Rothaermel Exercise 2 Instructions
Chapter 6 Rothaermel Text
- Discussion Question 6.1
- Discussion Question 6.3
Chapter 7 Rothaermel Text
- Discussion Question 7.1
- Discussion Question 7.2
- Discussion Question 7.4
Chapter 8 Rothaermel Text
- Discussion Question 8.1
Chapter 9 Rothaermel Text
- Discussion Question 9.1
Chapter 10 Rothaermel Text
- Discussion Question 10.3
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What are some drawbacks and risks to a broad generic business strategy? To a focused strategy?
In Chapter 4, we discussed the internal value chain activities a firm can perform in its business model (see Exhibit 4.8). The value chain priorities can be quite different for firms taking different business strategies. Create examples of value chains for three firms: one using cost leadership, another using differentiation, and a third using value innovation business-level strategy.
|EXHIBIT 4.8||A Generic Value Chain: Primary and Support Activities|
As shown in Exhibit 4.8, the value chain is divided into primary and support activities. The primary activities add value directly as the firm transforms inputs into outputs—from raw materials through production phases to sales and marketing and finally customer service, specifically
- Supply chain management.
- Marketing and sales.
- After-sales service.
- Select an industry and consider how the industry life cycle has affected business strategy for the firms in that industry over time. Detail your answer based on each stage: introduction, growth, shakeout, maturity, and decline.
Describe a firm you think has been highly innovative. Which of the four types of innovation—radical, incremental, disruptive, or architectural—did it use? Did the firm use different types over time?
Much has been said about competitive advantage gained from innovations such as the Internet, high-technology gadgets, and apps. The chapter points out, however, that low-technology innovations such as the razor—razorblade business model can also create value with incremental innovation. The chapter also noted that Dollar Shave Club (Strategy Highlight 7.1) is merely using a different business model to try to disrupt Gillette. Think of other low-technology innovations that are/were novel, useful, and successfully implemented so that the innovating firm gained a competitive advantage. Find information about the entrepreneurial story behind the innovation.
When Walmart decided to incorporate grocery stores into some locations and created “supercenters,” was this a business-level strategy of differentiation or a corporate strategy of diversification? Why? Explain your answer.
The chapter identifies three governing mechanisms for strategic alliances: non-equity, equity, and joint venture. List the benefits and downsides for each of these mechanisms.
The chapter notes that global strategy can change over time for a firm. MTV is highlighted as one example in Exhibit 10.7. Conduct a web search of a firm you know to be operating internationally and determine its current global strategy position. How long has the firm stayed with this approach? Can you find evidence it had a different global strategy earlier?
Rothaermel Exercises: Chapters 6-10
Discussion Question 6.1: What are some drawbacks and risks to a broad generic business strategy? To a focused strategy?
The broad generic business strategy was brought about by Michael Porter (Dess & Davis, 1984). In this business strategy, a business pursues a competitive advantage based on its market scope. Cost leadership or low-cost strategy and differentiation strategy form the generic business strategies. Each of these strategies has its own advantages and drawbacks. The following are some of the risks and drawbacks associated with generic business strategies:
Cost Leadership Strategy – this strategy is risky since the theory of “low-risk” can be utilized by competitors. If the competitors are able to lower their costs to a level that matches or surpasses the current cost leader, then the strategy will become ineffective. Over time, technological advances may enable the competitors to improve their production capabilities to a level which may surpass that of the cost leader, eliminating the competitive advantage that is currently present.
Differentiation strategy – risks with this strategy include changes in the tastes and preferences of customers and competitor companies imitating the designs and business model of the organization using the differentiation strategy.
A focus strategy involves focusing on a narrow market environment. It involves concentrating a company’s resources on expanding the business activities in a specific market scope (Rothaermel, 2015). Focus strategy results in increased differentiation in a market segment. A risk or drawback with a focus strategy lies where the competitors may start to find new effective ways of matching the ‘focusing’ organization’s capability to serve the market segment or niche. The preferences of the customers may also shift towards the product attributes of a competitor company.
Discussion Question 6.3: Create examples of value chains for three firms: one using cost leadership, another using differentiation, and a third using value innovation business-level strategy.
Value chain refers to the processes or activities that result in the addition of value to a service or product at every production level. In manufacturing, value addition is done at every stage or manufacturing (Rothaermel, 2015). A value chain consists of two major categories of activities: primary activities, which include operations, distribution, marketing, sales, and customer service; and support activities, which include information systems, research and development, accounting and finance, human resources, and policies. All these activities need to be aligned with the strategy of a business in order to ensure value addition (Rothaermel, 2013). The following are examples of value chains depending on the business strategy:
Cost Leadership – Company A, uses cost leadership strategy to run its chain of apparel stores across the United States. The company has developed certain capabilities to minimize costs across the value chain, resulting in a total cost that is lower than that of competitor companies. The company reviewed its entire value chain processes and effectively identified the various business functions with a potential for capabilities that could be used to minimize costs.
Differentiation strategy – Company F has recently launched a new yogurt brand, Dea. The company developed the product by encouraging innovation within all the production units. The management promoted the development of innovation capabilities within the company. The yogurt is packaged in containers that are easy to drink directly from, and the mode of distribution ensures that the product reaches the customer within the shortest time possible. Through innovation, the company can produce a product that has a longer shelf life than any of the competitors’ products, differentiating its product from the rest.
Value-innovation business level strategy – Company Y, a company that conducts online grocery sales, conducts its operations by integrating value chain activities such as purchasing, logistics, customer service, and inventory management. The company is able to offer customers a unique service by offering low-cost products that are differentiated. The company largely focuses on providing unmatched customer service.
Discussion Question 7.1: Select an industry and consider how the industry life cycle has affected business strategy for the firms in that industry over time. Detail your answer based on each stage: introduction, growth, shakeout, maturity, and decline.
The lifecycle of any industry is made up of five stages: introduction, growth, shakeout, maturity, and decline (Rothaermel, 2015). The strategies of the businesses or companies in an industry are largely affected by the stage in which the industry is at. Considering the technology industry:
Introductory stage – during the introductory stage of the technology industry, the companies in the industry had to conduct research and development activities intensively to introduce new and exciting products and services to customers. The companies had to utilize strategies that would enable them to effectively cover the market and ensure the ready availability of their products to customers. The strategies used had to focus on the establishment of a strong brand and extensive advertising.
Growth stage – during the second stage, the companies which had successfully established their market and brands in the technology industry had to focus on ensuring that their production processes and machinery could meet the market demand. The companies also had to acquire the relevant documentation and certification, such as patents and quality standards certifications, to differentiate their brands from the rest.
Shakeout stage – during the shakeout stage, the firms in the technology industry had to adopt competitive strategies that would enable them to acquire market shares. The companies had to effectively cope with the increasing level of competition. Failure to compete effectively would lead to a company getting kicked out of the industry.
Maturity stage – the technology industry is currently in the maturity stage. Companies are forced to focus on intermediaries that are capable of convincing the consumers to switch their preferences. The companies also focus on innovation to ensure continuous product improvement. Strategies that focus on promotion, rather than advertising, are more effective at this stage.
Decline stage – during the decline stage, companies must choose between an exit strategy, a harvest strategy, and a consolidating strategy. At this final stage, companies try their best to minimize expenditure on promotion and advertising. Only a small group of loyal customers continue to buy a product or service, until the point where the company sells it out to another company or discontinues its production.
Discussion Question 7.2: Describe a firm you think has been highly innovative. Which of the four types of innovation—radical, incremental, disruptive, or architectural—did it use? Did the firm use different types over time?
Apple Inc. is one of the most popular technology companies in the world. The company’s business strategy largely involves innovation (Kwoh, 2012). The company uses disruptive innovation since it is popular for adopting the latest technology. Apple Inc. continually produces new improved products. As such, the company also uses incremental innovation. The iPhone product, for instance, has been improved over the years through incremental innovation (Kwoh, 2012). In addition, the company uses radical innovation since it develops new technology and products often. For instance, the company recently introduced an online music streaming service. When the company intends to enter a new market, architectural innovation is applied. The company uses its technologies in the new market, then reintroduces its existing products and services in that market.
Discussion Question 7.4: Think of other low-technology innovations that are/were novel, useful, and successfully implemented so that the innovating firm gained a competitive advantage. Find information about the entrepreneurial story behind the innovation.
Low technology innovation involves the development of a product that is less costly, as it uses minimal technology involvement, and which picks up easily since it is a brilliant idea. Examples of brilliant low-technology innovations that were well implemented to become successful include the following:
The life straw – this is a straw that has the capability of purifying water as the user is drinking it. This low-technology innovation is brilliant and important for people living in areas without clean drinking water.
Adjustable eyeglasses (Silver, 2003) – these are eyeglasses with a focal length that is adjustable. These glasses use silicone oil sandwich placed between the glasses to enable one to adjust the power of the glasses. This innovation is important for people with sight problems.
Discussion Question 8.1: When Walmart decided to incorporate grocery stores into some locations and created “supercenters,” was this a business-level strategy of differentiation or a corporate strategy of diversification? Why? Explain your answer.
Business level strategies focus on how a company can effectively compete with the other players in the industry. A business-level strategy focuses on getting a new idea and introducing it to acquire a competitive edge (Rothaermel, 2015). One way of doing this is through differentiation. On the other hand, corporate level strategies focus on where the company may effectively compete and at what level a product will be introduced and sold. A corporate level strategy involves decision making by the management; decisions on where to sell a specific product – either locally or globally. Product diversification is an example of a corporate level strategy where the management decides which market will get a new product line or a differentiated product. Walmart’s introduction of grocery stores in some locations and the creation of “supercenters” was a corporate level diversification strategy since the company was already running the retail chain stores. The management decided to diversify its products by introducing a new product line, increasing the value of its “supercenters”. The management made decisions on what product would be added to the existing products and in which locations.
Discussion Question 9.1: The chapter identifies three governing mechanisms for strategic alliances: non-equity, equity, and joint venture. List the benefits and downsides for each of these mechanisms.
Non-equity Strategic Alliance – an arrangement between two companies in the nature of a supply agreement, a contract, or a licensing agreement (Das & Teng, 2000). The advantage of this alliance is that the arrangement does not result in any form of management interruption of the companies involved. It is, therefore, easy to enter or exit the alliance. A non-equity alliance is easy to draft and is flexible.
Equity Strategic Alliance – an equity alliance is established by the acquisition of equity stock in a company. One firm invests equity in another firm to acquire control of the management or to get a say on the management of the firm. In such an alliance, a company makes a huge investment in another. For this reason, the alliance is stable and there is no possibility of the alliance being broken. The companies involved build trust with each other. The alliance involves a lot of paperwork and drafting.
Joint Venture – in a joint venture arrangement, a completely new organization is established when two or more companies join. The companies combine their investment and resources and work together as a new organization (Das & Teng, 2000). This type of alliance is the strongest since companies combine their resources and strengths, but involves several management structure changes and disruption.
Discussion Question 10.3: Conduct a web search of a firm you know to be operating internationally and determine its current global strategy position. How long has the firm stayed with this approach? Can you find evidence it had a different global strategy earlier?
Facebook, a technology company which owns Facebook and WhatsApp social media platforms, is an example of a global company. The company’s mission, “to give people the power to share and make the world more open and connected” (Eși, 2014), details the company’s operations, which involve the provision of platforms that enable people to connect and share. In order to fulfill this mission, the company at first provided services that targeted college students exclusively. After the creation of the Facebook platform, the platform was run like a secret communication platform that required school email addresses for the students to connect. Over time, the company adopted a strategy that made the platform accessible to other school students across the world, opening services to anyone who owned an email address. Today, the company’s strategy ensures that anyone in any part of the world can access services and create a Facebook account. The company has also adopted the acquisition strategy, acquiring other companies and social media platforms, such as WhatsApp (Doyle, 2015), to expand its operations and market reach.
Das, T. K., & Teng, B. S. (2000). A resource-based theory of strategic alliances. Journal of management, 26(1), 31-61.
Dess, G. G., & Davis, P. S. (1984). Porter’s (1980) generic strategies as determinants of strategic group membership and organizational performance. Academy of Management journal, 27(3), 467-488.
Doyle, K. (2015). Facebook, WhatsApp and the Commodification of Affective labour. Communication, Politics & Culture, 48(1), 51.
Eși, M. C. (2014). The mission statement of the business organisation by reference to the economic market requirements. The USV Annals of Economics and Public Administration, 14(2 (20)), 131-138.
Kwoh, L. (2012). You call that innovation. The Wall Street Journal, 23.
Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.
Silver, J. D. (2003). U.S. Patent No. 6,618,208. Washington, DC: U.S. Patent and Trademark Office.