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Exhibit 4.1: Costs, Prices, and Profits for Differentiation and Low-Cost Strategies

Exhibit 4.1: Costs, Prices, and Profits for Differentiation and Low-Cost Strategies

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Focus Strategy

•• Strategies

Strategies can

can be

be further

further subdivided

subdivided on

on the

the basis

basis ofof

competitive

competitive scope

scope

•• Competitive

Competitive scope:

scope: how

how broadly

broadly aa firm

firm targets

targets its

its

products

products or

or services

services

•• Narrow

Narrow competitive

competitive scope

scope for

for certain

certain buyers

buyers or

or

geographic

geographic areas

areas

•• Broad

Broad competitive

competitive scope

scope when

when aa large

large range

range ofof

buyers

buyers are

are targeted

targeted

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Exhibit 4.2: Porter’s Generic

Strategies



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Competitive Advantage and

the Value Chain

•• AAfirm

firm can

can gain

gain competitive

competitive advantage

advantage by

by finding

finding

differentiation

differentiation or

or low

low costs

costs inin its

its activities

activities

•• Value

Value chain

chain isis aa convenient

convenient way

way ofof looking

looking atat the

the firm’s

firm’s

activities

activities

•• Value

Value chain:

chain: all

all the

the activities

activities that

that aa firm

firm used

used toto design,

design,

produce,

produce, market,

market, deliver,

deliver, and

and support

support its

its product

product



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Exhibit 4.3: The Value Chain



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Components of the Value

Chain

•• Primary

Primary activities:

activities: physical

physical actions

actions ofof creating,

creating, selling,

selling,

and

and after-sale

after-sale service

service ofof products

products

•• Upstream:

Upstream: early

early activities

activities inin the

the value

value chain

chain

•• R&D

R&D

•• Dealing

Dealing with

with suppliers

suppliers



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Components of the Value

Chain (cont.)

•• Downstream:

Downstream: later

later value

value chain

chain activities

activities

•• Sales

Sales and

and dealing

dealing with

with distribution

distribution channels

channels

•• Support

Support activities:

activities: systems

systems for

for human

human resources

resources

management,

management, organizational

organizational design

design and

and control,

control, and

and

technology

technology



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Distinctive Competencies

Strengths

Strengths that

that allow

allow companies

companies toto outperform

outperform rivals

rivals

•• Ex.:

Ex.: Quality,

Quality, innovation,

innovation, customer

customer service

service

•• Resources:

Resources: inputs

inputs into

into the

the production

production or

or service

service

processes

processes

•• Ex.:

Ex.: Buildings,

Buildings, land,

land, equipment,

equipment, employees

employees



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Distinctive Competencies

•• Capabilities:

Capabilities: ability

ability toto assemble

assemble and

and coordinate

coordinate

resources

resources effectively

effectively

•• Resources

Resources provide

provide the

the organization

organization with

with potential

potential

capabilities.

capabilities.

•• For

For long-term

long-term success,

success, capabilities

capabilities must

must lead

lead toto

sustainable

sustainable competitive

competitive advantage.

advantage.



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Sustaining Competitive

Advantage

Sustainable:

Sustainable: strategies

strategies not

not easily

easily defeated

defeated by

by

competitors

competitors

•• Four

Four characteristics

characteristics ofof capabilities

capabilities that

that lead

lead toto

competitive

competitive advantage

advantage

Valuable

Valuable

Rare

Rare

Difficult

Difficult toto imitate

imitate

Non-substitutable

Non-substitutable

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Exhibit 4.4: Relationships Among Resources,

Capabilities, Distinctive Competencies, and

Eventual Profitability



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Competitive Strategies in

International Markets

•• Competitive

Competitive strategies:

strategies: strategic

strategic moves

moves multinationals

multinationals

use

use toto defeat

defeat competitors

competitors

•• Offensive

Offensive competitive

competitive strategies:

strategies: direct

direct attacks

attacks toto

capture

capture market

market share

share

•• Defensive

Defensive competitive

competitive strategies:

strategies: attempts

attempts toto

discourage

discourage offensive

offensive strategies

strategies

•• Counter-parry:

Counter-parry: fending

fending off

off aa competitor’s

competitor’s attack

attack inin

one

one country

country by

by attacking

attacking inin another

another country

country

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Exhibit 4.1: Costs, Prices, and Profits for Differentiation and Low-Cost Strategies

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