company analysis
Strategic Management Tool Seven
MGT 4810
Dr. Amye Melton
Tool Seven
Earlier in the analytical procedure, the linkage and cohesion between organizational policies and objectives, between objectives and goals, and between goals and the mission statement was addressed. The components of this ‘chain’ all serve to answer the “what is to be done” question. The determination of the generic strategy answers the question of “how it is to be done”. The generic strategy, or value discipline, employed by the firm conveys a general philosophy of HOW business is to be conducted. It should be derived from the organization’s Mission Statement and is the final element in the cohesive chain.
Tool Seven (continued 1)
At least three generic strategies exist:
Cost Leadership (Operational Excellence)
Differentiation (Customer Intimacy)
Focused (Product Leadership)
Tool Seven (continued 2)
Although several criteria have to be met in order for an organization to qualify as adhering to a single value discipline, low cost leadership REQUIRES the firm to have the LOWEST cost structure in the defined industry. Much like the fictional Highlander of movie and TV fame, in the end there can be only one!
In the short-‐run competitors will try and imitate but without a true cost advantage in the industry, the attempt will be short-‐lived and usually results in a disastrous erosion of sales and/or profits for the competitor.
For the firm competing on the basis of low cost leadership, it should be remembered that technology shifts always affect costs and the bases for cost leadership may erode over time (changes in suppliers, increased globalization, changes in raw materials, etc.).
Tool Seven (continued 3)
A company following a differentiation strategy will offer UNIQUE products to many HIGHLY DIFFERENTIATED customer segments. This firm will face a host of “me-‐too” products from competitors attempting to replicate the successful differentiated firm.
The biggest threat to the differentiated competitor occurs when the bases of product differentiation become less important to consumers.
Tool Seven (continued 4)
A focused firm will offer products with special appeal to a LIMITED number of customer segments or niche markets. Often a focused strategy is adopted by a firm with a very strong and innovative technical (R & D) department.
Threats to a firm following a focused or product leadership approach include the saturation of consumer demand, narrowing of differences between market segments (heterogeneous segments merging to a homogeneous market), structural changes in the industry, and an increase in the number of advantages for offering a broad product line.
Tool Seven (continued 5)
If the analyst accepts Response as a possible fourth value discipline or generic strategy, the ability of the firm to respond quickly to changes in markets or customer requirements must be assessed in addition to some measure of company reliability and flexibility.
Development of suitable measures to capture both of these variables may prove difficult and yield inconsistent outcomes across industries.
Tool Seven (continued 6)
There has been much discussion regarding the adoption of multiple Value Disciplines by a single firm. One point-‐of-‐view contends that since adherence to a single value discipline ultimately leads to the creation of a Sustainable Competitive Advantage (SCA) and further serves to focus the organization; it would be counter-‐ productive to attempt to support more than one value discipline concurrently. Indeed, several combinations of generic strategies appear to be incompatible if considered at the same time. For example, how does a firm reconcile the necessity of maintaining low costs under low-‐cost paradigm with the added costs created by a broad product line required by a differentiated strategy?
It may be possible to designate a PRIMARY value discipline as well as a SECONDARY discipline as long as the latter is implemented subject to the ‘rules’ of the primary strategy.
In other words, the primary strategy always takes precedence. This would work extremely well the case of a primary focused/product leadership strategy and a secondary differentiated strategy.
Tool Seven (continued 7)
By this stage of the overall analysis, information has already been gathered in preparation of the previous tools and very little additional information should be needed to complete the Determination of Generic Strategies Analysis (Tool 7).
Examples of this tool are offered in the next few slides.
Tool Seven (continued 8)
Tool Seven (continued 9)
Using the example provided, answer the requirements for each strategy. The strategy with the most “yes” answers is the dominant strategy.
Provide a summary explanation regarding your outcome.