Strategic class.
Talking about the test. Voelker was apparently pretty happy with the multiple choice section of the test.
That’s good, because everyone in the class thought it was pretty easy. I did well on it. He doesn’t think the essay portions were hard enough, but not by much.
We’ll apparently be shifting tone in the class now. Less analysis, more solutions.
Also, talking about an online makeup grade. Reading an article on WebCT, and making a series of discussion
group posts. First an initial post, then a rebuttal, then some final thoughts.
Actual content for today: Strategy in a Dynamic Context.
1. Strategy does not take place in a vacuum
2. Strategic action is followed by strategic reaction
a. Customers react
b. Competitors react
3. Strategic reaction is followed byfurther reaction
Dynamic forces in the market include industry evolution, technological change, and new entrants to the industry. These are not discrete forces; they interact.
Industry Evolution normally shuffles the balance of power between commoditization and differentiation strategies.
Technological change isn’t just the introduction of a new machine. It can mean changes in the actual products, changes in the processes and techniques used by companies, or the introduction of disruptive technologies into the industry.
New Entrants often affect the other two forces. New entrants often are powered by or push technology changes. They often act counter to the existing industry state, and thereby change that state.
Dynamic strategies include:
1. Reconceive the product
2. Reconfigure the value chain
3. Redefine the Arenas
4. Rescale the Industry
5. Reconsider the competitive mindset
Direct, zero-sum competition is usually a way for many businesses to lose. It’s better if businesses can find ways to simultaneously live and prosper.
First Mover advantage:
The first mover is the firm that initiates a major strategic action. First movers can achieve major advantages if they establish an absolute cost advantage, they achieve an unassailable reputation and image, or lock in customers sufficiently. First movers can fail to get advantage if fast technology change allows followers to usurp position, if the first mover offering is flawed, if an important complement doesn’t exist, or if the costs of the first move are too high.
Often, the first mover loses to the second mover or fast follower.
Incumbents have numerous responses to first movers.
– Containment
– Neutralize the first mover advantages
– Shape the circumstances to force the new entrant into the existing status quo
– Absorption
– Annulment
Moving on to Chapter 7: Corporate Strategy
Corporate strategy is the question of what businesses to be involved in, and to what extent.
Large business conglomerates tend to be less successful than smaller firms. There’s a trackable negative correlation between number of SIC codes a corporation is involved in and its profitability. It took 40 years to figure this out. There are large exceptions, like GE.
In recent years, most companies have intentionally shrunk to specific areas of operation.
There are good reasons to enter different businesses.
– Synergy
– Economies of scope gained by businesses working together
– Revenue sharing
– Diversification
– Reduce risk. From shareholder perspective, this is questionable. If shareholders want diversity, they can diversify their portfolios themselves more easily and effectively than by having their companies by large stakes in other companies.
– Empire Building. This is often a case of principal-agent conflict. The management benefits from the company being larger and more powerful, even if the owners see not benefit or are negatively affected.
– Integration
– Vertical Integration. Own your suppliers and/or distributors. Works well, usually. Reduces risk until technology change occurs; then it may kill you.
– Horizontal Integration. Own capabilities which are the same as your own, but which are place in other industries.
Unrelated diversification tends to work badly. Related diversification works OK.