Chapter 16: Developing Sustainable Strategies – 07/09/2018
Page 390 – 408 of Service management chapter 16
Defining a strategy
Each firm has to develop a strategy regarding four basic elements as seen below in figure 16.1:
Figure 16.1: The field of strategy making
What do we want to do? (The objectives)
What do we want to do and what do we want to become? Management has to determine a desirable
future for the company in a Business definition, its mission statement and the vision for the future.
What should we do? (The environment)
An organization should also look at the environment when determining their strategy in an
environmental analysis:
• Main focus on should be on customer needs and preferences
• Competition
• Possible substitutes
• The bargaining position towards suppliers
• Regulatory elements
What can we do? (Resources and resource allocation patterns)
Whether a company can pursue their course is determined by the available resources and their
deployment.
• Tangible resources
o Facilities, buildings, machines etc.
• Intangible resources
o Knowledge, aptitudes, attitudes, reputation, image and brand equity
• Firm-adressable resources
o Resources that are not legally owned by the firm but those that are used in the process
of product design, development, service delivery, marketing or sales
,What are we allowed to do? ( Corporate values)
Business ethics and corporate norms and values.
Ikea example regarding want, should, can and allowed
o Want (objectives):
o “The Ikea vision is to create a better everyday life for many people. We make this
possible by offering a wide range of well-designed, functional home furnishing
products at prices so low that as many people as possible well be able to afford
them.”
o Should (environment):
o Large segments of market are interested in furniture that is cheap, functional and
attractive. It also shapes the market.
o Can (resources):
o 2000 suppliers, intangible resources and firm adressable resources.
o Allowed (corporate values):
o “Thrift, inventiveness, and hard work. Modesty and willpower. Our relationships with
each other and the world around us. Co-operation and sharing, and the knowlegde
that we are in this together and we all need each other.”
Conflict with the environment
A typical conflict with the environment is: the tension between the objective of the firm and the value
that the environment attaches to the services offered (the environment might not need/want said
services).
Conflict with available resources
Another classical conflict is: the tension between what available resources allow the firm to do and the
direction in which the company want to go.
,The key to long-term survivability and profitability: competitive advantage (Porter)
A competitive advantage refers to the ‘distinct capabilities’ of the firm (being distinctively different
from the competition in a way that is recognized by the environment).
A firm can pursue three types of strategy in order to create a competitive advantage, namely:
Broad
Cost leadership Differentiation
Scope
Narrow
Cost focus Differentiation focus
Cost Differentiation
Cost Leadership strategy
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost
advantage are varied and depend on the structure of the industry. They may include the pursuit of
economies of scale, proprietary technology, preferential access to raw materials and other factors. A
low cost producer must find and exploit all sources of cost advantage. if a firm can achieve and sustain
overall cost leadership, then it will be an above average performer in its industry, provided it can
command prices at or near the industry average.
Differentiation strategy
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are
widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as
important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a
premium price.
Focus strategy
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The
focuser selects a segment or group of segments in the industry and tailors its strategy to serving them
to the exclusion of others.
The focus strategy has two variants.
• In the cost strategy a company seeks a cost advantage in its target segment
• In the Differentiation strategy a company focusses seeks differentiation in its target segment
Both variants of the focus strategy rest on differences between a focuser's target segment and other
segments in the industry. The target segments must either have buyers with unusual needs or else the
production and delivery system that best serves the target segment must differ from that of other
industry segments. Cost focus exploits differences in cost behaviour in some segments, while
differentiation focus exploits the special needs of buyers in certain segments.
, Competition: Eroding the competitive advantage to a competitive requirement
Imitation
The replicating of a product or service. This is reinforced by benchmarking due to the fact that firms
can model their products, processes and services based on other successful formula’s.
Substitution
Replacing existing products or services with a new one. It fulfills the same function with the same
customer group by a new product or service based on new technology.
Resource mobilization
Resource mobilization is at work when resources that contribute to a firms competitive advantage
start moving to other companies or when ownership over them goes to a third party.
Resource paralysis
Resource paralysis is a direct attempt by competitors to reduce the value-creating potential of the
firms resources by:
• Spreading rumors
• Provoking false complaints
• Using negative comparative advertising
• By lobbying for the enforcement of laws that prevent their competitor of using its resources
Maintaining a sustainable competitive advantage
Barriers to entry can be created by different means such as:
• Employing economies of scale
o E.g. car rentals
• Product differentiation
o
• Capital requirements
• Switching costs
• Access to distribution channels
• Property rights
• Government regulation and policies
• Monitoring possible substitutes in order to prevent becoming useless
• Working on the intensity of competition by:
o Advertising
o Increasing market share
o Acquiring smaller competitors
• Relationships with customers and competitive advantage
The identification of the ‘added value carriers’
A competitive advantage can be created by creating distinctive added value to the output of a firm.
This makes products carriers of added value. Products are usually a combination of services (intangible
element) and goods (tangible element).
A firm has to decide:
• What added value will be embedded in the tangible components?
• What added value will be embedded in the intangible components?
• How can we create synergy between the tangible and the intangible components?
• Can the mix of tangible and intangible components itself become an added value?
Page 390 – 408 of Service management chapter 16
Defining a strategy
Each firm has to develop a strategy regarding four basic elements as seen below in figure 16.1:
Figure 16.1: The field of strategy making
What do we want to do? (The objectives)
What do we want to do and what do we want to become? Management has to determine a desirable
future for the company in a Business definition, its mission statement and the vision for the future.
What should we do? (The environment)
An organization should also look at the environment when determining their strategy in an
environmental analysis:
• Main focus on should be on customer needs and preferences
• Competition
• Possible substitutes
• The bargaining position towards suppliers
• Regulatory elements
What can we do? (Resources and resource allocation patterns)
Whether a company can pursue their course is determined by the available resources and their
deployment.
• Tangible resources
o Facilities, buildings, machines etc.
• Intangible resources
o Knowledge, aptitudes, attitudes, reputation, image and brand equity
• Firm-adressable resources
o Resources that are not legally owned by the firm but those that are used in the process
of product design, development, service delivery, marketing or sales
,What are we allowed to do? ( Corporate values)
Business ethics and corporate norms and values.
Ikea example regarding want, should, can and allowed
o Want (objectives):
o “The Ikea vision is to create a better everyday life for many people. We make this
possible by offering a wide range of well-designed, functional home furnishing
products at prices so low that as many people as possible well be able to afford
them.”
o Should (environment):
o Large segments of market are interested in furniture that is cheap, functional and
attractive. It also shapes the market.
o Can (resources):
o 2000 suppliers, intangible resources and firm adressable resources.
o Allowed (corporate values):
o “Thrift, inventiveness, and hard work. Modesty and willpower. Our relationships with
each other and the world around us. Co-operation and sharing, and the knowlegde
that we are in this together and we all need each other.”
Conflict with the environment
A typical conflict with the environment is: the tension between the objective of the firm and the value
that the environment attaches to the services offered (the environment might not need/want said
services).
Conflict with available resources
Another classical conflict is: the tension between what available resources allow the firm to do and the
direction in which the company want to go.
,The key to long-term survivability and profitability: competitive advantage (Porter)
A competitive advantage refers to the ‘distinct capabilities’ of the firm (being distinctively different
from the competition in a way that is recognized by the environment).
A firm can pursue three types of strategy in order to create a competitive advantage, namely:
Broad
Cost leadership Differentiation
Scope
Narrow
Cost focus Differentiation focus
Cost Differentiation
Cost Leadership strategy
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost
advantage are varied and depend on the structure of the industry. They may include the pursuit of
economies of scale, proprietary technology, preferential access to raw materials and other factors. A
low cost producer must find and exploit all sources of cost advantage. if a firm can achieve and sustain
overall cost leadership, then it will be an above average performer in its industry, provided it can
command prices at or near the industry average.
Differentiation strategy
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are
widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as
important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a
premium price.
Focus strategy
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The
focuser selects a segment or group of segments in the industry and tailors its strategy to serving them
to the exclusion of others.
The focus strategy has two variants.
• In the cost strategy a company seeks a cost advantage in its target segment
• In the Differentiation strategy a company focusses seeks differentiation in its target segment
Both variants of the focus strategy rest on differences between a focuser's target segment and other
segments in the industry. The target segments must either have buyers with unusual needs or else the
production and delivery system that best serves the target segment must differ from that of other
industry segments. Cost focus exploits differences in cost behaviour in some segments, while
differentiation focus exploits the special needs of buyers in certain segments.
, Competition: Eroding the competitive advantage to a competitive requirement
Imitation
The replicating of a product or service. This is reinforced by benchmarking due to the fact that firms
can model their products, processes and services based on other successful formula’s.
Substitution
Replacing existing products or services with a new one. It fulfills the same function with the same
customer group by a new product or service based on new technology.
Resource mobilization
Resource mobilization is at work when resources that contribute to a firms competitive advantage
start moving to other companies or when ownership over them goes to a third party.
Resource paralysis
Resource paralysis is a direct attempt by competitors to reduce the value-creating potential of the
firms resources by:
• Spreading rumors
• Provoking false complaints
• Using negative comparative advertising
• By lobbying for the enforcement of laws that prevent their competitor of using its resources
Maintaining a sustainable competitive advantage
Barriers to entry can be created by different means such as:
• Employing economies of scale
o E.g. car rentals
• Product differentiation
o
• Capital requirements
• Switching costs
• Access to distribution channels
• Property rights
• Government regulation and policies
• Monitoring possible substitutes in order to prevent becoming useless
• Working on the intensity of competition by:
o Advertising
o Increasing market share
o Acquiring smaller competitors
• Relationships with customers and competitive advantage
The identification of the ‘added value carriers’
A competitive advantage can be created by creating distinctive added value to the output of a firm.
This makes products carriers of added value. Products are usually a combination of services (intangible
element) and goods (tangible element).
A firm has to decide:
• What added value will be embedded in the tangible components?
• What added value will be embedded in the intangible components?
• How can we create synergy between the tangible and the intangible components?
• Can the mix of tangible and intangible components itself become an added value?
