EMBA690_Team1_Group Project Running Head: Strategy Composition

-1-

Strategy Composition Daveta Bailey, Patsy Birdwell, David Burris, William Brent EMBA690-1201A-01 Group Project 6 February 2012 Instructor Islam Azzam

EMBA690_Team1_Group Project

-2-

Contents
Explain each strategic option in detail.

Differentiation strategy Cost leadership strategy Vertical integration strategy Global strategy Diversification strategy

Explain how each strategic option would help implement your company's social networking Web site. Discuss each member's ideas toward the consensus strategic option chosen. After researching each strategic option, is the group's consensus still the same? Why or why not? Discuss the group's new strategic option. Recommend a strategy of implementing the strategic option. Discuss briefly which group member researched each strategic option.

EMBA690_Team1_Group Project

-3-

Explain each strategic option in detail.

Differentiation strategy
Differentiation Strategy is based on a product or service that is unique to its purpose. Its value to customers is so highly rated that customers will pay a premium price and remain loyal to its brand. Usually this product or serve includes highly advanced technology (usually new to the public) as a result of increased research, extremely creative and has a strong corporate backing. If our firm decides to utilize the Differentiation Strategy we will need to ensure that our organization builds a platform that can not only offer our services on a global marketplace but that can also allow us to connect without our customers, build on our companies knowledge, and allow the collaboration of any and all individuals that can offer positive solutions to the sale of our services

Cost leadership strategy

Cost leadership strategy is based on a marketing strategy. Price is the main tool and the object of cost leadership strategy is market share leadership. Michael Porter has taught us that a cost leadership strategy is appropriate for use in such a market as Funder Mifflin, Inc. is involved in where a business has a large share of the market but has been able to reduce costs due to the economics of scale (Porter, M., 1980). He states, Cost leadership requires aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, and cost minimization in areas like service, sales force, advertising and so on.

Vertical integration strategy

Portion not submitted by peer.

EMBA690_Team1_Group Project

-4-

Global strategy
A global strategic analysis is a process for determining the strategic advantages of entering particular international markets. Global strategic analyses are most commonly performed according to a framework developed by Michael E. Porter, a professor at the Harvard Business School. According to this framework, the strategic competitiveness of each market depends on four factors. Countries that have more of these features are more strategically advantageous.

Demand Conditions
Demand conditions refer to the level of demand for a product in a specific country. Countries that have a high domestic demand for a product tend to be favorable for businesses producing that product. This is because the local demand allows the firm to focus on a close customer base that it knows well.

Factor Conditions
Factor conditions refer to the specific resources of a country. These can include natural resources, such as Saudi Arabia's oil reserves or Canada's access to abundant fresh water. They can also include human resources, such as the high number of engineers in Germany or the abundance of information technology professionals in the Silicon Valley region of the United States. Having access to these resources puts companies within the specific countries at a distinct advantage.

Strategy, Structure and Rivalry

The strategy, structure and rivalry within a market refers to how similar and how competitive the players are. The greater the similarity and rivalry between firms, the better the market will be for that industry. This seems counterintuitive because competition is normally associated with lower returns, however high levels of

EMBA690_Team1_Group Project

-5-

competition can push firms to perform better, leading to better products that can be sold to the international markets.

Related and Supporting Industries

Related and supporting industries are important to the competitiveness of an international market. Related and supporting industries give companies a source of components and a place to sell products. An example of two related and supporting industries is that of the microprocessor industry and the computer industry. These two industries normally set up close by each other because computer companies need a source of microprocessors and microprocessor manufacturers need a market to sell their products to.

Diversification strategy
Diversification strategy is one of the most debated strategies. The era of diversification was from 1950-1980s which also saw an evolution in corporate management from industry specific knowledge to new strategies of management. After the 1980s and into the 1990s there was a significant decline in corporations diversifying due to three factors a) emphasis on shareholder value, b) turbulence and transaction costs, c) trends in management thinking. (Grant, 2010, p. 404) One of the major problems with diversification is minimal or no shareholder benefit. (Grant, 2010, p. 407) The majority of the debate is whether or not, if this strategy is cost effective and profitable. The strategic option is diversification, from this option there are several directions from which the diversification can follow. Horizontal and vertical integration, these strategies are classified by the direction of diversification. ("Diversification Strategy," 2006) A horizontal diversification would be if a company enters into a new business it could be

EMBA690_Team1_Group Project related or unrelated at a similar stage of production as the current operation. One disadvantage is that horizontal diversification is difficult and complex to coordinate. Vertical integration is the concept of diversifying an operation at unique stages of production for example in the direction of the raw materials and earlier stages of

-6-

production this is termed backward vertical integration. The other direction that vertical integration can take is forward integration which is the company is ensuring an outlet for goods produced. ("Diversification Strategy," 2006) Then you have internal and external diversification which is in the forms of growth or purchase. ("Diversification Strategy," 2006) The term of internal diversification is applied to marketing existing merchandise to new customers and markets or vice versa. Another form of internal diversification is to expand the geographical base to encompass new customers on a national or international market place. With external diversification is a strategy to view outside of the current operation and purchases access to a new market or product line. One the more common forms of external diversification is a merger. ("Diversification Strategy," 2006)

EMBA690_Team1_Group Project

-7-

How each strategic option would help implement FMI's social networking Web site
By design, traditional organizational charts tend to create geographic, functional, and project-based silos that are not conducive to collaboration, communication and shared best practices. One thing that Social Network Analysis has consistently proven is that knowledge management is not a system but a process. Taking this idea to the next level, Stephen Gillett (Chief Information Officer for Starbucks Coffee Company) enticed executives within the Starbucks organization to invest in a new business unit. This business unit transcended the aforementioned silos which currently plague social networking initiatives by avoiding the inevitable lumping of responsibility into either the Information Technology silo or the Marketing silo, but rather develop out of what Gillett called Digital Ventures. This new business unit would work closely with both (IT and Marketing) to bring new services to Starbucks customers through smart-phones, tablets, and laptops (Murphy, 2011.)

Differentiation strategy
Funder Mifflin Inc.s differentiation strategy is an integrated set of actions designed to produce or deliver goods or services that customers perceive as being different in ways that are important to them. By invoking a differentiation strategy; FMI will try and reduce the similarity between it and other SNS firms. The concept of being unique and different will push FMI to perform better, leading to better products (or in this case services.) The problem Funder Mifflin Inc. faces with differentiating its social networking sites is finding the niche market to exploit. Funder Mifflin Inc. can differentiate its services offered through the social networking site to include speed,

EMBA690_Team1_Group Project

-8-

performance, quality, responsiveness, availability, ease or integration. For instance, with Facebook reaching 900 million unique monthly users, is it really in a position to provide dedicated attention to a particular market? Can Facebook (or its proprietors) respond to customer inquiries in a timely manner?

Cost leadership strategy

Generally, cost leadership is about being the lowest cost producer in the industry. Wal-Mart, for example, is flourishing where K-Mart, which was essentially selling the same product base to the same target customer groups, is facing bankruptcy. Wal-Mart is able to leverage its size (5,000 + stores) to pass savings onto its customers. Funder Mifflin Inc. is competing in the industry through service differentiation and will therefore need to focus on cost effectiveness and quality to maintain or enhance the value perceived by their target customers. Where social networking is concerned, LinkedIn offers a good model for FMI to imitate. LinkedIn is a site which requires users to pay for full access and full benefits. There is a portion of the services offered which are free for subscribers and an even smaller segment of the pay-services available to entice users to join the subscription portion of the site. The free segment of the social networking site will attract a wider spectrum of members; however, the developers from LinkedIn are hoping that the early revenues from a fee-based social networking site will speed the time to payback and will balance initial marketing and startup costs. Additionally; the feebased social networking site may be a better way to identify and engage more valuable users (Paytronix, 2009.) Achieving a low cost position and maintaining a cost leadership strategy protects Funder Mifflin Inc. against all five of the competitive forces as highlighted by Michael Porter.

EMBA690_Team1_Group Project

-9-

Global strategy
About 80% of the worlds estimated 2.1 billion Internet users are outside the USA, according to Computer Industry Almanac. Thats a lot of opportunity for Funder Mifflin Inc. to grow and a lot more opportunity to reach new customers. Unfortunately, launching a site for international users is not as simple as it sounds. For instance; under German law, the mere act of collecting personal data without an individuals permission, whether it be geographic location or Web traffic, is illegal. Although FMI would not engage in data mining, there may be some features of its social networking site which are common-place in FMIs home country which are illegal elsewhere. Considering that demand conditions refer to the level of demand for a product in a specific country, some social-networking sites, such as Hi5, decided to establish overseas first is there a demand for Funder Mifflin Inc.s SNS and is there rivalry within the market leading to lower returns?

Diversification strategy
Diversification is the most simple of all the strategies. Funder Mifflin Inc. has an already established core competency. The diversification strategy, on a purely superficial level, would to not focus on that core competency in the social networking site. But by digging deeper and examining what is offered through the social networking site, FMI can diversify its service offering to entice users to use its social networking site rather than other already established industry leaders. Facebooks platform offers users email, instant messaging and video sharing. All three services would have otherwise needed three web sites, (Yahoo, AIM and YouTube respectively) which, when combined for the Social Networking conglomerate Facebook hat become. Funder Mifflin Inc. can and

EMBA690_Team1_Group Project

- 10 -

should diversify its ancillary strengths in order to exploit all available resources, in turn creating a robust social networking site which could rival that of current industry leaders.

Discuss each member's ideas toward the consensus strategic option chosen.
Differentiation strategy-- Daveta
We want to put a human face to our company.

Cost leadership strategy Patsy

Porter warned against 'being stuck in the middle' where only one strategy is not used. He said, 'The firm in the middle is almost guraranteed low profitability. It either loses the high-volume customers who demand low prices or must bid away its profits to get htis business away from low-costs firms. Yet it also loses high-margin business to the firms who are focused on high-margin targets or have acheived differentiation overall. The firm stuck in the middle also probably suffers from a blurred corporate culture and a conflicting set of organisational arrangemnts and motivation system (Porter. 1980).'

Vertical integration strategy Shannon

No posting

Global strategy - Bill

International markets are appealing to social-networking sites. International expansion is vitally important to the growth and continued strength of social networks. The mentality that a social networking website should require a customer to have a username and password to use it or that limits what you can look at has developed in the social networking space has seen most major networks die quicker than they should after

EMBA690_Team1_Group Project

- 11 -

users become fickle, move to the next offering, and leave their former service behind; but with international dominance, that issue can be resolved.

Diversification strategy - David

The recommendation on using cost leadership would be a lot better than diversification strategy. As you stated there is reduced risk with this strategy as opposed to diversification. The research that I conducted made mention that diversification was on the decline after the late 1980's and that diversification has more unknown variables than cost leadership. The only contention I would have is not to put the file on as an attachment because I have had trouble numerous times in downloading from these sites my only suggestion would be to copy and past into the forum to make it easier to read.

EMBA690_Team1_Group Project

- 12 -

After researching each strategic option, is the group's consensus still the same
There should be a blend of strategies based on the mission of the website. In order to maintain a competitive advantage, companies have to combine specific attributes of two or more strategies and create a company unique strategy structure. If long term growth looks like international networking for Funder Mifflin Inc. Global Strategy would be one piece of the puzzle. There needs to be Cost Leadership where entry is concerned, Diversification Strategy and Differentiation Strategy where conception and growth are concerned. Different companies have different strategic alternatives depending on their situation; in fact different firms competing in the same industry could have a differenct set of resources and still be successful based on how they are exploited. Michael Porter identified that there are also a generic set of strategies that can be applied across a wide range of firms. While Porter advised against implementing a combination of these strategies for a given product; Funder Mifflin Inc. is marketing a service. Although Porter argued that only one of the aforementioned strategies (cost leadership, differentiation, and focus) should be pursued.

EMBA690_Team1_Group Project

- 13 -

Recommend a strategy of implementing the strategic option.

Differentiate: Funder Mifflin Inc. must find a niche subject matter for the social networking website. Finding a unique angle is paradigm to developing a successful social networking website; because it will allow FMI to exploit its creative resources and capabilities. Diversify: By developing a business plan for the social networking site which plans to utilize different platform bolt-ons. The bulk of social media tools and technologyRSS, blogs, podcasts, videodont only facilitate conversation they assist in engaging the customers, which is key. Understanding social media is to remember that content matters most; all social networks content is designed to elicit a reaction and every social networking sites primary function is to display user-generated content and the content is active. Global: Funder Mifflin Inc. must decide how to handle growth. FMI can re-think its basic assumptions about marketing and how it will reach not only its target market, but that markets extended network. Rinse and repeat.

EMBA690_Team1_Group Project References

- 14 -

Diversification. (2012). Retrieved from http://www.theproduct.com/marketing/diversification.htm Diversification Strategy. (2006). Retrieved from http://www.enotes.com/diversification-strategy-reference/diversification-strategy Diversification Strategy. (n.d). Retrieved from www2.gsu.edu/~wwwsmg/BA8993week10.ppt Grant, R. M. (2010). Contemporary Strategy Analysis John Wiley & Sons Ltd Lessard, D.R. (2003.) "Journal of Strategic Management Education"; Frameworks for Global Strategic Analysis Paytronics (2009.) Free or Fee: Should You Charge for Your Loyalty Program? Retrieved on 2 February 2012 from www.paytronix.com Porter, M. E. "The Competitive Advantage of Nations." Harvard Business Review 68, no. 2 (March-April 1990). (seventh ed.). United Kingdom:

Sam Houston State: Porter's Dynamic Diamond Model (http://www.shsu.edu/~mgt_jxd/476/476CHAPTER10r/sld004.htm) http://www.ehow.com/info_7998522_global-strategic-analysis.html