The remaining vendors may profit from their ventures but will likely make no more than their opportunity cost. This is what economists refer to as economic profit or economic rents. It differs from accounting profit in that it refers to profits in excess of the opportunity cost of capital.
More acceptable reasons for diversification these days are the potential for operational and strategic benefits.
(1) eliminating and preventing competition by subsidizing a price war,
(2) reducing rivalry through mutual forbearance, and
(3) raising rivals’ costs through vertical foreclosure.
Residue rights of control
Broadly speaking, there are two types of competitive advantage a firm may pursue: low cost or uniqueness
Firms may choose to target a broader or narrower segment of the market. Most markets can be segmented into smaller product markets defined by geography, buyer characteristics (e.g., age, race, income, and gender), and other product line characteristics.
These two dimensions, broad versus narrow and low cost versus unique, define four generic strategies:
1. Broad-scope, low-cost players are referred to as cost leaders
2. Broad-scope, unique players are referred to as differentiated players
3. On the narrow side, we have both focused, low-cost players and differentiated niche players.
4. Some firms pursue generic strategies that cross these boundaries.
major sets of activities, skills, and resources that drive value to customers.
at the time of strategy formulation, when firms are assessing which strategic options are currently feasible—and may be included in a broader process of determining strengths, weaknesses, opportunities, and threats (SWOT).
capabilities analysis can be used to determine which capabilities are perhaps non-core and therefore candidates for outsourcing or external partnering.
Truly understanding a firm’s competitive strengths requires more than just an understanding of that organization’s tangible assets. Indeed, the key building blocks of competitive advantage are often more likely to involve the firm’s intangible assets.
Capabilities analysis is based on the resource-based view (RBV) of strategy that emphasizes the internal skills and resources of the firm. The RBV asserts that resources and capabilities can be a source of competitive advantage when they are (a) valuable, (b) rare, (c) inimitable, and (d) non-substitutable.
Step 1. Determine the value chain for your business. (bargaining power, capabilities, partners, and defensibility.)
Step 2. Isolate the core set of capabilities.
Step 2a. Processes.
Step 2b. People. ( (a) most central to value creation and (b) unique and difficult to replace. )
Step 2c. Systems. ( (a) operational, (b) relational, and (c) transformational.)
Step 3. Determine degree of alignment.
Step 3a. Internal alignment.
Step 3b. External alignment.
Step 4. Determine sustainability.
Step 4a. Imitation.
Step 4b. Durability
Growth results from scaling new products and services up the S-curve and also occurs from the continuous creation of new S-curves. So in one sense, the purpose of strategy is to create new S-curves
The CLC is split into three phases consistent with the S-curve: an emergent phase, a growth phase, and a mature phase.
Demarking each of the three phases associated with a single S-curve are transitory inflection points: disruption, annealing, and shakeout.
After a disruption occurs, the new S-curve begins and we enter the emergent phase. This period is often characterized by what others have referred to as the “era of ferment” as businesses experiment with various designs.
The emergent phase ends as customer adoption accelerates and the product concept solidifies around a core set of design features.
Annealing typically gives way to the growth phase. As uncertainty in the technology or design is reduced, more customers are willing to purchase, leading to significant growth in demand. Business focus typically shifts from development to scaling.
As the growth phase winds down, when marginal growth rates begin declining, a competitive shakeout often ensues. Marginally competitive firms exit the market and a handful of dominant players emerge. Shakeouts can vary in intensity.
After the shakeout, industries enter the mature phase. Growth is still possible, but it is likely to be less pronounced and often comes from stealing market share from competitors. When the market continues to support a number of rivals, competition can be particularly fierce with strong downward price pressure.
Total quality management and Six Sigma programs are common.
(1) rivalry among current competitors,
(2) threat of new entrants,
1. Entrant faces high sunk costs
2. Incumbents have a competitive advantage.
3. Entrant faces retaliation.
(3) substitutes and complements,
1. cross-price elasticity of a potential substitute
2. substantial switching costs between products
(4) power of suppliers, and
1. availability of reliable information on suppliers
2. well-known information on supplier prices
3. suppliers cannot easily segment the market and thus struggle to price-discriminate
(5) power of buyers.
But duopolies are far less competitive—and typically far more profitable—than the alternative of many firms competing. Two additional considerations include whether (1) the incentives to “fight” are low and (2) coordination between competitors is possible.
Coordination that helps reduce pressures to engage in aggressive price cutting may be possible between competitors. In the extreme, firms may explicitly coordinate pricing and/or output. OPEC is a moderately successful cartel of oil-producing nations that tries to control the price of oil. (reduce prod. increase price.)
Environmental analysis (sometimes referred to as “environmental scanning”) is the analysis of factors in the larger competitive context that are currently affecting, or may in the future influence, the nature of competition within an industry.
Strategists should also pay attention to trends in the political and regulatory environment, as such factors can also impact a firm’s prospects in a substantial way. Government regulation and other forms of market intervention can directly affect a firm’s operations and strategic options, and therefore should be carefully considered when formulating and implementing a firm’s strategy.
Many tacit influences that can arise from geographic differences, cultural trends, and social norms.
1. Demographic trends
2. Socio-cultural influences:
3. Technological developments
4. Macroeconomic impacts
5. Political-legal pressures
6. Global trade issues:
An organization’s strategic goals, or objectives, refer to the organization’s mission, its unique purpose and scope. The strategic plan, sometimes called strategic intent, is how the organization tailors its offerings and develops and leverages internal resources and capabilities to accomplish strategic goals. Strategic actions are those tangible actions taken to operationalize the strategic plan in pursuit of the strategic goals of the business.
(1) an identification of the organization’s current competitive positioning and an assessment of the strengths and weaknesses of that position,
(2) a consideration of the pros and cons of a relatively small set of strategic actions to help improve that position, and
(3) the advancement of a set of recommendations based on this analysis.
Two different people have asked me this question this week, so I thought I would write out my answer. My approach is slightly unorthodox, but here goes:
1. Go to the top of Marina Bay Sands hotel and get a view of the skyline, the harbor, and the Straits. Watch the ships queuing. This is one of my favorite views in the whole world. Most of all I am struck by the contrast between what Singapore has achieved so quickly and also its continuing ultimate vulnerability; the view captures both of those. If you can afford it, stay in the hotel and swim in the Infinity Pool. That alone justifies dragging your body all the way to Singapore. Continue reading “How to visit Singapore”