Discussion Question 6.1: What are some drawbacks and risks to a broad generic business strategy? To a focused strategy? The two generic business strategies are differentiation and cost-leadership strategies, and they are fundamentally different from one another, both with their own drawbacks and risks (Rothaermel, 2013). These strategies are referred to as “generic” because they may be used by any type of organization (Rothaermel, 2013). The drawbacks and risks of a differentiation generic strategy is its viability “is severely undermined when the focus of competition shifts to price rather than value-creating features” (Rothaermel, 2013, p. 155). This tends to occur when there is a level of acceptable quality which has emerged as a standard (Rothaermel, 2013). Organizations pursuing this strategy also need to ensure that they are not adding features which add cost but no “perceived value in the minds of consumers” (Rothaermel, 2013, p. 155). The drawbacks and risks of a cost-leadership strategy are that new entrants may erode the low-cost leader’s margins because of the “loss in market share while it attempts to learn new capabilities” (Rothaermel, 2013, p. 154).
Also, the converse of the differentiation strategy issue applies, in that organizations need to ensure that the “focus of competition shifts from price to non-price attributes” (Rothaermel, 2013, p. 154). The organization needs to also be careful not to allow the value of the product or service to fall below the low-cost at which the product or service is offered (Rothaermel, 2013). A focused strategy applies the same concepts as the generic strategies above, but the focused strategy utilizes a more narrow competitive scope than the generic strategies (Rothaermel, 2013). The competitive scope refers to the market segment at which the product or service being offered is aimed (Rothaermel, 2013). An example would be the broad market of wristwatches to the more focused market of luxury watches (Rothaermel, 2013).
Discussion Question 6.4: Create examples of value chains for three firms: one using cost leadership, another using differentiation, and a third using an integration business-level strategy. A value chain is the process in which “a firm engages when transforming inputs into outputs” (Rothaermel, 2013, p. 95). It is made up of primary activities, which add value directly, and support activities, which add value indirectly (Rothaermel, 2013). Primary activities include production phases, sales, marketing, and customer service (Rothaermel, 2013). Support activities include research and development, “information systems, operations management, human resources, finance, accounting, and general management” (Rothaermel, 2013, p. 96). Cost leadership firm: As discussed above, a cost-leadership strategy involves maintaining the lowest price of a particular service or product (Rothaermel, 2013). A prime example of a cost-leadership firm would be Walmart (Rothaermel, 2013).
Walmart’s value chain would begin with its supply chain, which is made up of suppliers with whom Walmart has negotiated the lowest price possible, at a volume sufficient enough to fill its shelves (Rothaermel, 2013). The next link in the value chain would be Walmart’s distribution and operations. Walmart has been able to reduce packaging and mileage, allowing for significant cost savings (Porter & Kramer, 2011). Walmart’s sheer size creates significant savings through economies of scale (Rothaermel, 2013). Lastly would be marketing, sales, and service, in Walmart’s value chain. Walmart focuses on “Saving people money so they can live better”, and continues to take innovative steps to do so (Walmart, 2015). The company has even created a mobile app called the “Savings Catcher” which allows customers to scan their Walmart receipt to capture savings that they would have missed otherwise (Walmart, 2015). This is a marketing effort which impacts sales and services in a major way.
Differentiation: Apple is an ideal example of an organization utilizing a differentiation strategy (Rothaermel, 2013). Apple seems to be able to “create customer needs (even if customers are initially unaware of the need)” (Rothaermel, 2013, p. 155). Apple’s value chain will differ from Walmart, and other cost-leadership strategy firms, in that it will have a greater focus on the development of their products and in its marketing and customer service. It will focus on product development in an effort to ensure their products continue to set the bar in their respective categories (Rothaermel, 2013). Apple will also focus on marketing and customer service to ensure that new and current customers are aware of the products’ areas of superiority (Rothaermel, 2013).
Integration Business-Level: Hewlett Packard (“HP”) is an example of an organization that is using the integration business-level strategy, which is a combination of the differentiation and cost-leadership strategies (Rothaermel, 2013). HP utilizes this strategy because Apple holds the differentiation position while Dell holds the cost-leader position in the mobile devices market (Rothaermel, 2013). For this reason, HP must seek to implement both the cost-saving strategies in supply chain management, like Walmart, and the differentiation strategies in product design, like Apple (Rothaermel, 2013). There are differences, however, in the value chain between HP and the two companies above. HP has sought to cut costs by trimming its workforce, thereby helping in its cost-leadership strategy (Rothaermel, 2013). In regard to its design efforts, HP has improved “the differential appeal of its product and service offerings” (Rothaermel, 2013, p. 162).
Discussion Question 7.1: What strategy might the firm use to unseat Windows in this market? Although the small firm has developed a new product, it is a product which will be introduced into an industry which is most likely in the growth or maturity stage of the industry life cycle (Rothaermel, 2013). As such, the small firm’s best strategy would be to employ a cost-leadership strategy (Rothaermel, 2013). This is the best option because both the differentiation and cost-leadership strategy are viable options during the growth stage, but firms that adopt the cost-leadership strategy which dominate during the maturity stage (Rothaermel, 2013). The small firm’s new product is likely considered a process innovation, as it seeks to accomplish the same tasks in a more efficient manner (Rothaermel, 2013). Discussion Question 7.2: How does the industry life cycle affect business strategy? Detail your answer based on each stage: introduction, growth, maturity, and decline.
During the introduction stage of the industry life cycle, the companies which tend to be, and stay successful, are innovative and tend to be few (Rothaermel, 2013). As such, the strategy used during this stage is likely the differentiation strategy, since firms are seeking to establish the uniqueness of their products’ features (Rothaermel, 2013). The growth stage tends to allow organizations to be a little freer to decide which strategy would work best for them (Rothaermel, 2013). It is during this stage that a dominant design, or standard, is established, which means that firms may choose to differentiate their product, or choose to attempt to offer the same type of product at a lesser cost (Rothaermel, 2013). The maturity stage begins to see less design changes and more process innovations within the industry (Rothaermel, 2013). For this reason, it is cost-leaders that tend to succeed during this stage (Rothaermel, 2013).
The decline stage differs from those above, as it introduces four strategic options for firms to pursue: (1) exit, (2) harvest, (3) maintain, and (4) consolidate (Rothaermel, 2013). The exit strategy is precisely as it says: it involves the firm choosing to leave the market to pursue other endeavors (Rothaermel, 2013). The harvest strategy means that the firm will still sell the product or service, but will reduce the level of investment in its maintenance and development (Rothaermel, 2013).
The maintain strategy is also exactly what it sounds like: the firm continues offering the product or service at the same level as it has been, despite the declining demand (Rothaermel, 2013). The consolidate strategy involves the purchasing of rivals in an effort to shrink the industry, which provides firms employing this strategy to reach near-monopolistic status (Rothaermel, 2013). Discussion Question 7.4: Why are standards important in many industries? As standards get adapted and become dominant, how does this process influence the competitive nature of the industry?
Standards are important in many industries because the firm whose product becomes the standard “tends to capture a larger market share and can persist for a long time” (Rothaermel, 2013, p. 175). Once the standard is adopted, the market tends to focus more on process innovation than on product innovation (Rothaermel, 2013). This means that firms are focusing their R&D efforts “on process innovation in order to improve efficiency” (Rothaermel, 2013, p. 177). Since the standard tends to be set during the growth stage, either the differentiation or cost-leadership strategy is used, for the reasons discussed above (Rothaermel, 2013).
Discussion Question 8.1: When Walmart decided to incorporate grocery stores into some locations and created “super-centers,” was this a business-level strategy of differentiation or a corporate-level strategy of diversification? Why? Explain your answer. Walmart’s incorporation of grocery stores into some locations represents a corporate-level strategy of diversification, as opposed to a business-level strategy of differentiation. While business-level strategy typically involves individual markets, corporate-level strategy encompasses decisions which impact multiple markets and industries simultaneously (Rothaermel, 2013). Diversification occurs when a firm seeks to increase “the variety of products or markets in which to compete” (Rothaermel, 2013, p. 216). By incorporating grocery stores into some of its locations, Walmart made a corporate-level strategy decision to diversify the products offered in its stores, and the markets within which it chose to operate (Rothaermel, 2013).
Discussion Question 9.1: List some specific advantages of this acquisition for Live Nation. Do you see any downside to the merger? Some advantages to the acquisition of Ticketmaster by Live Nation include: a reduction in competitive intensity, lower costs, increased differentiation, and access to new markets and distribution channels (Rothaermel, 2013). While these are some possible advantages for Live Nation, mergers and acquisitions do not result in a competitive advantage the majority of the time (Rothaermel, 2013). Shareholder value is usually destroyed after a merger and acquisition, and it is only the shareholders of the acquired company that tend to benefit (Rothaermel, 2013).
Discussion Question 10.1: How might your relationship change as the MNE moves from Globalization 2.0 to Globalization 3.0 operations? Globalization is the process of increasing “integration and exchange between different countries and peoples worldwide” (Rothaermel, 2013, p. 271). Globalization 2.0 refers to growing business globally from 1945 to 2000 (Rothaermel, 2013). It involved large foreign direct investment, with the state-side corporate headquarters directing strategic goals and resource allocation (Rothaermel, 2013). Globalization 3.0 covers the time period from 2000 to the present (Rothaermel, 2013). Tremendous strides in technology allow for less need of foreign direct investment, and this stage has allowed the MNE to reorganize as a “global enterprise with centers of expertise” (Rothaermel, 2013, p. 273).
As a small firm supplying a product or service to an MNE, the degree of change which would arise in our relationship, as the firm moved from Globalization 2.0 to Globalization 3.0 operations, would depend heavily on the location and type of services or product provided. The MNE would likely become more dependent on technology for telecommuting and would seek to operate twenty-four hours a day, year round (Rothaermel, 2013). As such, if our service or product was related to the technologies being implemented by the MNE, then the firm would become a larger player in the MNE’s operations. However, if the MNE was able to tap into its own knowledge-base to provide the services or product our small firm provides, then we would no longer be needed by the global giant.
Rothaermel, F. T. (2013). Strategic Management. New York: McGraw-Hill/Irwin. Walmart. Our story. Retrieved on January 25, 2015, from http://corporate.walmart.com/our-story/