Creating Value Successful Business Strategies[1]

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<p>Creating ValueSuccessful business strategiesSecond edition</p> <p>Shiv S. Mathur and Alfred Kenyon</p> <p>OXFORD AUCKLAND BOSTON</p> <p>JOHANNESBURG MELBOURNE NEW DELHI</p> <p>Butterworth-Heinemann Linacre House, Jordan Hill, Oxford OX2 8DP 225 Wildwood Avenue, Woburn, MA 01801-2041 A division of Reed Educational and Professional Publishing Ltd A member of the Reed Elsevier plc group First published as Creating Value: Shaping tomorrows business 1997 Reprinted 1997 Paperback edition 1998 Second edition 2001 Shiv S. Mathur and Alfred Kenyon 1997, 1998, 2001All rights reserved. No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London, England W1P 0LP. Applications for the copyright holders written permission to reproduce any part of this publication should be addressed to the publishers</p> <p>British Library Cataloguing in Publication Data Mathur, Shiv Creating value: successful business strategies. 2nd ed. 1. Strategic planning 2. Competition I. Title II. Kenyon, Alfred 658.4'012 ISBN 0 7506 5363 9</p> <p>For information on all Butterworth-Heinemann publications visit our website at www.bh.com</p> <p>Composition by Genesis Typesetting, Laser Quay, Rochester, Kent Printed and bound in Great Britain</p> <p>Contents ......................................................... Preface to the first edition ............................ Preface to the second edition ...................... Outline: The framework in a nutshell .......... 1 Purpose, scope and basics .......................Introduction: The purpose of this book ............. The objective: financial results from customer markets ................................................ Organization- v customer-centred, supply v demand perspective ............................................ Non-profit-making enterprises ............................ Development of business strategy as a discipline ............................................................... The role of this book ............................................ Care with words ................................................... Views of business strategy ............................... Mintzbergs emerging business strategies ..... Strategy and plan .............................................. Business strategy: a working definition ............ The macroeconomic environment ...................... Addressing the manager ..................................... Top management and its skills taken as given, not as a variable ........................................ Should managers be thinkers? ........................... What decisions are strategic? ............................ Business strategy, culture, mission statements ............................................................ Outline of the book ..............................................</p> <p>5 5 7 7 8 9 10 10 12 13 13 14 15 15 16 17 18</p> <p>How to read the book ........................................... Notes .....................................................................</p> <p>19 19</p> <p>Part 1: FUNDAMENTALS: THE FRAMEWORK AND ITS MAIN BUILDING BLOCKS .........................................................2 Objectives: what is business strategy for? ....Corporate success and the financial and commercial markets ............................................................................ The fundamental goal is financial: to earn more than the cost of capital ............................................................. The cost of capital ............................................................ Threats to independent survival ....................................... Expected returns are the yardstick of value ..................... Financial value and shareholder, owner or investor value ................................................................................ The source of financial returns is commercial success ... Pure dealing ..................................................................... Short termism and the importance of time- frames .......... Is a business an ethical agent? ....................................... Ethical dilemmas and short and long time- frames .......... Ethical conflicts of managers ........................................... Collective and individual ethical values ........................... The owner-manager ........................................................ Summary of ethical issues ............................................... Conclusion ....................................................................... Notes ...............................................................................</p> <p>24 24 25 25 26 27 28 29 30 32 33 35 36 36 37 37</p> <p>3 Competitive and corporate strategy - why centred on offerings? ..........................................Introduction ...................................................................... The individual offering...................................................... The importance of success in customer markets ............ Identifying the single offering ........................................... Inputs and outputs ........................................................... The company ................................................................... Tasks of competitive and corporate strategy ................... Offerings are not management units ............................... The case for a CC-strategy for each offering ................... 41 41 42 43 43 44 45</p> <p>Decisions are often for more than one offering ................ The offering as firmlet ...................................................... The firm ......................................................................... How business strategy is structured ................................ Redefining business strategy ........................................ Summary ......................................................................... Introduction ...................................................................... Exclusion 1: Tax-based changes in the operating profile of a group of companies ....................................... Exclusion 2: Diversification or restructuring to improve financial leverage ( gearing)............................... Exclusion 3: Diversification to enhance financial clout .... Summary ......................................................................... Notes ...............................................................................</p> <p>49 49 51 51 52 53 57 58 59 60 62 62</p> <p>Part 2: UNDERSTANDING COMPETITIVE POSITIONING AND STRATEGY....................4 Differentiation creates private, not public markets .................................................................Introduction ...................................................................... Differentiation: the key concept ....................................... Defining differentiation ..................................................... The distancing of an offering from substitutes ................. Competition for customers takes place in markets .......... The key assumption ......................................................... Industry analysis .............................................................. Industries as markets ....................................................... The public market ............................................................ Illustrations of public markets .......................................... An illustration from the tourist trade ................................. Public and private markets .............................................. The private market ........................................................... The galaxy ....................................................................... Which model best fits the real world? .............................. Implications for the industry and industry analysis ...... Using the model of the private market ............................. Segmentation ................................................................... Where the industry and public market models remain useful ............................................................................... Summary and conclusion ................................................ 68 69 70 71 71 72 73 73 74 75 77 78 79 81 82 83 83 84</p> <p>Customer and market segments ...................................... Limitations of market segments as an analytical tool ...... Using customer segments ............................................... Segmentation .................................................................. Summary ......................................................................... Notes ...............................................................................</p> <p>85 86 86 87 88 88</p> <p>5 Differentiation and its dimensions: classification of competitive strategies .............Introduction ...................................................................... Classifying competitive strategies.................................... High and low differentiation and price sensitivity ............. The four generic forms of differentiation .......................... Subdimensions of differentiation ...................................... Types of support differentiation ....................................... Types of merchandise differentiation ............................... Fuller classification of differentiation ................................ The 16 permutations ........................................................ The odder the better? ...................................................... Advertising and differentiation ......................................... Strategists need to think in terms of customers and output ............................................................................... Fallacies prompted by an input language ........................ The input - output distinction: conclusion ......................... Summary ......................................................................... Notes ............................................................................... 92 93 93 94 96 99 101 101 103 104 105 107 108 108</p> <p>6 Competitive positioning: differentiation and price ...............................................................Introduction ...................................................................... Differentiation: why and how? .......................................... Distance and price sensitivity .......................................... Single-scale and multidimensional differentiation ............ Differentiation is indirect and uncertain ............................ Differentiation seen as occurring along a quality scale.... Very successful new offerings ......................................... The cheaper and better offering ...................................... The strategic role of price ................................................ Summary ......................................................................... Notes ............................................................................... 111 111 113 115 116 118 120 121 123 124</p> <p>7 Competitive positioning in imperfect markets with dominant sellers............................Introduction ...................................................................... Market entry or encroachment?.................................... Markets and profit margins: differentiation and circularity .......................................................................... Monopoly ......................................................................... Few dominant sellers: the circular or oligopoly case ....... Circularity and the strategist ............................................ Oligopoly and strategy implementation ............................ The interrelation between circularity, differentiation and price .......................................................................... Summary: differentiation, circularity and price ................. Notes ...............................................................................</p> <p>127 129 129 132 134 134 135 136</p> <p>Part 3: COMPETITIVE STRATEGIES FOR PROFIT ...........................................................8 Competitive strategy: what makes it profitable?.............................................................Introduction: strategies are selected for their financial value ................................................................................ Accounting profits versus financial value ......................... Differences between the accounting and financial frameworks ...................................................................... The impact of competitive strategy on profitability: targeting profitable customers ......................................... Competitive positioning is for tomorrow ........................... The time-frame ................................................................ The forgotten truism: the source of profits ....................... Competitive strategy and the determinants of profit ........ Effect of competitive strategy: differentiation and circularity .......................................................................... The effect of differentiation on volume ............................. Durability of margins and threats to durability.................. Competitive threats .......................................................... Autonomous, non-competitive threats ............................. Responses to competitive threats.................................... When is a commodity-buy strategy profitable? ................ Volume and scale economies .......................................... Market share and its benefits ...........................................</p> <p>142 143 144 145 146 146 147 148 148 148 149 149 149 150 150</p> <p>How a strategy aimed at raising market share can generate financial value ................................................... How valid is market share as an intermediate goal? ....... Summary ......................................................................... Notes ...............................................................................</p> <p>152 153 154 157</p> <p>9 Competitive strategy: dynamics of positioning ............................................................Introduction ...................................................................... The generic offering ......................................................... The transaction life cycle ................................................. The model of the rearranger .................................</p>

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