Creating Value, Second Edition: Successful Business Strategies

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<ul><li><p>Creating ValueSuccessful business strategies</p><p>Second edition</p><p>Shiv S. Mathur and Alfred Kenyon</p><p>OXFORD AUCKLAND BOSTON JOHANNESBURG MELBOURNE NEW DELHI</p></li><li><p>Butterworth-HeinemannLinacre House, Jordan Hill, Oxford OX2 8DP225 Wildwood Avenue, Woburn, MA 01801-2041A division of Reed Educational and Professional Publishing Ltd</p><p>A member of the Reed Elsevier plc group</p><p>First published as Creating Value: Shaping tomorrows business 1997Reprinted 1997Paperback edition 1998Second edition 2001</p><p> Shiv S. Mathur and Alfred Kenyon 1997, 1998, 2001</p><p>All rights reserved. No part of this publication may be reproduced inany material form (including photocopying or storing in any medium byelectronic means and whether or not transiently or incidentally to someother use of this publication) without the written permission of thecopyright holder except in accordance with the provisions of the Copyright,Designs and Patents Act 1988 or under the terms of a licence issued by theCopyright Licensing Agency Ltd, 90 Tottenham Court Road, London,England W1P 0LP. Applications for the copyright holders writtenpermission to reproduce any part of this publication should be addressedto the publishers</p><p>British Library Cataloguing in Publication DataMathur, Shiv</p><p>Creating value: successful business strategies. 2nd ed.1. Strategic planning 2. CompetitionI. Title II. Kenyon, Alfred658.4'012</p><p>ISBN 0 7506 5363 9</p><p>For information on all Butterworth-Heinemann publications visit our website atwww.bh.com</p><p>Composition by Genesis Typesetting, Laser Quay, Rochester, KentPrinted and bound in Great Britain</p></li><li><p>Contents .........................................................</p><p>Preface to the first edition ............................</p><p>Preface to the second edition ......................</p><p>Outline: The framework in a nutshell ..........</p><p>1 Purpose, scope and basics .......................Introduction: The purpose of this book .............</p><p>The objective: financial results fromcustomer markets 5................................................</p><p>Organization- v customer-centred, supply vdemand perspective 5............................................</p><p>Non-profit-making enterprises 7............................</p><p>Development of business strategy as adiscipline 7...............................................................</p><p>The role of this book 8............................................</p><p>Care with words 9...................................................</p><p>Views of business strategy 10...............................</p><p>Mintzbergs emerging business strategies 10.....</p><p>Strategy and plan 12..............................................</p><p>Business strategy: a working definition 13............</p><p>The macroeconomic environment 13......................</p><p>Addressing the manager 14.....................................</p><p>Top management and its skills taken asgiven, not as a variable 15........................................</p><p>Should managers be thinkers? 15...........................</p><p>What decisions are strategic? 16............................</p><p>Business strategy, culture, missionstatements 17............................................................</p><p>Outline of the book 18..............................................</p></li><li><p>How to read the book 19...........................................</p><p>Notes 19.....................................................................</p><p>Part 1: FUNDAMENTALS: THEFRAMEWORK AND ITS MAIN BUILDINGBLOCKS .........................................................</p><p>2 Objectives: what is business strategy for? ....Corporate success and the financial and commercialmarkets ............................................................................The fundamental goal is financial: to earn more thanthe cost of capital 24.............................................................The cost of capital 24............................................................Threats to independent survival 25.......................................Expected returns are the yardstick of value 25.....................Financial value and shareholder, owner or investorvalue 26................................................................................The source of financial returns is commercial success 27...Pure dealing 28.....................................................................Short termism and the importance of time- frames 29..........Is a business an ethical agent? 30.......................................Ethical dilemmas and short and long time- frames 32..........Ethical conflicts of managers 33...........................................Collective and individual ethical values 35...........................The owner-manager 36........................................................Summary of ethical issues 36...............................................Conclusion 37.......................................................................Notes 37...............................................................................</p><p>3 Competitive and corporate strategy - whycentred on offerings? ..........................................</p><p>Introduction ......................................................................The individual offering......................................................The importance of success in customer markets 41............Identifying the single offering 41...........................................Inputs and outputs 42...........................................................The company 43...................................................................Tasks of competitive and corporate strategy 43...................Offerings are not management units 44...............................The case for a CC-strategy for each offering 45...................</p></li><li><p>Decisions are often for more than one offering 49................The offering as firmlet 49......................................................The firm 51.........................................................................How business strategy is structured 51................................Redefining business strategy 52........................................Summary 53.........................................................................Introduction 57......................................................................Exclusion 1: Tax-based changes in the operatingprofile of a group of companies 58.......................................Exclusion 2: Diversification or restructuring toimprove financial leverage ( gearing) 59...............................Exclusion 3: Diversification to enhance financial clout 60....Summary 62.........................................................................Notes 62...............................................................................</p><p>Part 2: UNDERSTANDING COMPETITIVEPOSITIONING AND STRATEGY....................</p><p>4 Differentiation creates private, not publicmarkets .................................................................</p><p>Introduction ......................................................................Differentiation: the key concept .......................................Defining differentiation 68.....................................................The distancing of an offering from substitutes 69.................Competition for customers takes place in markets 70..........The key assumption 71.........................................................Industry analysis 71..............................................................Industries as markets 72.......................................................The public market 73............................................................Illustrations of public markets 73..........................................An illustration from the tourist trade 74.................................Public and private markets 75..............................................The private market 77...........................................................The galaxy 78.......................................................................Which model best fits the real world? 79..............................Implications for the industry and industry analysis 81......Using the model of the private market 82.............................Segmentation 83...................................................................Where the industry and public market models remainuseful 83...............................................................................Summary and conclusion 84................................................</p></li><li><p>Customer and market segments 85......................................Limitations of market segments as an analytical tool 86......Using customer segments 86...............................................Segmentation 87..................................................................Summary 88.........................................................................Notes 88...............................................................................</p><p>5 Differentiation and its dimensions:classification of competitive strategies .............</p><p>Introduction ......................................................................Classifying competitive strategies....................................High and low differentiation and price sensitivity 92.............The four generic forms of differentiation 93..........................Subdimensions of differentiation 93......................................Types of support differentiation 94.......................................Types of merchandise differentiation 96...............................Fuller classification of differentiation 99................................The 16 permutations 101........................................................The odder the better? 101......................................................Advertising and differentiation 103.........................................Strategists need to think in terms of customers andoutput 104...............................................................................Fallacies prompted by an input language 105........................The input - output distinction: conclusion 107.........................Summary 108.........................................................................Notes 108...............................................................................</p><p>6 Competitive positioning: differentiationand price ...............................................................</p><p>Introduction ......................................................................Differentiation: why and how? 111..........................................Distance and price sensitivity 111..........................................Single-scale and multidimensional differentiation 113............Differentiation is indirect and uncertain 115............................Differentiation seen as occurring along a quality scale 116....Very successful new offerings 118.........................................The cheaper and better offering 120......................................The strategic role of price 121................................................Summary 123.........................................................................Notes 124...............................................................................</p></li><li><p>7 Competitive positioning in imperfectmarkets with dominant sellers............................</p><p>Introduction ......................................................................Market entry or encroachment?....................................Markets and profit margins: differentiation andcircularity 127..........................................................................Monopoly 129.........................................................................Few dominant sellers: the circular or oligopoly case 129.......Circularity and the strategist 132............................................Oligopoly and strategy implementation 134............................The interrelation between circularity, differentiationand price 134..........................................................................Summary: differentiation, circularity and price 135.................Notes 136...............................................................................</p><p>Part 3: COMPETITIVE STRATEGIES FORPROFIT ...........................................................</p><p>8 Competitive strategy: what makes itprofitable?.............................................................</p><p>Introduction: strategies are selected for their financialvalue ................................................................................Accounting profits versus financial value.........................Differences between the accounting and financialframeworks 142......................................................................The impact of competitive strategy on profitability:targeting profitable customers 143.........................................Competitive positioning is for tomorrow 144...........................The time-frame 145................................................................The forgotten truism: the source of profits 146.......................Competitive strategy and the determinants of profit 146........Effect of competitive strategy: differentiation andcircularity 147..........................................................................The effect of differentiation on volume 148.............................Durability of margins and threats to durability 148..................Competitive threats 148..........................................................Autonomous, non-competitive threats 149.............................Responses to competitive threats 149....................................When is a commodity-buy strategy profitable? 149................Volume and scale economies 150..........................................Market share and its benefits 150...........................................</p></li><li><p>How a strategy aimed at raising market share cangenerate financial value 152...................................................How valid is market share as an intermediate goal? 153.......Summary 154.........................................................................Notes 157...............................................................................</p><p>9 Competitive strategy: dynamics ofpositioning............................................................</p><p>Introduction ......................................................................The generic offering.........................................................The transaction life cycle 160.................................................The model of the rearranger 163............................................Differentiation and the rearranger 164....................................Price competition and the rearranger 164..............................The model of the transformer 165..........................................Summary 167.........................................................................Notes 167......................................</p></li></ul>

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