MGMT 3000 1st Edition Lecture11 Outline of Last Lecture I Corporate level strategies a Portfolio Strategy i Related Diversification ii Unrelated Diversification iii BCG b Grand Strategy i Stability ii Growth iii Retrenchment Outline of Current Lecture I Industry level strategies a Porter s 5 Dindustry forces b Positioning Strategy c Adaptive strategies II Firm Level strategies a Direct competition Current Lecture Industry level strategies address the question how should we compete in this industry Porter s five industry forces Determine an industry s overall attractiveness and potential for long term profitability Stronger the forces the less attractive the industry becomes to investors Five forces 1 Character of rivalry Measure of intensity of competitive behavior among companies in an industry a Is the competition aggressive or more concerned with serving customers 2 Threat of new entrants measure of the degree to which barriers to entry make it easy or difficult for new companies to get started a If new companies can enter the industry there is more competition and less profit 3 Threat of substitute products or services Measure of ease with which customers can find substitutes for an industry s products or services These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute 4 Bargaining power of suppliers measure of influence that suppliers to firms in an industry have on prices of inputs a If there are numerous suppliers companies will be able to bargain with the suppliers to keep prices low 5 Bargaining power of buyers measure of influence that customers have on firm s prices a If there are multiple buyers the firm has more power to set prices Next step is to protect company from negative effects of industry wide competition and create a sustainable competitive advantage Positioning strategies aim to minimize effects of industry competition and build sustainable competitive advantage 1 Cost leadership Producing a product or service of acceptable quality at consistently lower production costs than competitors so that the firm can offer the product at lowest price in the industry 2 Differentiation making product or service sufficiently different form competitors offering so that consumers are willing to pay a premium price for extra value or performance that it provides 3 Focus strategy company uses either cost leadership or differentiation to produce a specialized product or service for a limited specifically targeted group in a particular region or market segment a Work in market niches that competitors have overlooked or have difficulty serving Adaptive strategies are another set of industry level strategies which aim at recognizing the change in the organization s external environment 1 Defenders seek moderate steady growth by offering a limited range of products and services to a well defined set of customers a Verizon ATT Microsoft in the past 2 Prospectors seek fast growth by searching for new market opportunities encouraging risk taking and being first o bring innovative new products to market a Google apple Microsoft 3 Analyzers Blend of defender and prospector strategies seek moderate steady growth and limited opportunities for fast growth a Samsung 4 Reactors do not follow a consistent strategy react to changes in their external environment after they occur a Microsoft RIM Firm level Strategies address the question how do we compete against a particular firm Direct competition Rivalry between 2 companies offering similar products and services that acknowledge each other as rivals and take offensive and defensive positions as they act and react to each other s strategic actions Market Commonality degree to which 2 companies have overlapping products services and products Resource similarity extent to which a competitor has similar amounts and kinds of resources similar assets capabilities processes information Strategic moves of direct competition 1 Attack competitive move designed to reduce a rival s market share for profits 2 Response countermove prompted by rival s attack that is designed to defend or improve company s market share a Could match or mirror competitor s move b Could respond along a different dimension from competitor s attack If Market commonality is strong less motivation to attack and more motivation to respond If resource similarity is strong responding firm will be able to match strategic moves of attacking firm If resource similarity is low competitive attack will produce sustained competitive advantage