(BUS 13) Notes to Accompany Lecture, May 7, 1998
This material is used courtesy of Fred Gibbons, Instructor for EE353/CS394
Definitions of Strategy
Business strategy is a plan of action
carried out tactically to achieve a business objective
A business objective is a desired result and strategy is a plan for getting there
I) The Classic Approach to Formulating Strategy:
"Competitive strategy is a combination of goals for
which the firm is striving and the means by which it is seeking
to get there."
Objectives for profitability, growth, market share, social responsiveness, etc.
Research and development
Finance and control
SOURCE: Competitive Strategy Michael Porter Free Press
II) The Decision Based Definition of Strategy: "A business strategy is a set of dynamic, integrated decisions which you must make in order to position your business in a complex environment."
What business do we choose to be in?
How much growth potential?
What is the profit potential?
How do we enter this business?
What resources are required?
How do we gain competitive advantage?
How do we sustain competitive advantage?
How and when do we exit the current business?
Who are the right people to make it happen?
SOURCE: Business Sense by Dan Thomas The Free Press
III) The "Bottom-up Marketing " View of Strategy: Traditional strategy is top down, decide what you want to do and figure out how to do it. Alternatively, find a tactic that works and build a strategy around it. Go down to the front where the marketing battle is being fought. Where is the front? In the minds of your customers and prospects.
1) Monitor the trends
2) Narrow your focus
3) Strike the weak point of your competitor in the mind of the customer
4) Build your strategy
5) Make changes to make it work
6) Test your strategy in advance with prospects, your salesforce, the press
7) Sell your strategy
8) Get enough resources
9) Plan and execute the launch strategy
10) Keep things on track
11) Sense your success. Successful programs usually start working from day 1 and vice versa.
12) Pour it on, go all out, rest is for losers
13) Cutting your losses, if it doesn't work, find another tactic and build it into the strategy
14) When in doubt, do something. Have a bias for action
SOURCE: BOTTOM-UP MARKETING Ries and Trout A Plume Book
At the level of the individual, you must be the world expert
in your area in order to innovate. Understanding all existing
and related inventions, separating new ideas from old, deciding
what is possible, deciding what is valuable to someone, implementing
the idea -- these are the difficult things that only an expert
Core competencies are the collective learning in an organization.
Sony's core competencies in miniaturization has led it to develop
consumer products in markets where smaller size is valued. 3M's
core competence in sticky tapes led to "Post-it" notes.
A firm's core competencies can be seen in its primary products.
At least three tests can be applied to identify core competencies
within a corporation
Core competencies spawn unanticipated products (e.g., Post-it
by Terrance Hendershott
Customers buy products by weighing the benefits (usually gained through a product's features) they receive from a product versus its cost. A company can choose a strategy of offering products differentiated, by features or functionality, from its competitors (possibly at a higher price), or offering products similar to its competitors, but at a lower price. In practice a company's strategy usually includes both differentiation and low cost, but it is useful to try to determine which of these two is most prominent.
A company also must decide whether to pursue different strategies in different parts of the market (usually defined by different customer types). For example, Compaq Computer offers competitive prices for desktop computers, but offers various different features in its servers at a premium price.
We summarize these Price and Feature decision in the following:
I - commodity (DRAM)
II- going out of business (DEC in 1995)
III - buying market share with big price/performance leadership (usually a temporary promotion)
IV - premium products (Mac in 1984-1989)
Products can become standardized (PCs, DRAM chips, VCRs, etc.) making continued differentiation very difficult, and competition is then predominately on price.
It is often difficult to pursue a low cost strategy while focusing on one segment of the market while simultaneously focusing on a differentiated strategy in a different part of the market. For example United Airlines formed a separate subsidiary (United Shuttle) to compete with Southwest Airlines for price conscience (less interested in service) customers in the Western US.