Formulating technological strategy of the firm

The concepts in this chapter  suggest a number of analytical steps in formulating  technological strategy in order to turn  technology into a competitive weapon rather than a scientific curiosity. Identify all the distinct technologies and subtechnologies in the value chain. Every value activity   involves one or more  technologies. The starting point  in formulating  technological

The strategic benefits of competitors

The presence of the right competitors can yield a variety of strate­ gic benefits that fall into four general categories: increasing competitive advantage, improving current industry structure, aiding market devel­ opment, and deterring entry. The particular benefits achieved will differ by industry and the strategy a firm is pursuing. 1. Increasing Competitive  Advantage The

What makes a “good” competitor?

Competitors are not all equally attractive or unattractive. A good competitor is one that can perform the beneficial functions described above without representing too severe a long-term threat. A good competitor  is one that  challenges the firm   not  to be complacent  but is a competitor with which the firm can achieve a stable and

Influencing the pattern of competitors

The benefits of good competitors  suggest that it may be desirable for a firm to   attack  some   current  competitors  and   not  others,   and to encourage the entry of new   competitors  provided  they   meet the tests of a good competitor. Since it is usually desirable to have more competitors early in an industry’s development  than 

The optimal market configuration for the firm

The principles of competitor selection imply that  holding a 100 percent market share is rarely, if ever, optim al.12 It is sometimes more sensible for firms to yield position and  allow good competitors  to occupy it than  to maintain  or   increase   share.   While this   is contrary to managers’ beliefs in some firms and  almost 

Pitfalls in competitor selection

The  principles of competitor  selection are not  always followed. The following pitfalls seem to be among the most common: Failure to Distinguish Good and Bad Competitors.     Many compa­ nies do not recognize which of their  competitors are good competitors and which are not. This  leads them to pursue across-the-board moves, or worse yet, to

Bases for industry segmentation

An industry  is a market in which similar or closely related prod­ ucts are sold to buyers, as shown  schematically  in Figure  7 – 1.2 In some industries a single product variety is sold to all buyers. More typically, however, there are many existing or potential  items in an industry’s product line, distinguished by

The industry segmentation matrix for the firm

Having identified the relevant segmentation variables with struc­ tural  or value chain implications, the next  task   is to   combine   them into an overall segmentation of the industry. The task is usually difficult because there are many relevant segmentation variables— in some in­ dustries there can be dozens. The  challenge is to distill these variables

Industry segmentation and competitive strategy of the firm

Industry  segments differ in   their  attractiveness  and   the sources of competitive advantage for competing in them. The key strategic questions that arise out of segmentation are: where in the industry a firm should compete (segment scope ) how its strategy should reflect this segmentation A firm can adopt a broadly-targeted strategy that addresses many

Segment Attractiveness and Interrelationships

1. The Attractiveness of a Segment The  first issue in deciding where  to compete  in   an   industry is the attractiveness of the various segments. The  attractiveness  of a segment is a function of its structural attractiveness, its size and growth, and the match between a firm’s capabilities and the segment’s needs. STRUCTURAL ATTRACTIVENESS The

Choice of Focus strategy

The Choice of Focus Focus strategies rest on differences among segments, either differ­ ences in the firm’s optimal  value   chain   or differences in the buyer value chain that  lead to differing purchase  criteria. The  existence of costs of coordination, compromise, or inflexibility in serving multiple segments is the strategic underpinning  of sustainable  focus strategies.

Industry segmentation and industry definition

Drawing industry boundaries is always a m atter of degree. Struc­ tural and value chain differences among  product varieties and buyers work   towards  a narrower  industry  definition.   Industry  segmentation is thus a tool to probe for narrower industry definitions by exposing structural heterogeneity within an industry. Interrelationships among segments and business units (Chapter 9)

Identifying substitutes of firm’s product-service

The first step in substitution  analysis is to identify the substitutes an industry faces. This seemingly straightforward  task is   often   not easy in practice. Identifying substitutes  requires searching  for products or services that   perform   the   same   generic   function   or   functions   as an industry’s product,  rather than  products  that  have the same form. A truck

The economics of substitution

One product substitutes for another if it offers buyers an induce­ ment to switch that  exceeds the cost or  overcomes the resistance to doing so. A substitute offers an inducement to switch if the substitute provides the buyer with more value relative to its price than the product currently being used. There is always

Changes in the substitution threat for firm’s product-service

The threat of a substitute often changes over time, with a corre­ sponding impact on the pattern  of substitution.  Many  of the sources of change in the substitution threat are predictable and can often be influenced through a firm’s offensive or defensive substitution strategy. Changes in the threat of substitution occur in five broadly

The path of substitution of firm’s product-service

The path of substitution  in an industry  is a function of how RVP, the perception of  RVP,  switching costs, and   the propensity  of buyers to switch evolve over time. The rate of penetration of substitutes differs widely from industry to industry. Some substitutes  gain quick accep­ tance, while others penetrate  slowly or not at

Substitution and competitive strategy of the firm

The economics of substitution carry a variety of strategic implica­ tions for firms attempting to promote substitution, as well as for firms attempting to   defend against it.   Defenses against substitution  are, by and large,   the   reverse of offensive strategies that  promote  substitution. I will first describe   some   principles   of promoting  substitution  and then turn

The growing importance of horizontal strategy of the firm

Horizontal  strategy is something  that few firms today can afford to ignore. Interrelationships among business units and the ability to exploit them have been   increasing   in   the   last decade,   and   powerful and interconnected  forces are likely to accelerate the   trend   in the 1980s and 1990s. Diversification philosophy is changing. The  philosophy  guiding many firm

Interrelationships among business units of the firm

There are three broad types of possible interrelationships among business units: tangible interrelationships,  intangible interrelationships, and competitor interrelationships. All three types can have important, but different, impacts on competitive advantage and are not mutually exclusive: Tangible   Interrelationships.   Tangible   interrelationships   arise from opportunities to share activities in the value chain among related business units, due

Tangible interrelationships among business units

The value chain provides the starting  point  for the analysis of tangible interrelationships.  A business unit can potentially share any value activity with another business unit in the firm, including both primary and supporting activities. For  example, Procter  & Gamble enjoys interrelationships between its disposable diaper and paper towel businesses. Certain raw materials can