective)
mergers and acquisitions: advantage, faster than growing internally; however mergers are a tricky business.
horizontal integration: allows firms to gain access to new resources within or between industries. this might result in diversified product portfolio (IF BETWEEN INDUSTRIES) or might result in similar product (integration with firm from same industry) but, for instance, with scale economies, broader focus (generic strategy
Vertical integration backward: integrate with one of your important suppliers. Integration allows for easier coordination and control over the product you receive might also prevent the supplier from delivering to competitors (but watch out for antitrust laws)
vertical integration forward: integrate with a player later in the supply chain. Integration allows for more control over the distribution of your product. Might also prevent the customer from buying supplies from your competitors
suitability: does the strategic fit demand of the external environment or exploit key organizational resources
feasbility: can we realise the strategy given our resources, competences and competences
Acceptability: will the stakeholders accept this decision?