Key Concepts in Competitive Strategy

1. Key Concepts in Competitive Strategy MKT 7460 International Business Dr. Attila Yaprak

2. Value Chain Configuration of key company functions that are designed to add value for customers. The way a company organized key processes determines its competitive advantage. • Strategy should guide the firm in value-chain configuration • Enhancing core activities, externalizing others can create value (including partnerships and outsourcing) Dr. Attila Yaprak

3. Core Competence Organizational skills, knowledge, and capabilities that account for past success and can ensure future growth. • These areas of strength need to be constantly cultivated/nurtured, as part of deliberate strategy. • Management must select core competencies selectively and engage the entire organization in continuous embellishment. Dr. Attila Yaprak

4. Competitiveness 1. Key challenge of any business is to achieve and sustain competitiveness. Other goals are secondary. What is Competitiveness? Superior and consistent performance in terms of the measures that matter--customer loyalty, good flow of new products, profitability, share of market...all relative to principal competitors. Dr. Attila Yaprak

5. Competitiveness 2. Competitiveness is most meaningful in the context of an industry and the global market. • Key success factors vary according to industry • More industries are becoming subject to global competition. Dr. Attila Yaprak

6. Competitiveness 3. Over time, different perspectives on managing become popularized: JIT, TQM, BPR (Business Process Reengineering), Teams, Learning Organization, Empowerment...Management emphasis shifts over time. Nevertheless, the fundamental management process has not changed. Access Define what Seek and Manage Your Market the Customer Cultivate Value Adding Opportunity Values Core Process Competence Dr. Attila Yaprak

7. Competitiveness 4. There is not a single determinant of competitive advantage/marketplace success: • Design • Cost leadership • Getting close to customer: Intimacy • Time to market: Speed • Ability to recruit best management talent • Market intelligence and customer research • Quick to respond to challenges/opportunities • Maintaining entrepreneurial spirit and fighting stifling bureaucracy • Ongoing configuration of firm’s value chain • Partnerships • Intangibles like vision, leadership • Luck? Dr. Attila Yaprak

8. Competitiveness 5. Don’t always look for big, radical solutions. Hundreds of little improvements, implemented daily, will add up. 6. The environment of business enterprise (technology, customer, regulation, competitive, etc.) is constantly posing new challenges and opportunities. Ongoing reexaminations and change are unavoidable. Dr. Attila Yaprak

9. Competitiveness 7. Senior leadership has the ultimate responsibility in assessing the need for change, facilitating, and providing directions for it. Ability to rally the entire organization behind change is exceptional. 8. Ongoing benchmarking is essential and valuable. • Systematic and comprehensive audit of company capabilities can be accomplished through a tool like COMPASS, developed by Michigan State University. Dr. Attila Yaprak

10. Competitiveness 9. Knowledge essential for decision making in global business in multidimensional--too daunting for any one individual in the organization to possess. 10. Internalization, retention, and dissemination of knowledge throughout the organization is just as important as acquiring it. • Decision Support Systems (DSSs) can help; knowledge does not have to slip away as people leave the organization; it can be institutionalized. Dr. Attila Yaprak

11. Dr. Attila Yaprak

12. Illustrations of Internationalizing the Value Chain Stage in Value ChainTypes of CollaborationCompany Examples Research & Development International strategic alliances Licensing/cross licensing Product Design Design contracting Manufacturing Global procurement Contract manufacturing Equity joint ventures (FDI) Agency agreements Licensing Marketing Exporting to distributors/agents Franchising Distribution Exporting to end-users Business format franchising Sales & Service Agency/representative relationships Dr. Attila Yaprak

13. Consideration in the Choice of Internalizing vs. Externalizing Selected Value Adding Activities such as Manufacturing, R&D, & Distributionin the Global Marketplace Dr. Attila Yaprak

14. Value Chain for a Pharmaceutical Company Product Development, Testing, and Approvals Basic Research & Discovery Input Sourcing & Manufacturing Marketing & Distribution Sales • Knowledge and capital intensive • Highly regulated (FDA) • Typically 18% of sales revenues • Centralized in a few locations • Balance across product lines (e.g., cancer, • anti-infectives, CV, CNS) • Business planning • Gaining influence • Speed if critical; market directly at home • and across TRIAD, license in other • markets • Decentralized/alliances • Regulated Dr. Attila Yaprak

15. Value Chain for GM • Parts Production • (remain in-house) • Batteries • Catalytic Converters • Lighting • Electrical and wiring • Ignition • Suspension and steering • Partner or Outsource • Bearings • Bumpers • Stampings • Axles • Horns Joint Venture with Toyota Complete Production Final Assembly Marketing Materials Sourcing Sales and Service Outsourced to Dealers Independent Parts Suppliers Dr. Attila Yaprak

16. Value Chain for Sample Medical Device Company Performed Mostly by Freight Forwarder Joint Venture with large Medical Device Multinational R & D Partnership with University Subcontracted to Specialty Manufacturer Design Engineering Production Logistics Marketing Dr. Attila Yaprak

17. Value Chain for Little Caesars’ Enterprises, Inc. Development and Refinement of Little Caesars’ Business Format (Systems) Product Sourcing and Distribution Franchisee Partnering Product Development Field Support • By Little • Caesars’ food • technologists • at Farmington • Hills • Unique competitive • positioning • Quality assurance • Blue Line • Distributing • Food, equipment, • packaging • National and • international • suppliers • Considerable • economies • of scale • Selection, • training, • developing • Real estate • Architecture/ • design • Supplier • selection • Promotion • Training • Managerial Dr. Attila Yaprak

18. Questions to Ask in Value Chain Analysis • How, where, and for whom value adding takes place? • What are key success factors (speed, efficiency, unique design, etc.)? What are points of vulnerability? • How can the process be made more efficient, streamlined, or rationalized? • What opportunities exist for outsourcing? • How can we ensure maximum coordination between functions? • Which activities contribute to gross margins/profitability? Dr. Attila Yaprak

19. Why Organizations are Vulnerable? • Complacency/inertia • Management blinders: ignoring early warning signals • Aura of invincibility/arrogance • Past strategy becomes ingrained in organizational routines • Mixed motives of leadership/desire for status quo • Resistance to change from the rest of the organization • Organizational bureaucracy • Missing leadership and creative vision Dr. Attila Yaprak

20. Attributes of Tomorrow’s Managers • Motivators, advisers, facilitators Be able to rally others in desired directions • Instrumental in setting strategic direction Vision for the future of the organization • Managing trade-offs Choices to make re: tech., customers, markets,… • Good negotiators in diverse cultural areas Also with regulators and government bodies • Intuitive; able to detect weak signals “Sixth” sense; more and readily available information, but reliable? Bridge knowledge gaps Dr. Attila Yaprak

21. Attributes of Tomorrow’s Managers • Possessed with a sense of the product Good knowledge of the industry; global architecture Changing market applications • Not obsessed with the management process Not locked into one mental frame; flatter orp’s? Flexible and adaptable. Many will change careers… • Willing to gamble Trader/Merchant mentality Confident to take risks Entrepreneurial; less like administrators Good in managing small companies Dr. Attila Yaprak

22. National Competitiveness Why does a nation become a homebase for successful international competitors in an industry? Possible Answers • Macroeconomic policy • Cheap and abundant labor • Bountiful natural resources • Government policy • Management practices… Workforce attitudes… Dr. Attila Yaprak

23. Industry Competitiveness A group of competitors that are able to achieve and sustain world-class standards Key Success Factors • Productivity • Innovation and R&D • Manufacturing costs • Entrepreneurship/Long-term orientation • Industry structure and environment… Dr. Attila Yaprak

24. Firm/Enterprise Competitiveness Results from how the firm positions itself with respect to choice of markets, products, and competitors. Dr. Attila Yaprak