Running head: EXERCISE TWO
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Exercise Two
Rachel Gross
Liberty University
EXERCSE TWO
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Generic Strategies
Broad Generic Strategies
Broad generic strategies are strategies that can utilized by any organization not matter the
size or industry. There are two different types of generic strategies. The first is a differentiation
strategy which aims to create products that have unique qualities while still keeping the costs at
the same level (Rothaermel, 2017). This allows them to charge higher prices and keep margins
high. The second generic strategy is the cost-leadership strategy (Rothaermel, 2017). This
method works to create the product for a lower cost than the organization’s competitors. This
allows the product to be offered to consumers at a lower cost.
One risk to broad generic strategies is that there is a large amount of risk involved due to
the strategic uncertainty (Parnell, 2013). The author notes that “the generic strategy selected by
each organization can be viewed as the means by which it addresses uncertainty and competitive
challenges” (Parnell. 2013, p. 217). Organization also have the option of developing a narrow
generic strategy instead.
Narrow Generic Strategy
There are two types of narrow generic strategies. These are the focused cost-leadership
strategy and the focused differentiation strategy. These are nearly the same as the two strategies
defined above. The difference can be seen in the fact that these strategies narrow the competitive
scope (Rothaermel, 2017). By narrowing the competitive scope, the organization establishes a
very clear strategic position. These strategies, however, have similar drawbacks to the broad
strategies. If competitors also lower their costs, the cost strategy must be reevaluated and if the
consumers desires change the differentiation strategy is in danger as well.
EXERCSE TWO
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Value Chain
Cost leadership value chain
The cost leadership value chain will focus on the supply chain management, operations,
and research and development. These will be the main focus areas since these are the areas most
likely to lower the organizational costs. By evaluating the supply chain management piece, the
organization could utilize new vendors that offer products at a lower cost. Operations will be
evaluated since this is where most of the costs are accumulated. By streamlining processes, a
products cost could be lowered dramatically. The final area, research and development, can be
used to create products that can be created at a lower cost, which would increase profit margins.
Differentiation value chain
Since a differentiation strategy attempts to created perceived value while keeping costs
low, there will be different focus areas (Rothaermel, 2017). These will be in marketing and sales,
after-sale services, and research and development. In order to create perceived value, the
organization will focus on marketing their product to the target consumers. The after-sales
services will also be important since it will set them apart from their competitors. The final areas,
research and development, will be main focus since the market is ever changing and consumer
demands will be adjusting as well.
Innovation value chain
EXERCSE TWO
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A value innovation strategy focuses both on low cost and on differentiation. In order for
this strategy to be successful, the organization must lower cost and increase perceived value
simultaneously (Rothaermel, 2017). These organization would attempt to lower their costs
through supply chain management. Maybe most organizations buy a piece of the product and the
innovative organization decided to make instead. The increase in perceived value will be
achieved through an increase in research and development. This will allow the organization to go
above and beyond what the competition is currently offering. They will also focus on sales and
marketing to ensure that the target consumer is aware of the differences between the organization
and its competitors.
Industry Cycles
The industry life cycle is comprised in five stages. These stages are introduction, growth,
shakeout, maturity, and decline. One example of this is the hybrid car industry. The first hybrid
vehicle to be mass produced was Toyota’s Prius. This can be seen as the introduction stage.
During the growth stage, other competitors began to develop similar products to compete with
Toyota in this new industry. The next company to create a hybrid vehicle was Honda, which
release the Insight in 1999. The shakeout stage began and not all companies could turn a profit in
the highly competitive industry. Some examples of companies that did not succeed are Aptera,
Fisker, and Code. This industry would be considered in the maturity stage now. The dominant
competitors are now Toyota, Honda, and Kia. Since Tesla released their Roadster in 2008, which
was a completely electric vehicle, the increase in demand for fully electric cars has increased. As
demand for these increases, the demand for hybrid cars will decrease. When this occurs, the
industry will begin the decline stage.
EXERCSE TWO
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Firm Innovation
One firm that has been highly innovative is Amazon. Amazon has had successful product
development, such as the Echo, but has also had its fair share of failures, such as the Fire Phone.
Amazon often uses Architectural innovation which is defined as “a new product in which known
components, based on existing technologies, are reconfigured in a novel way to attack new
markets” (Rothaermel, 2017, p. 234). Essentially, Amazon’s innovation utilizes existing
technologies to enter new markets. Customer obsession is what drives the organization’s
innovation and is ingrained into the organization’s culture (Rossman & Euchner, 2018). In 2002,
Ebay was Amazon’s largest competitor. While there was a large amount of similarities between
the two organizations, Amazon was innovative in the sense that customer focus was now a major
part of the organization (Rossman & Euchner, 2018). Rather than passing on the customers credit
card information directly to those selling on the platform, like Ebay did, Amazon decided that it
was in the custom’s best interest to keep that piece in house, which separated them from the
competition.
Low Technology Innovation
Low technology innovation has had a large impact on the developing world. One
example of this is the Life Straw. This straw was developed by an organization called
Vestergaard which is the “innovative leader in the global war against diseases, especially those
impacting vulnerable populations around the world” (Our History, n.d.). The created product
provides clean drinking water to those in third world countries. When the straw is used, it
removes bacteria, parasites, and viruses to provide the user with clean drinking water. This is a
low technology innovation that has been resolving a long-standing issue in third word countries
EXERCSE TWO
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Business Level Strategy or Corporate Strategy of Diversification
The decision to add grocery’s and develop supercenters was a corporate strategy of
diversification. Diversification is defined as “an increase in the variety of products and services a
firm offers or markets and the geographic regions in which it competes” (Rothaermel, 2017, p.
272). Because the organization decided to implement a new product type, this was a corporate
strategy to diversify, rather than a business level strategy.
Strategic Alliances
Non-equity alliances are the most common alliance type (Rothaermel, 2017). In these
types of alliances, organizations will often share explicit knowledge which is “knowledge that
can be codified (Rothaermel, 2017, p. 304). While this is the most common type, there are issues
that can arise. Since these alliances are often very temporary, there is a lack of commitment and
trust between the two organizations (Rothaermel, 2017). When equity alliances are formed, one
party takes partial ownership of the other (Rothaermel, 2017). This type of alliances requires a
significantly higher investment than the non-equity alliance and thus result in a stronger
commitment level. The main drawback of an equity alliance is that there is “a possible lack of
flexibility and speed in putting together and reaping benefits from the partnership” (Rothaermel,
2017, p. 305). The final strategic alliance, a joint venture, occurs when a single organization is
owned by more than one parent company (Rothaermel, 2017). This is considered a long-term
investment so there is a large amount of trust and commitment involved from all parties. Because
of the large investment required, the risks are higher if the project does not go as planned and can
cost the organizations a large amount (Rothaermel, 2017). Each of these strategic alliances have
benefits and drawbacks with no clear right or wrong decision.
EXERCSE TWO
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Global Strategy
One example of an international organization is Yum! Brands. This company owns Pizza
Hut, Taco Bell, and Kentucky Fried Chicken. The main strategy utilized by the organization
would be the transnational strategy where the organization thinks globally but operates locally.
This can be seen in the organizations decision to spin off the Chinese and Indian piece of the
organization. By separating the three regions, the organization is able to operate on a global scale
while still addressing localized issues.
EXERCSE TWO
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References
Our History. (n.d.). Retrieved March 30, 2019, from https://www.lifestraw.com/pages/our-history
Parnell, J. A. (2013). Uncertainty, generic strategy, strategic clarity, and performance of retail
SMEs in Peru, Argentina, and the united states. Journal of Small Business Management,
51(2), 215-234. doi:10.1111/jsbm.12010
Rothaermel, F. T. (2017). Strategic management concepts (Custom 3rd ed.) New York, NY:
McGraw-Hill.
Rossman, J. & Euchner, J. (2018). "Innovation the Amazon Way: An Interview with John
RossmanJohn Rossman Talks with Jim Euchner about how Amazon Manages to be both
Operationally Excellent and Disruptively Innovative." Research-Technology
Management 61, no. 1 (2018): 13-22.
