Business Strategy & Multibusiness Strategy

Week-5 DQs

1.        Select a domestic or international company and analyze its strategy and explain in detail which of the 15 grand strategies it employs?

A grand strategy refers to a mater long-term plan that directs the company or its actions towards achieving long-term business objectives. In other words, it is a comprehensive general approach that guides a firm’s major actions. There are basically 15 grand strategies such as concentrated growth, market development, product development, innovation, horizontal integration, vertical integration, concentric diversification, conglomerate diversification, turnaround, divestiture, liquidation, bankruptcy, joint venture, strategic alliances, and consortia.

McDonald's is the world's largest international Company in terms of chain of fast food restaurants, serving around 68 million customers daily in 119 countries across more than 36,000 outlets. Founded in the United States in 1940, the company began as a barbecue restaurant operated by Richard and Maurice McDonald. Among these 15 grand strategies, McDonald basically employs strategic alliances such as franchising and licensing strategies with foreign distributors as a way to enter new markets with standardized  products that can benefits from marketing economies. It also seems that McDonald’s long term objective is to develop the market share by deploying market development grand strategy in which it allows the opening of additional geographic markets- regional, national or international expansion. It is also attracting the new market segments by deploying the new channel distribution, advertising, and promotion.  Other strategies such as concentrated growth, product development and innovation are also employed but their usage rates are very low in compared to strategic alliances and market development.

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

2.        Explain a profitable business model.  What are the various profitability business models? Which one is the company you picked in Discussion Question 1 using? 

A business model is the process of combining the long-term objectives and grand strategies in a unique way in order to create profits. A profitable business model reflects how a business creates and delivers value to the customers and transforms such value into profits of business. In other words, it shows how a firm will generate a profit and strategic actions that must be taken into account to succeed over the long-term. The major profitability business models are briefly outline as follows:

1.      Customer development customer solutions profit model: By using this model, companies will make money by finding ways to improve the customers’ economies and investing in ways for customers to improve their processes.

2.      Product pyramid profit model: This model can be effective when the customers have strong preferences in terms of products variety, styles, color, and price. Using this model, companies offer a number of variations which is so called product pyramid. In this pyramid, low-priced, high volume products are kept at the base of pyramid whereas high priced, low-volume products are kept at the top of pyramid. Most of consumer goods companies and automobile companies are inclined to use this model.

3.      Multicomponent system profit model: Some businesses whose production/marketing system includes the components that generate substantially different levels of profitability, are included in this model. In this model, the highest profit component can be used to maximize the profitability of the whole system.

4.      Switchboard profit model: This model creates a high-value intermediary in order to connect the multiple sellers to multiple buyers for reducing the costs for both parties in exchange of fees. In this model, as volume increases, profits also increases.

5.      Time profit model: Using this model, speed is used as profitable weapon so as to gain a first-mover advantage. Constant innovation is essential to sustain this model.

6.      Blockbuster profit model: This model is useful for some industries which have a few great product with a huge profitability. The companies which have high R&D, launch costs, and finite product cycles are likely to represent this model such as movie studios, software companies and pharmaceutical firms. 

7.      Profit multiplier model: Using this model, businesses reap the profits repeatedly from the same products, character, trademark capability or service. This model can be powerful for business which have strong consumer brands.

8.      Entrepreneurial profit model: This model stresses on small firms when diseconomies of scales exist in the firms.

9.      Specialization profit model: This model focuses on the growth through sequenced specialization. Most of consulting companies are using this design successfully.  

10.  Installed base profit model: This model is used to establish user base subsequently in order to buy the company’s brand of consumables or follow-on products. It is often protected with an annuity of profit stream.

11.  De facto standard profit model: A variant of the installed base profit model, this model can be appropriate when the installed base model becomes the de facto standard that governs the competitive behavior in the industry.

From above these 11 models, McDonald has been using the switchboard profit model because it basically employs the strategic alliances which allows multiple sellers to multiple buyers in exchange of fees or royalties between franchiser and franchisees. It is also seems that McDonald is using the profit multiplier model due to the fact that it allows the same trademark capability or service along with a strong consumer brand.

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

3.        How can a firm pursue both low-cost leadership and differentiation strategies simultaneously? Can you present an example?

It is true that when companies have one or more resource capabilities that are really differentiated them from their key competitors and also have resources capabilities that let them operate at a lower cost will consistently outperform their rivals that do not. Gaining both advantages simultaneously need a deeper analysis and selection of business strategies and value chain activities. In order to pursue both low cost leadership and differentiation strategies, a firm must work on two major activities such as cost reductions through economies of scale, and product innovation through R&D than its competitors.

Facebook is a perfect example which has been pursuing both low-cost leadership and differentiation strategies in order to achieve a long term success and viability in the future. It is employing a low cost strategy by economies of scale in the sense that it has been offering advertisers and other customers desiring to get the widest audience exposure per dollar spent within a social networking venue. On the other hand, differentiation strategy is simultaneously is being employed in the sense that it has been constantly designed to go beyond the traditional online advertising. It has now using the digital bulletin boards which is totally different than traditional banners ads. It is also striving to use e-commerce-buying and selling digital items and virtual gifts. In addition, it has also opened itself to software developers/entrepreneurs who can make applications to be used on facebook where necessary.

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

4.        Do you think it is better to concentrate on one source of competitive advantage (cost versus differentiation, versus focus, versus speed) or to nurture multiples in a firm's operation?

It is challenging question for strategic managers, whether it is better to concentrate on one source of competitive advantage (either cost, differentiation, focus or speed) or to nurture multiples in a firm’s operation. I personally think that it depends on the situation or life cycle of the firms. At introduction and growth phases, it is better to concentrate on one source of competitive advantage. However, later phases such as maturity and growth stages, it is better to nurture multiple sources in a firm’s operation

It is true that a firm that has multiple advantages (cost and differentiation and speed, for example) is obviously better off than one that has a single source of advantage. However, it is clear that the skills required to support each strategy are quite different. It may be difficult for a firm to compete on all three. Hence, having said this, nurturing all the strategies in a firm’s operations is very hard to achieve along with high risks and challenges. Thus, I think that it is better to concentrate on one source of competitive advantage at one time when firms are operating effectively and competitively than its rivals, and it should focus on multiple sources when firms are at maturity and decline stage of life cycles, and not performing well in comparison to its rivals then it should strive to nurture the multiple sources to gain sustainable market share.  

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.