CHAPTER 6 BUSINESS STRATEGY BUSINESS STRATEGY Strategic Planning

CHAPTER 6 BUSINESS STRATEGY

BUSINESS STRATEGY • Strategic Planning • Strategic Analysis

STRATEGIC PLANNING • Core Competency • Outsourcing • Sustainable Competitive Advantage

CORE COMPETENCY The primary areas that an organization is excellent at in making decisions

CORE COMPETENCY EXAMPLES • Pappas • IBM • Du. Pont

IBM CORE COMPETENCY Mainframe Computers Consulting Services Cloud Software

OUTSOURCING Transferring a business function to an external provider

REASONS FOR OUTSOURCING • Cost savings • Focus on core business • Improve quality

OUTSOURCING EXAMPLES • Call Centers • Supply Chain Function • Small Businesses

SUSTAINABLE COMPETITIVE ADVANTAGE Maintaining a Competitive Advantage Over a Long Period of Time

SUSTAINABLE COMPETITIVE ADVANTAGE EXAMPLES • Digging a moat strategy • Patents/copyrights • Brand equity • Low cost organizations

DIGGING A MOAT STRATEGY • Obtain a strong competitive advantage • Fend off existing and new challenges • Isolate firm from competition • Maintain a low cost structure

LACK OF A GM MOAT Situation Total Labor Cost GM $1, 000 per Vehicle Toyota $800 per Vehicle Parts Sources 37% from Michigan On-site Suppliers Hourly Labor Cost $81 $35

PATENTS/COPYRIGHTS Patents and copyrights are monopoly awards given by the government for new technology and innovations

PATENT/COPYRIGHT EXAMPLES • Lipitor drug patent • Song/movie/book copyrights • Dead moneymaker royalties

BRAND EQUITY Brand equity is the goodwill of a brand • Coca Cola • Intel • Google

LOW COST ORGANIZATIONS • GEICO Low agent costs • Walmart Low supply chain costs • Amazon. com Low internet costs

STRATEGIC ANALYSIS • Business Models • Changing Business Models • Cash Flow Business Models • Threatened Business Models

BUSINESS MODELS Traditional Business Model • Many Levels of Management • Focus on Command Control Entrepreneurial Business Model • Few Levels of Management • Focus on Recognition and Response

FOCUS ON RECOGNITION AND RESPONSE • Changing Buyer Needs • Changing Competition • Environmental Threats and Opportunities

SWOT ANALYSIS Controllable Uncontrollable Strengths Opportunities Weaknesses Threats

U. S. AVG LIFE EXPECTANCY AT 65 1950 13. 6 years 2013 19. 1 years

CONTROLLABLE AREAS • Products • Price • Promotion • Distribution

UNCONTROLLABLE AREAS • Competition • Changing buyer needs • Environmental changes • New technology

CONCEPT OF MISTAKES • Mistakes can be valuable • The worst mistake is to act as if you do not make mistakes • Question: What did you learn?

NASA SLOGAN “Failure is Not an Option. ”

“Those Who Never Make Mistakes Work For Those of Us Who Do. ” Henry Ford

CHANGING BUSINESS MODELS • General Motors • Southwest Airlines • Freemium Models

GENERAL MOTORS BUSINESS MODEL • Union contract • Health care costs • # of car brands • Excessive inventory • Too many dealers

SOUTHWEST AIRLINES BUSINESS MODEL • Use one type of plane – Being 737 • Avoid hub airports in favor of secondary airports • Concentrate on short-haul flights • Use low-fare pricing