CHAPTER 1 MarketDriven Strategy Becoming Market Oriented Distinctive

CHAPTER 1 Market-Driven Strategy § Becoming Market Oriented § Distinctive Capabilities § Creating Value for Customers § Becoming Market Driven

Market-Driven Strategy § § All business strategy decisions should start with a clear understanding of markets, customers, and competitors. The market and the customers that form the market should be the starting point in business strategy

Characteristics of a Market-Driven Strategy Market. Orientation Superior Performance Leveraging of Distinctive Capabilities Customer Value/ Capabilities Match

Why Pursue a Market. Driven Strategy? n n Strong supporting logic Achievements of companies displaying market-driven characteristics are impressive n E. g. Dell Computer, Southwest Airlines, Tiffany & Co. , Wal-Mart etc.

Becoming Market Oriented n n Customer becomes the focal point Commitment to continuous creation of superior customer value Utilization of superior organizational skills Requires involvement and support of the entire workforce

Becoming Market Oriented n n Monitor rapidly changing customer needs and wants Determine the impact of changes on customer satisfaction Increase the rate of product innovation Pursue strategies to create competitive advantage

Becoming Market Oriented Effective Market Sensing Processes Cross-Functional Analysis of Information Shared Diagnosis and Coordinated Action Delivery of Superior Customer Value

Characteristics of Market Orientation n n Continuous information gathering n Customers, competitors, markets Total business perspective Value deliverance to customers Organizational culture: customer value Cross-functional cooperation and involvement

Market Orientation Process Customer Information Competitor Information Other Market Information Source: Slater and Narver, Business Horizons, 1994, p. 23 Shared Diagnosis and Coordinated Action Superior Customer Value

Market Orientation n n Customer Focus n Understand values customers seek n Dell Computer Competitor Intelligence n Identify and understand the principal competitor’s short-term strengths and weaknesses and long-term capabilities and strategies n Polaroid

Market Orientation n Information Acquisition n Gather relevant information n Involve all business functions n Intuit’s Quicken Interfunctional Assessment n Share information and develop innovative products with people from different functions n Zara Shared Diagnosis and Action

Capabilities “Capabilities are a complex bundles of skills and accumulated knowledge, exercised through organizational processes, that enable firms to coordinate activities and make use of their assets. ” (Day, JM 1994, p. 38)

Components of Organizational Capabilities Skills (cross-functional teams) Accumulated knowledge (new product experience) Organizational Processes (new product development) Coordination of Activities (communication) Superior Customer Value Assets (brand image)

Capabilities Disproportionate (higher) contribution to superior customer value Compelling Logic of Distinctive Capabilities Provides value to customers on a more cost-effective basis

Capabilities Desirable Capabilities Applicable to Multiple Competitive Situations Superior to the Competition Difficult to Duplicate Source: George S. Day, Journal of Marketing, October 1994, 49.

Types of Capabilities Outside-In Processes Inside-Out Processes Spanning Processes

Capabilities EXTERNAL EMPHASIS INTERNAL EMPHASIS Outside-In Processes Inside-Out Processes Spanning Processes § Market sensing § Customer linking § Channel bonding § Technology monitoring § Customer order fulfillment § Pricing § Purchasing § Customer service delivery § New product/service development § Strategy development § § Technology development Integrated logistics § Manufacturing/ transformation processes § Human resources management Environment health and safety § Source: George S. Day, Journal of Marketing, October 1994, 41. Financial management Cost control

Matching Customer Value/ Distinctive Capabilities Value Requirements Distinctive Capabilities

Creating Value for Customers n n Value: n Value for buyers consists of the benefits and costs resulting from the purchase of products. n Perceived by the buyer n Superior value: positive net benefits Creating Value: n “Customer value is the outcome of a process that begins with a business strategy anchored in a deep understanding of customer needs.

Creating Value for Customers Customer Value Benefits Costs

Creating Value for Customers Product Services Employees Benefits Image Monetary costs Time Psychic and physic costs Value (gain/loss) Costs (sacrifices)

Becoming Market Driven Market Sensing Capabilities MARKET – DRIVEN STRATEGIES Customer Linking Capabilities

Becoming Market Driven n n Market Sensing Capabilities n Effective processes for learning about markets n Sensing: n Collected information needs to be shared across functions and interpreted to determine proper actions. Customer Linking Capabilities n Create and maintain close customer relationships

Becoming Market Driven n Aligning Structure and Processes n Potential change of organizational design n Improve existing processes n Process redesign n Cross-functional coordination and involvement n Primary targets for reengineering: n Sales and marketing, customer relations, order fulfillment, and distribution

The Market-Driven Road Map Diagnosing the Current Capabilities Anticipating Future Needs for Capabilities Designing the Change Program