COMPETITIVE SUCCESS EBOOK
Competition Success Review is an immensely popular magazine meant for students preparing for competitive examinations in different areas. It covers. What will be the exact cost for Competition Success Review Magazine? Views at: TopEbooksclub//02/ebookhtml. Editorial Reviews. Review. Abraham (strategy and entrepreneurship, California State eBook features: Highlight, take notes, and search in the book; Length: pages; Word Wise: Enabled; Enhanced Typesetting: Enabled; Page Flip: Enabled.
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Some revere sportspersons, others have high regard. Dear Friend, Talent is overrated. Dear Friend, The life of an aspirant is quite tough. Often leaders are better off taking actions to improve or protect industry structure rather than seeking greater competitive advantage for themselves.
Such industry leaders as Coca-Cola and Campbell's Soup appear to have followed this principle. Industry Structure and Buyer Needs It has often been said that satisfying buyer needs is at the core of success in business endeavor. How does this relate to the concept of industry structural analysis? Satisfying buyer needs is indeed a prerequisite to the viability of an industry and the firms within it.
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Buyers must be willing to pay a price for a product that exceeds its cost of production, or an industry will not survive in the long run. Chapter 4 will describe in detail how a firm can differentiate itself by satisfying buyer needs better than its competitors. Satisfying buyer needs may be a prerequisite for industry profitability, but in itself is not sufficient. The crucial question in determining profitability is whether firms can capture the value they create for buyers, or whether this value is competed away to others.
Industry structure determines who captures the value. The threat of entry determines the likelihood that new firms will enter an industry and compete away the value, either passing it on to buyers in the form of lower prices or dissipating it by raising the costs of competing.
The power of buyers determines the extent to which they retain most of the value created for themselves, leaving firms in an industry only modest returns. The threat of substitutes determines the extent to which some other product can meet the same buyer needs, and thus places a ceiling on the amount a buyer is willing to pay for an industry's product. The power of suppliers determines the extent to which value created for buyers will be appropriated by suppliers rather than by firms in an industry.
Finally, the intensity of rivalry acts similarly to the threat of entry. It determines the extent to which firms already in an industry will compete away the value they create for buyers among themselves, passing it on to buyers in lower prices or dissipating it in higher costs of competing. Industry structure, then, determines who keeps what proportion of the value a product creates for buyers.
If an industry's product does not create much value for its buyers, there is little value to be captured by firms regardless of the other elements of structure. If the product creates a lot of value, structure becomes crucial. In some industries such as automobiles and heavy trucks, firms create enormous value for their buyers but, on average, capture very little of it for themselves through profits. In other industries such as bond rating services, medical equipment, and oil field services and equipment, firms also create high value for their buyers but have historically captured a good proportion of it.
In oil field services and equipment, for example, many products can significantly reduce the cost of drilling. Because industry structure has been favorable, many firms in the oil field service and equipment sector have been able to retain a share of these savings in the form of high returns.
Recently, however, the structural attractiveness of many industries in the oil field services and equipment sector has eroded as a result of falling demand, new entrants, eroding product differentiation, and greater buyer price sensitivity. Despite the fact that products offered still create enormous value for the buyer, both firm and industry profits have fallen significantly. If demand is greater than supply, this leads to high profitability.
Hence, even though short-term fluctuations in supply and demand can affect short-term profitability, industry structure underlies long-term profitability. Supply and demand change constantly, adjusting to each other.
Industry structure determines how rapidly competitors add new supply. The height of entry barriers underpins the likelihood that new entrants will enter an industry and bid down prices. The intensity of rivalry plays a major role in determining whether existing firms will expand capacity aggressively or choose to maintain profitability. Industry structure also determines how rapidly competitors will retire excess supply.
Exit barriers keep firms from leaving an industry when there is too much capacity, and prolong periods of excess capacity. In oil tanker shipping, for example, the exit barriers are very high because of the specialization of assets. This has translated into short peaks and long troughs of prices.
The consequences of an imbalance between supply and demand for industry profitability also differs widely depending on industry structure. In some industries, a small amount of excess capacity triggers price wars and low profitability. These are industries where there are structural pressures for intense rivalry or powerful buyers. In other industries, periods of excess capacity have relatively little impact on profitability because of favorable structure.
In oil tools, ball valves, and many other oil field equipment products, for example, there has been intense price cutting during the recent sharp downturn. In drill bits, however, there has been relatively little discounting. Hughes Tool, Smith International, and Baker International are good competitors see Chapter 6 operating in a favorable industry structure.
Industry structure also determines the profitability of excess demand.
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In a boom, for example, favorable structure allows firms to reap extraordinary profits, while a poor structure restricts the ability to capitalize on it. The presence of powerful suppliers or the presence of substitutes, for example, can mean that the fruits of a boom pass to others. Thus industry structure is fundamental to both the speed of adjustment of supply to demand and the relationship between capacity utilization and profitability.
Generic Competitive Strategies The second central question in competitive strategy is a firm's relative position within its industry.
Positioning determines whether a firm's profitability is above or below the industry average. A firm that can position itself well may earn high rates of return even though industry structure is unfavorable and the average profitability of the industry is therefore modest. The fundamental basis of above-average performance in the long run is sustainable competitive advantage. The significance of any strength or weakness a firm possesses is ultimately a function of its impact on relative cost or differentiation.
Cost advantage and differentiation in turn stem from industry structure. They result from a firm's ability to cope with the five forces better than its rivals. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them lead to three generic strategies for achieving above-average performance in an industry: cost leadership, differentiation, and focus.
The focus strategy has two variants, cost focus and differentiation focus. Each of the generic strategies involves a fundamentally different route to competitive advantage, combining a choice about the type of competitive advantage sought with the scope of the strategic target in which competitive advantage is to be achieved. The cost leadership and differentiation strategies seek competitive advantage in a broad range of industry segments, while focus strategies aim at cost advantage cost focus or differentiation differentiation focus in a narrow segment.
The specific actions required to implement each generic strategy vary widely from industry to industry, as do the feasible generic strategies in a particular industry. While selecting and implementing a generic strategy is far from simple, however, they are the logical routes to competitive advantage that must be probed in any industry. The notion underlying the concept of generic strategies is that competitive advantage is at the heart of any strategy, and achieving competitive advantage requires a firm to make a choice -- if a firm is to attain a competitive advantage, it must make a choice about the type of competitive advantage it seeks to attain and the scope within which it will attain it.
Being "all things to all people" is a recipe for strategic mediocrity and below-average performance, because it often means that a firm has no competitive advantage at all. Cost Leadership Cost leadership is perhaps the clearest of the three generic strategies.
In it, a firm sets out to become the low-cost producer in its industry. The firm has a broad scope and serves many industry segments, and may even operate in related industries -- the firm's breadth is often important to its cost advantage.
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 I will describe in detail in Chapter 3.
In security guard services, cost advantage requires extremely low overhead, a plentiful source of low-cost labor, and efficient training procedures because of high turnover. Low-cost producer status involves more than just going down the learning curve. A low-cost producer must find and exploit all sources of cost advantage. Low-cost producers typically sell a standard, or no-frills, product and place considerable emphasis on reaping scale or absolute cost advantages from all sources.
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. At equivalent or lower prices than its rivals, a cost leader's low-cost position translates into higher returns. A cost leader, however, cannot ignore the bases of differentiation. If its product is not perceived as comparable or acceptable by buyers, a cost leader will be forced to discount prices well below competitors' to gain sales.
This may nullify the benefits of its favorable cost position. Texas Instruments in watches and Northwest Airlines in air transportation are two low-cost firms that fell into this trap. Texas Instruments could not overcome its disadvantage in differentiation and exited the watch industry. Northwest Airlines recognized its problem in time, and has instituted efforts to improve marketing, passenger service, and service to travel agents to make its product more comparable to those of its competitors.
A cost leader must achieve parity or proximity in the bases of differentiation relative to its competitors to be an above-average performer, even though it relies on cost leadership for its competitive advantage. Parity in the bases of differentiation allows a cost leader to translate its cost advantage directly into higher profits than competitors'.
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Proximity in differentiation means that the price discount necessary to achieve an acceptable market share does not offset a cost leader's cost advantage and hence the cost leader earns above-average returns.
The strategic logic of cost leadership usually requires that a firm be the cost leader, not one of several firms vying for this position. Many firms have made serious strategic errors by failing to recognize this. When there is more than one aspiring cost leader, rivalry among them is usually fierce because every point of market share is viewed as crucial.
Unless one firm can gain a cost lead and "persuade" others to abandon their strategies, the consequences for profitability and long-run industry structure can be disastrous, as has been the case in a number of petrochemical industries. Thus cost leadership is a strategy particularly dependent on preemption, unless major technological change allows a firm to radically change its cost position. Differentiation The second generic strategy is differentiation.
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. The means for differentiation are peculiar to each industry. Differentiation can be based on the product itself, the delivery system by which it is sold, the marketing approach, and a broad range of other factors.
In construction equipment, for example, Caterpillar Tractor's differentiation is based on product durability, service, spare parts availability, and an excellent dealer network. In cosmetics, differentiation tends to be based more on product image and the positioning of counters in the stores. I will describe how a firm can create sustainable differentiation in Chapter 4.
A firm that can achieve and sustain differentiation will be an above-average performer in its industry if its price premium exceeds the extra costs incurred in being unique.
A differentiator, therefore, must always seek ways of differentiating that lead to a price premium greater than the cost of differentiating. A differentiator cannot ignore its cost position, because its premium prices will be nullified by a markedly inferior cost position. A differentiator thus aims at cost parity or proximity relative to its competitors, by reducing cost in all areas that do not affect differentiation.
The logic of the differentiation strategy requires that a firm choose attributes in which to differentiate itself that are different from its rivals'. A firm must truly be unique at something or be perceived as unique if it is to expect a premium price.
In contrast to cost leadership, however, there can be more than one successful differentiation strategy in an industry if there are a number of attributes that are widely valued by buyers. Focus The third generic strategy is focus, This strategy is quite different from the others because it rests on the choice of a narrow competitive scope within an industry.
The focuser selects a segment of group of segments in the industry and tailors its strategy to serving them to the exclusion of others. By optimizing its strategy for the target segments, the focuser seeks to achieve a competitive advantage in its target segments even though it does not possess a competitive advantage overall.
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The focus strategy has two variants. In cost focus a firm seeks a cost advantage in its target segment, while in differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser's target segments 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 behavior in some segments, while differentiation focus exploits the special needs of buyers in certain segments.
Such differences imply that the segments ate poorly served by broadly-targeted competitors who serve them at the same time as they serve others. The focuser can thus achieve competitive advantage by dedicating itself to the segments exclusively. Breadth of target is clearly a matter of degree, but the essence of focus is the exploitation of a narrow target's differences from the balance of the industry.
Narrow focus in and of itself is not sufficient for above-average performance. A good example of a focuser who has exploited differences in the production process that best serves different segments is Hammermill Paper. Hammermill has increasingly been moving toward relatively low-volume, high-quality specialty papers, where the larger paper companies with higher volume machines face a stiff cost penalty for short production runs.
Hammermill's equipment is more suited to shorter runs with frequent setups. A focuser takes advantage of suboptimization in either direction by broadly-targeted competitors, Competitors may be underperforming in meeting the needs of a particular segment, which opens the possibility for differentiation focus.
Broadly-targeted competitors may also be overperforming in meeting the needs of a segment, which means that they are bearing higher than necessary cost in serving it. An opportunity for cost focus may be present in just meeting the needs of such a segment and no more. If a focuser's target segment is not different from other segments, then the focus strategy will not succeed.
In soft drinks, for example, Royal Crown has focused on cola drinks, while Coca-Cola and Pepsi have broad product lines with many flavored drinks. Royal Crown's segment, however, can be well served by Coke and Pepsi at the same time they are serving other segments. Hence Coke and Pepsi enjoy competitive advantages over Royal Crown in the cola segment due to the economies of having a broader line. If a firm can achieve sustainable cost leadership cost focus of differentiation differentiation focus in its segment and the segment is structurally attractive, then the focuser will be ah above-average performer in its industry.
Segment structural attractiveness is a necessary condition because some segments in ah industry ate much less profitable than others, There is of ten room for several sustainable focus strategies in ah industry, provided that focusers choose different target segments. Most industries have a variety of segments, and each one that involves a different buyer need or a different optimal production of delivery system is a candidate fora focus strategy.
How to define segments and choose a sustainable focus strategy is described in detail in Chapter 7. Stuck in the Middle A firm that engages in each generic strategy but fails to achieve any of them is "stuck in the middle.
This strategic position is usually a recipe for below-average performance. A firm that is stuck in the middle will compete at a disadvantage because the cost leader, differentiators, or focusers will be better positioned to compete in any segment.
If a firm that is stuck in the middle is lucky enough to discover a profitable product or buyer, competitors with a sustainable competitive advantage will quickly eliminate the spoils. In most industries, quite a few competitors are stuck in the middle. A firm that is stuck in the middle will earn attractive profits only if the structure of its industry is highly favorable, or if the firm is fortunate enough to have competitors that are also stuck in the middle.
Usually, however, such a firm will be much less profitable than rivals achieving one of the generic strategies. Industry maturity tends to widen the performance differences between firms with a generic strategy and those that are stuck in the middle, because it exposes ill-conceived strategies that have been carried along by rapid growth. Becoming stuck in the middle is often a manifestation of a firm's unwillingness to make choices about how to compete.
It tries for competitive advantage through every means and achieves none, because achieving different types of competitive advantage usually requires inconsistent actions. Becoming stuck in the middle also afflicts successful firms, who compromise their generic strategy for the sake of growth of prestige. A classic example is Laker Airways, which began with a clear cost focus strategy based on no-frills operation in the North Atlantic market, aimed at a particular segment of the traveling public that was extremely price-sensitive.
Over time, however, Laker began adding frills, new services, and new routes. It blurred its image, and suboptimized its service and delivery system.
The consequences were disastrous, and Laker eventually went bankrupt. The temptation to blur a generic strategy, and therefore become stuck in the middle, is particularly great fora focuser once it has dominated its target segments.
Focus involves deliberately limiting potential sales volume. Success can lead a focuser to lose sight of the reasons for its success and compromise its focus strategy for growth's sake. Rather than compromise its generic strategy, a firm is usually better off finding new industries in which to grow where it can use its generic strategy again of exploit interrelationships. Pursuit of More Than One Generic Strategy Each generic strategy is a fundamentally different approach to creating and sustaining a competitive advantage, combining the type of competitive advantage a firm seeks and the scope of its strategic target.
Usually a firm must make a choice among them, or it will become stuck in the middle. The benefits of optimizing the firm's strategy fora particular target segment focus cannot be gained if a firm is simultaneously serving a broad range of segments cost leadership of differentiation.
Sometimes a firm may be able to create two largely separate business units within the same corporate entity, each with a different generic strategy. A good example is the British hotel firm Trusthouse Forte, which operates five separate hotel chains each targeted at a different segment. While it takes years to publish a hard cover novel, we can now whip off a PDF eBook in the time it takes to make a PBJ sandwich, then start selling it online.
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It costs you nothing and you can then take notes on the persuasive copy and landing pages that others have invested money in. Tip 1: Create a title that resonates Make your title brief and powerful with simple words. These words look great upfront but will only cloud your objectives. Instead, pick a unique yet simple combination of words that people will remember.Instead, the drive for leadership led to making loans that other banks would not, and to escalating costs. Competitive advantage in one industry can be strongly enhanced by interrelationships with business units competing in related industries, if these interrelationships can actually be achieved.
In this chapter, I will describe and elaborate on some of those concepts. I will describe how a firm can create sustainable differentiation in Chapter 4.
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Some strategic planning concepts have been narrowly based on only one route to competitive advantage, most notably cost. As a result, Crown has probably also achieved low-cost producer status in its segments, There are three conditions under which a firm can simultaneously achieve both cost leadership and differentiation: Competitors are stuck in the middle.