A Strategy for the Management of Digital Information Products

Hart, Andreas

A Strategy for the Management of Digital Information Products

Customer Integration and Customer Involvement

von Andreas Hart (Autor:in)

BWL - Unternehmensführung, Management, Organisation

Zusammenfassung

Inhaltsangabe:Abstract:
Information companies are sociotechnological, targeted and open systems with at least one strategic business unit (SBU) that sells or rents (digital) information products. Operational activities are carried out in business units. Strategies define the broad directions for the system and for its subsystems. Visions are the targets of strategies, and specific, measurable, achievable, result-oriented and time-based (SMART) objectives need to be defined to give systems that possess a degree of inertia a concrete, measurable direction.
In this thesis, both a bottom-up and a top-down approach to strategy will be taken. As an example for a bottom-up approach, a sequential, parallel, customer-oriented business strategy for the management of digital information products, a strategy that can be implemented through customer involvement in the product lifecycle, and through customer integration in the supply chain, will be elaborated. This strategy is best induced by a preceding timely shift towards (radical) product and process innovation, a limited punctuation of a long-term equilibrium of customer orientation and incremental innovation.
Hybrid strategies like the one presented in this thesis are built on modular, independent and homogenous subsystems that communicate, collaborate, compete and finally agree on joint activities, manifested in plans that then are implemented by the actors involved in order to achieve the various primary and secondary objectives on the way towards a greater, common vision.
Simultaneous hybrid strategies are a top-down or abstract view on this whole system. As simultaneous hybrid strategies possess a degree of ambiguity or even impossibility because they hide implementation details of the system, the ambiguity needs to be handled on the operational level when a hybrid strategy is implemented. Ambiguity can be resolved by introducing priorities for strategic objectives, by parallelizing strategy execution in regard to system structure, or by sequentializing strategy execution in regard to time. A top-level strategy first of all is responsibility, responsibility for the lower levels of organizational hierarchy.
After the introduction, chapter 2 starts with the definition of central strategic terms. Then, the options for business strategies and hybrid strategies in the context of information companies are sketched.
Chapter 3 essentially describes the theory of the product lifecycle, which can be […]

Leseprobe

Inhaltsverzeichnis

Andreas Hart

A Strategy for the Management of Digital Information Products

Customer Integration and Customer Involvement

ISBN-10: 3-8324-9848-6

ISBN-13: 978-3-8324-9848-1

Druck Diplomica® GmbH, Hamburg, 2006

Zugl. Universität Koblenz-Landau, Abt. Koblenz, Koblenz, Deutschland, MA-Thesis /

Master, 2006

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A Strategy for the Management of Digital Information Products iii

Contents

List of Figures ...vi

1 Introduction...1

1.1 Background and Motivation ...2

1.2 Research Question ...4

1.3 Methodology ...5

1.4 Outline of the Thesis ...6

Part I: THEORETICAL FRAMEWORK

2 Strategy ...10

2.1 Some Definitions ...12

2.2 Strategic Options...16

2.3 Hybrid Decisions ...19

3 The Product Lifecycle...21

3.1 The Seven Stages of the Product Lifecycle ...22

3.2 Criticisms of the Concept...24

3.3 Product Lifecycle and Supply Chain Management ...25

4 Information Products ...28

4.1 Common Characteristics ...30

4.2 Experience Goods ...33

4.3 Being Digital or Not...35

4.4 Modularity...38

A Strategy for the Management of Digital Information Products iv

Part II: CUSTOMER ORIENTATION AND THE SUPPLY CHAIN

5 Towards a Customer-Oriented Strategy...43

5.1 Innovate or Adapt?...44

5.2 Corporate Strategy Revisited ...46

5.3 Business Strategies...50

6 Customer Integration ...57

6.1 Customer Integration and End Users ...58

6.2 Integrate the Customer in the Supply Chain ...59

7 Customers and Mass Customization...62

7.1 Product Customization as a Standard Process ...64

7.2 A Customers' Needs Model...66

7.3 Value Experience ...68

Part III: CUSTOMER INVOLVEMENT IN THE PRODUCT LIFECYCLE

8 Customers and New Product Development ...73

8.1 Success Factors of New Product Development ...75

8.2 Open and Closed Innovation...77

8.3 Involve Customers in Early and Late Stages ...81

9 Customers and Product Management ...82

9.1 The Business Unit Lifecycle ...84

9.2 The Source of Incremental Innovation ...88

9.3 Innovate First, Then Adapt, Then Innovate... ...91

10 Product Revitalization...99

10.1 A Reoccurring Decision...100

10.2 Other Revitalization Strategies ...102

A Strategy for the Management of Digital Information Products

11 Conclusion ...105

References...116

Abstract ...125

List of Figures vi

List of Figures

Figure 1. The Three Research Objects and Their Interdependencies 6

Figure 2. Organizational Levels of Strategy in a Company 13

Figure 3. The Relationship of Strategy and Plan 14

Figure 4. The Relationship of Vision and Strategy 15

Figure 5. Product-Market Strategies for Business Growth Alternatives 17

Figure 6. The Eight Basic Options for a Competition-Oriented Business Strategy 18

Figure 7. The Seven Stages of the Product Lifecycle 22

Figure 8. Evolution of Information Products and Processes 27

Figure 9. A Model of the Information Product 29

Figure 10. Strategic Orientation Modes of the Business Unit 45

Figure 11. The Vision of Cost Leadership and the Vision of Differentiation 48

Figure 12. One Strategy, Two Visions 49

Figure 13. One Strategy, No Vision 49

Figure 14. The Dynamics of Innovation in Industry 52

Figure 15. The Evolution of Market Segmentation 53

Figure 16. The Vision of Breakthrough Innovation and the Vision of Customer Orientation 55

Figure 17. Factors Affecting Mass Customizing Capability 63

Figure 18. The Objective and Subjective Customers' Needs Model 67

Figure 19. The Mass Customization Experience 69

Figure 20. Factors Affecting the Success of Product-Development Projects 75

Figure 21. An Example Company 83

Figure 22. The Change in Customers as a Technology Matures 84

Figure 23. Evolution of an Exemplary Business Unit 86

Figure 24. Trade-Off Relationship Between Customers' Abilities and Innovativeness 89

Figure 25. A Generic Framework for the Definition of Tactical Plans 93

Figure 26. Tactics for a Customer-Oriented Strategy 95

Figure 27. Starting the Next Growth Cycle 98

Figure 28. The Product Deletion Decision 100

Figure 29. Strategy Shift Requires a Sense of Timing 103

Figure 30. Bottom-Up Implementation vs. Top-Down Observation 106

Figure 31. Implementing a Simultaneous Hybrid Strategy 110

Figure 32. Implementing an Ambiguous/Hybrid Strategy 110

Figure 33. The Triangle of Strategy Implementation 112

Figure 34. A Sociotechnological System of Independent Actors 113

1 Introduction

The first chapter provides an overview of the objective and the structure of this thesis.

In this thesis, a sequential hybrid strategy for the management of digital information

products will be developed. Information products are rented or sold by information

companies. Farther on, information companies can be described as socio-

technological, targeted and open systems [Ferstl and Sinz, 1998, pp. 59-66] with at

least one strategic business unit (SBU) that sells or rents (digital) information

products.

Societal, technological, and organizational changes offer new opportunities for

these information companies, but also lead to the question how companies can find an

appropriate strategy to maintain competitiveness in a changing environment. These

companies need clear strategies for the strategic business units (SBUs) that manage

the production of goods and services along the supply chain on the one hand, and the

evolution of goods and services throughout their lifecycle on the other hand.

The objective of this thesis is to unite findings from the different research

fields of media management (MM), product lifecycle management (PLM) and supply

chain management (SCM) under the common roof of a sound, customer-oriented

strategy to test the first hypothesis that a customer-oriented strategy fits best for

business units that sell or rent digital information products.

The second hypothesis puts into words that the involvement of customers at

the different stages of the product lifecycle benefits the company as a whole by

fostering innovation and competitiveness. Science and technology combined offer

many interesting approaches to include "the voice of the customer" [e.g. Cooper,

2001, p. 87; Gorchels, 2003, p. 13] in new or existing information products.

1 Introduction

1.1 Background and Motivation

At the beginning of the 21

century, the individual customer plays a more important

role in the mass market for information products than ever before. Traditional mass

markets like the media market are divided into smaller fragments, as individualization

in the society and increased mobility lead to changing product usage behavior and

individualization of demand, which again influences customers' product preferences.

These societal changes can be observed globally, and not only information

products are affected. In the USA, for example, the consumption of dairy products

dropped from 585,8 pounds in 1994 to 575,6 pounds per inhabitant in 1995. As the

figures constantly dropped further the following years, milk producers investigated

and found out people were consuming less dairy because they spend less and less time

at home the place where 80% of milk was traditionally consumed. One company

solved the problem by introducing new, resealable packaging so that milk could be

consumed on the move [Edwards, 1998]. This rather simple innovation was not only

sufficient to increase sales in 1998 by more than 200 percent for the Chicago area

alone, but had also the potential to revitalize a mature market in the long term

[LaSalle and Britton, 2003, pp. 62-63].

Besides societal changes, technological advances in the area of information

and communication technology (ICT) facilitate the cost-efficient digital production

and distribution of information products without change of representation from digital

to analog or vice versa. New and interactive media like Internet and mobile networks

exist today, where digital information can be distributed to end customers in their

pure, virtual form, saving costs for physical handling and shipping. From there it is

understandable that new media already compete with traditional media like television,

radio and printed products, even if up to now the "core of electronic commerce"

[Choi, Stahl and Whinston, 1997, pp. 16-20] business transactions in a digital

marketplace, combined with the exchange of digital information products, between

digital agents is still a vision that is only partly realized, as too many potential

customers remain locked out.

While production technology has made amazing progress, the digital

distribution of information products at least in the area of business-to-consumers

(B2C) still remains problematic, as the resources for physical distribution have to be

1 Introduction

maintained simultaneously. In order to come closer to the core of electronic

commerce, broadband network access on the consumer side is one essential factor.

Besides availability of mobile networks, broadband Internet access can be seen as an

enabler for innovative digital products or services, especially when they depend on

high bandwidth. According to a recent study by the Organization for Economic

Cooperation and Development (OECD), broadband diffusion is steadily increasing in

the 30 OECD member states, but the average broadband penetration throughout the

member states has only reached 11,8 subscribers per 100 inhabitants up to June 2005.

Korea maintains the highest penetration at 25,5 percent [OECD, 2005].

Organizational changes are a third factor influencing the core business of

information companies. A trend towards smaller organizations that act in loose,

cooperative networks can be observed [e.g. Hagel, 1996, pp. 5-6; Schary and Skjøtt-

Larsen, 2001, pp. 21-22; Picot, Reichwald and Wigand, 2003, pp. 6-7]. The ongoing

modularization of organizations as well as products strongly interacts with the

strategy of companies. For example, Microsoft recently announced the restructuring

of the enterprise into the three business units Platform products & services, Business

division and Entertainment & devices [Microsoft, 2005]. This restructuring can be

seen as a reaction to the diminishing importance of base technology and increasing

importance of business services and media content that are provided online over

digital networks, on top of a common, invisible infrastructure.

The progressing integration of the European market and increasing global

competition in general, together with shortening product lifecycles provide further

challenges for information companies. Schary and Skjøtt-Larsen describe the

phenomenon in their book as follows:

"The world now faces global competition, focusing on rapid response to customer

needs at low cost, accompanied by market access and rapid deployment of

technology. A significant shift is taking place from mass production with

standardized products and services towards meeting individual customer

requirements for both products and services."

This shift from pushing products to the market, based on demand forecast, to

market pull, driven by real-time customer demand, offers new opportunities for

[Schary and Skjøtt-Larsen, 2001, p. 22].

1 Introduction

information companies to provide more variety and customized information products,

products that can be adjusted to the preferences and needs of the individual customer

prior or during usage.

Mass customization is one possible answer to these changes. In a study about

mass-customized watches, Franke and Piller actually found out that end users

willingness to pay (WTP) could be increased by an average of approximately 100

percent when offering individual products, and that the user acceptance of this

offering was high [Franke and Piller, 2004]. Thus, are customized products a solution

to get closer to individual customers?

The personal computer (PC) is a good example for a highly customizable

product on both hardware and software side. Despite of many advantages, this device

still needs some expert knowledge for maintenance and operation, and it is hard to use

for most inexperienced novices, especially in the case of failures. Even in the midst of

what some people call "digital revolution" [WSIS, 2004; Brack, 2003, p. 9], there is

still much room for improvements concerning user-friendliness, adaptability and

usability of information products, and who knows better about possible improvements

than the customers themselves?

1.2 Research Question

Companies that sell or rent (digital) information products, namely media/enter-

tainment/advertising/software companies and online service providers, often struggle

with the new volatile environment. These information companies need clear strategies

for the strategic business units (SBUs) that manage the production of goods and

services along the supply chain on the one hand, and the evolution of goods and

services throughout their lifecycle on the other hand. Therefore, the main question in

this thesis is:

Question: Which strategy is right to ensure competitiveness and

continuous success of a business unit selling or renting digital

information products?

If a business strategy can be recommended, it would also be interesting what

the implications of this strategy are and, first of all, how to implement it. So strategy

as well as implementation aspects are important to come to a sound recommendation.

1 Introduction

1.3 Methodology

This thesis is based on literature research at the University of Koblenz and the

Copenhagen Business School (CBS) in Denmark. A literature review to identify the

key pieces of existing relevant research has been undertaken, and the synthesis of

findings from different sources to answer the research question is the objective.

At first, the two expressions `information products' and `strategy' need to be

defined to be able to answer the question exactly. The concept of the product lifecycle

and the considerably better known concept of the supply chain have been chosen to

serve as a frame while further approaching the question. To continue from there, two

hypotheses have been formulated which could be useful to clarify later details.

Berthon, Hulbert and Pitt summarize the ongoing debate in the field of

strategic management. The two guiding templates for a business strategy being

discussed are customer orientation and innovation orientation [Berthon, Hulbert and

Pitt, 1999, p. 37]. Hypothesis 1 picks up this common idea and reads as follows:

Hypothesis 1: A customer-oriented strategy suits best for business units

selling or renting digital information products.

As Govindarajan and Gupta state, competitive advantage is not only a function

of how well the company plays the existing rules of a game, but also depends on the

ability of a company to radically change the rules of the game [Govindarajan and

Gupta, 2001]. The ability to innovate therefore seems to have a positive effect on

competitiveness. Hypothesis 2 is concerned with the effect of customer involvement

on innovation and therefore also on competitiveness:

Hypothesis 2: The involvement of customers at different stages of the

product lifecycle benefits the whole company by fostering innovation.

Examining the question and the hypotheses, three main research objects can be

identified, which are depicted in figure 1. The intersection of all three research objects

is of special interest. Therefore, Part III of the thesis is dedicated to customer

orientation and involvement in the product lifecycle of information products. The

character of information products together with definitions of strategy and theory

about product lifecycle and supply chain are described in Part I. Customer orientation

and customer integration in the supply chain is the main topic of Part II.

1 Introduction

Product Lifecycle

Information

Products

Customer

Orientation

Figure 1. The Three Research Objects and Their Interdependencies

1.4 Outline of the Thesis

After this introduction, chapter 2 starts with the definition of central strategic terms.

Then, the options for business strategies and hybrid strategies in the context of

information companies are sketched.

Chapter 3 essentially describes the theory of the product lifecycle, which can

be compressed to the three main stages new product development (NPD), product

management (PM) and revitalization/retirement of products. Retirement and

revitalization stages respectively play an exceptional role at the end of a product

lifecycle. The chapter ends with a critical observation of the concept and managerial

application of the lifecycle view in combination with the supply chain concept.

In chapter 4, first the general characteristics of information products are

illustrated. For example, production of information goods is usually closely connected

with high fixed costs, which contrasts with rather low variable cost for reproduction

and possible marginal costs near zero for digital distribution. Information products are

also experience goods. Their value can only be determined after consumption.

Different actions can be undertaken to increase customers' trust in a new product's

quality prior to purchase. The degree of digitalization and modularization are further,

but not necessary properties of information products, even if these properties can

increase utility for both customers and producers.

Chapters 5 till 7 cover the subject of customer orientation from a supply chain

management (SCM) perspective. Chapter 5 paves the way towards a customer-

oriented strategy. Based on the preceding chapters and against the background of

hybrid strategies, Porter's corporate strategy types of cost leadership and

1 Introduction

differentiation are reviewed. Business strategy between innovation and customer

orientation is the next topic of this central chapter that provides a generic framework

for business strategy in the end. Applying Berthon, Hulbert and Pitt's strategy matrix

approach, four basic strategic orientation modes of a business unit are elaborated and

discussed. The customer orientation mode is further analyzed in the following

chapters.

Chapter 6 leads over to customer integration as a possible implementation

method of strategic customer orientation, and chapter 7 introduces the basic ideas of

mass customization, a method to integrate the customer or rather his/her preferences

in the production process along the supply chain. A model for customers' information

needs and implications for the competitiveness of a business unit offering customized

products closes this part.

Chapter 8, 9 and 10 deal with customer orientation from the perspective of

product lifecycle management (PLM). Customer involvement is a method to

implement strategic customer orientation in the product lifecycle. Chapter 8

introduces customer involvement as a possible but debatable success factor of new

product development (NPD). The broader idea of open innovation is introduced next.

Finally, the differing effectiveness of customer involvement in different phases of the

new product development process is discussed.

In chapter 9, the management of information products and the evolution of

information products from market introduction to mature products are discussed.

Here, the question is answered why product management in practice predominantly

deals with incremental product innovation. In chapter 9.3, a new and generic

framework for the development of tactical plans is proposed and demonstrated in the

light of a sequential hybrid business strategy.

Chapter 10 finally deals with the revitalization and retirement decision for

mature products at the end of their lifecycle. The revitalization or retirement of mature

products is as important for a company as the development of new products. The

special role of mass customization and customer-oriented strategies is discussed in

this context.

The thesis ends with the conclusion in chapter 11. Based on the strategy

developed in this thesis, the relationship of sequential and simultaneous strategies is

discussed. The question and the hypotheses from the first chapter then are in the

center of attention at the close of the thesis.

Part I

THEORETICAL

FRAMEWORK

2 Strategy 10

2 Strategy

In various empirical studies, H. Igor Ansoff found that the competitive environment

of companies tends to become more and more dynamic and complex (turbulence)

while companies need more and more time to react (inertia) at the same time [Ansoff,

1979, pp. 31-32; Schneck, 1994, p. 642]. From the evidence provided by these

studies, he concluded a general need for strategic planning, which till this day is the

basis for successful later strategy implementation and strategy control.

Other authors refined this process. Patrick Haertsch [2000, pp. 165-186] for

example proposes a five-step process to develop and implement a strategy for

electronic commerce:

Analysis of opportunities and threats (environment analysis)

Identification of resources (analysis of strengths and weaknesses)

Definition of the strategy

Implementation of the strategy

Efficiency review

John Stark [2005, p. 195], while developing a strategy for product lifecycle

management (PLM), describes a similar approach with five successive steps

(Collecting information, Identifying possible strategies, Selecting a strategy,

Communicating the selected strategy, Implementing the strategy). As a final example,

Linda Gorchels' planning framework for product managers [Gorchels, 2003, p. 37] is

outlined. The framework comprises 5 steps from Environmental scan, Determining

goals & objectives and Definition of strategy & tactics to Implementation of plans and

Tracking of results.

2 Strategy 11

All these approaches are obviously refined versions of the original process of

strategic planning, implementation and control. Strategic planning starts with a

strategic analysis of the company (inside-out) and its environment (outside-in), with

the goal of defining strategy and implementation plans [Schneck, 1994, pp. 645-646].

Within recent years, as a result of the discussion about advantages and

disadvantages of the market-based (outside-in) and resource-based (inside-out) view

on a company, the SWOT-analysis has been rediscovered as an effective tool to start a

strategic planning cycle. A SWOT-analysis comprises the analysis of strengths and

weaknesses (capabilities) the company possesses, and the analysis of opportunities

and threats (environment states and trends) it faces in its current environment

[Andrews, 1987, p.18; Collier, 1995, p. 53; Haertsch, 2000, pp. 86-87; Stark, 2005,

pp. 212-213]. Capabilities represent an inside-out or resource-based perspective,

while opportunities and threats provide an outside-in or market-based view on the

company

In accordance with the general contingency theory, an optimal fit between

internal capabilities and external environment is the goal of every successful strategy.

A clear strategy and implementation plans are important for the success of a

company. However, many other factors like the organizational, technological and

societal developments influence the success of a company as well as the choice of a

specific strategy. Vice versa, a specific strategy can surely influence internal as well

as external factors in general. "The foundations of corporate success are unique to

each successful company", states Kay in this context [1993, p. 19], and it is important

to stress that a strategy is not the only success factor for a company.

External information about markets, customers and competition needs to be

collected, and objective internal evaluation of the company's assets and resources

needs to be carried out before a detailed strategy and tactical/operational

implementation plans can be formulated. Developing a strategy requires strategic

thinking, which is broad and deals with long-term objectives. Developing a plan

requires tactical or operational thinking, which is focused and deals rather with short-

term objectives [Gorchels, 2003, p. 109; Stark, 2005, p. 131].

Many authors agree on the complementarity of market-based and resource-based view, see e.g.

[Bleicher, 1997, p. 52] or [Haertsch, 2000, p. 147]. Bleicher quotes 3 further external sources, and

Haertsch quotes 6 other authors. The common ground of both views is often seen in the goal of creating

highest-possible value or value proposition for the customer [e.g. Bleicher, 1997, pp. 39-42].

2 Strategy 12

2.1 Some Definitions

In this chapter, various common strategic terms are defined and differentiated from

each other. Additionally, the term `information company' is defined.

Information Company

The term information company, as used in this thesis, refers to a sociotechnological,

targeted and open system [Ferstl and Sinz, 1998, pp. 59-66] with at least one strategic

business unit (SBU) that sells or rents (digital) information products. As nearly every

information product is created with more or less ICT support in the industrial society,

no explicit distinction is further made between digital and non-digital information

products. However, digital and physical distributions of information products need to

be distinguished, as the marginal costs of digital distribution can fall close to zero,

whilst the marginal costs of physical distribution are significantly higher.

Insa Sjurts names the three components of media products as Information,

Entertainment and Advertisement [Sjurts, 2002, p. 7], while Hui and Chau [2002]

classify digital information products into three categories of Tools & utilities

(software), Content-based digital products and Online services; therefore media/enter-

tainment/advertising as well as software companies and online service providers can

be enumerated in the set of information companies.

Mission

The Florida Intl. University defines a mission as "The core purpose of an organization

its reason for existing" [FIU, 2001]. The State University of New York in its current

strategic plan defines that a mission "helps explain the distinctiveness of an institution

and represents assumptions and purposes that guide its planning and activities. It

describes the organization's `reason for being'" [SUNNY Cobleskill, 2004].

Vision

Linda Gorchels states that the strategic vision for a company or a product could be an

example for a long-term goal [Gorchels, 2003, p. 40]. A vision can be defined as "The

long-term desired future state of an organization. Visions should inspire and

motivate" [FIU, 2001]. As quoted by Stark, the Oxford English Dictionary defines a

vision as "A mental concept of a distinct or vivid kind; an object of mental

2 Strategy 13

contemplation, especially of an attractive or fantastic character, a highly imaginative

scheme or anticipation" [Stark, 2005, p. 130]. A vision hence is a future goal or state

that is desirable to be reached.

Goals/Objectives

According to the FIU Millennium Strategic Planning Handbook, goals are "The

desired end results" [FIU, 2001]. Contrary to goals, objectives are "Specific and

measurable means for accomplishing goals" [FIU, 2001]. While objectives should be

measurable, goals do not need to be. Therefore, Gorchels proposes that an objective

should be SMART, i.e. Specific, Measurable, Achievable, Result-oriented and Time-

based [e.g. Gorchels, 2003, p. 40] to allow for later control of the achievement of

objectives.

Strategy

Strategies can be classified according to different criteria, such as direction of growth

(growth strategies, hold strategies, shrink strategies), market behavior (offensive

strategies, defensive strategies), regional scope (local strategies, multinational

strategies, global strategies) or organizational scope (corporate strategies, business

strategies, functional area strategies) [Schneck, 1994, p. 644]. Latter classification is

the most important for strategic planning and is the one applied in the following:

Corporate Strategy

Business Strategy Unit

Functional Area

Strategies

(Production, Marketing/

Product Strategy...)

Functional Area

Strategies

(Production, Marketing/

Product Strategy...)

Figure 2. Organizational Levels of Strategy in a Company

[based on Schneck, 1994, p. 644; Becker, 1998, p. 140; Haertsch, 2000, p. 46]

This classification is depicted in figure 2. The corporate strategy is the general

frame for the strategy of subordinated business units (business strategies), while

individual business strategies are anew the frame for detailed functional area

2 Strategy 14

strategies on the rather operational level. This hierarchy combined with decreasing

granularity of objectives towards lower levels of strategy ensures that the overall

objectives on the corporate level can be achieved.

Besides different classifications, various definitions of strategy can be found in

literature. Porter, as a prominent example, defines strategy as "the creation of a unique

and valuable position, involving a different set of activities. If there were only one

ideal position, there would be no need for strategy" [Porter, 1996]. Strategy is creation

of a position. It is connected with activities that are aligned to common objectives.

Porter also stresses that there exists no ideal or single generic strategy that fits to

every situation (contingency theory).

Tactical/Operational Plan

The word `tactics' has its origin in the Greek word `taxis', which describes a military

formation, led by a `strategus'. Once decided, the military strategy directs tactics, the

use of weapons in battle [Stark, 2005, p. 131]. Furthermore, the Oxford English

Dictionary gives two definitions of a plan [Stark, 2005, pp. 130-131]. One roughly is

the description of a map, a graphical display of relations of a set of objects in time,

place etc. The other defines a plan as "A formulated or organised method according to

which something is to be done; a scheme of action, project design, the way in which it

is proposed to carry out some proceedings" [Stark, 2005, pp. 131-132].

Strategy

Tactical Plan t

Operational

Plan o

Tactical Plan t

Operational

Plan o

Figure 3. The Relationship of Strategy and Plan

Based on the general characteristics of strategic, tactical and operational

planning [e.g. Schneck, 1994, p. 643], two types of plans are differentiated here: the

tactical plan and the operational plan. The operational plan is more detailed than a

tactical plan, its granularity is lower, or its complexity, its account of the details is

2 Strategy 15

higher than those of a tactical plan. Finally, the relationship of strategy and plan is

depicted in figure 3. Every single `broad-brush' strategy can encompass several

focused tactical plans [e.g. Gorchels, 2003, pp. 41-45], and tactical implementation

plans can encompass several detailed operational plans.

The Relationships between the Single Terms (Master Plan)

Stark gives a good overview of how the last five terms are related to each other. The

order proposed here is mission>vision>objectives>strategy>plan>implementation.

Stark's overview is quoted in the following:

"The mission is at the highest level. It's the special task or purpose of a company. It

describes the purpose of a company but doesn't say what has to be achieved to carry

out this task is or how it will be achieved. The objectives are closely linked to the

mission. They express at a high level what must be achieved to carry out the mission.

The strategy describes the way to achieve the objectives. It defines how resources

will be organised. It defines the policies that will apply for the management and use

of resources. After the strategy comes the plan. Once the strategy has been defined,

it's possible to start planning detailed activities and resources. After the plan comes

the implementation."

Finally, the relationship between vision and strategy needs to be clarified (see

figure 4). In Stark's words again, "A vision describes the future state of something, so

it's very different from a strategy which describes the way to achieve objectives".

[Stark, 2005, p. 130]. In an abstract sense, a strategy can therefore be seen as the top-

level activity, while a vision is the target state that is to be reached with the strategy.

With the objectives suitable for reaching the target state, implementation plans are

elaborated and carried out.

State

Transition

Vision

Strategy

Figure 4. The Relationship of Vision and Strategy

[Stark, 2005, pp. 132-133]; Stark proposed the order mission>objectives>vision>strategy>plan

2 Strategy 16

2.2 Strategic Options

The goal of corporate strategy is a balanced portfolio of independent strategic

business units to achieve sustainable competitive advantage [Brack, 2003, p. 61].

"Corporate strategy is what makes the corporate whole add up to more than the sum

of its business unit parts", states Porter in his article From competitive advantage to

corporate strategy [1988].

Corporate Strategy Options

In the 1980s, Porter formulated the widely regarded generic options for corporate

strategies in arbitrary industries. Based on the preliminary analysis of structure and

competition in a specific industry, the strategic options are namely cost leadership,

differentiation and niche focus.

The strategy of cost leadership has the objective of sustaining the lowest cost

structure in the industry, whereas a differentiation strategy focuses on unique or

additional value creation for the customer [Haertsch, 2000, pp. 75-76; Porter, 1980].

To avoid price competition, this value needs to be significantly different from the

value competitors provide. Then, differentiators usually are able to charge higher

prices for their products. While there can only be one cost leader at one point in time

in a certain industry, there can be several differentiators concurrently in one industry.

Cost leaders and differentiators both target the core or mass market. A third option

identified by Porter is the niche strategy, e.g. focusing a regional or product niche. A

company pursuing a niche strategy, either based on cost leadership or differentiation,

targets smaller parts of a core market, to serve the customers in these niches better or

cheaper than competitors that have a broader market focus.

These four options are the basic options for corporate strategy. The classical

assumption by Porter is that the strategies are exclusive, e.g. that a company cannot

pursue a cost leadership and differentiation strategy at the same time without being

stuck in the middle, in a mediocre and less valuable position. In order to sustain a

"unique and valuable position" [Porter, 1996], one of these strategy options needs to

be selected.

The Business Unit

In Porter's definition, a strategy not only is a position, but also involves a "different

set of activities" [Porter, 1996]. The company's core activities are usually carried out

2 Strategy 17

in independent business units, based on tactical and operational plans (see figure 2

and 3). Therefore, the business unit is the most important organizational level for

strategic, tactical and operational considerations, because competitive advantage can

only be achieved on the business unit level [Haertsch, 2000, pp. 45-46]. "Competition

occurs at the business unit level. Diversified companies do not compete; only their

business units do" [Porter, 1988]. The business unit hence is the place where the

`tactics' in its rather original sense as well as resources are led to formation, trained

and improved for the `battle of market share'.

Figure 5. Product-Market Strategies for Business Growth Alternatives [Ansoff, 1958, p. 394]

In his article A Model for Diversification, Ansoff [1958] describes four

product-market strategies for business or market share growth based on the product-

market matrix depicted in figure 5: Market penetration (increase volume of sales to

present or new customers while maintaining original product-market strategy), Market

development (adapt present product line to new market), Product development

(development of new product for present market) and Diversification (new product

line for new market).

Diversification and product development depend directly on (product)

innovation, and market penetration and market development depend on marketing

innovation or more generally adaption (to customer's needs, to the market). "In effect,

Ansoff's growth vectors are determined by the two basic forces of supply and

demand, or technology and customers" [Baker and Hart, 1999, p. 27]. A reduction of

Ansoff's original decision matrix to a decision between adaption and innovation leads

to a model of the eight basic options for a competition-oriented business strategy.

2 Strategy 18

Options for a Competition-Oriented Business Strategy

The model depicted in figure 6 is clearly a synthesis of Porter's and Ansoff's

approaches to business strategy. This model visualizes the basic strategic options for a

business unit. Steinmann and Schreyögg [1990] identified three binary attributes of a

competition-oriented business strategy: Focus of competition (f

: cost or

differentiation), Location (l

: niche or core market) and Rules (r

: adaption or

innovation). The resulting eight basic attribute triples (f

, l

, r

) can serve as general

guidelines for developing a specific business unit strategy. Focus and location may be

roughly determined by a given corporate strategy, but the shaping of competition rules

falls within in the responsibility of each single business unit.

Niche

Core Market

Cost

Differentiation

Inn

ati

( 1 ) Cost, Niche, Adaption ... ( 8 ) Differentiation, Core Market, Innovation

( 7 )

( 6 )

( 8 )

( 1 )

( 2 )

( 3 )

( 4 )

Location of Comeptition

ule

s o

f C

titio

Figure 6. The Eight Basic Options for a Competition-Oriented Business Strategy

[Steinmann and Schreyögg, 1990]

Finally, some opinions about advantages and disadvantages of business

strategies in the information industry are collected. In their almost classical book

Information Rules, Shapiro and Varian explain that a differentiated product market is

"the most common market structure for information goods; the publishing, film,

television, and some software markets fit this model" [1999, p. 25]. Haertsch [2000,

pp. 133-134] expresses that in the global digital economy, low costs are more and

more a prerequisite of competitiveness. Therefore, in electronic commerce, rather few

Taken from [Marr and Picot, 1991, p. 673] and translated from German.

2 Strategy 19

companies pursue a cost leadership strategy. A differentiation strategy is hence

preferred. Haertsch quotes two German and American empirical studies from 1998

that support this opinion. Similarly, based on broad international and US studies,

Cooper concludes in his book Winning at New Product that one strategy namely

differentiation "yields exceptional performance results" [Cooper, 2001, pp. 366-

367]. Similar to Haertsch, Brack questions if for media markets, a strategy of cost

leadership is still appropriate in times of individualization and one-to-one marketing

[Brack, 2003, p. 65]. In the light of Porter's statement that there can only be one cost

leader, but many differentiators in an industry, as e.g. quoted by Haertsch [2000, pp.

75-76; Porter, 1980], these opinions and results are hardly surprising.

In her detailed analysis of German and global media enterprises, Sjurts states

that the media industry is focused on mass markets rather than niches ("mass

preferred to quality") [2002, pp. 14-15]. Her analysis reveals the dominance of

differentiation strategies in this industry [Sjurts, 2002, p. 91, p. 172, p. 236, p. 303, p.

393]. A preference of innovation or adaption is not to be clearly derived from these

results. Sjurts counts 12 companies in the sample with an orientation towards

adaption, against 19 companies with an orientation towards innovation. All 7 global

media enterprises in the sample seem to pursue an overall innovation-oriented

business strategy [2002, p. 393]. However, Sjurts' results are condensed into one

single corporate strategy, single business units within a company may pursue different

strategies. Additionally, some companies in the sample may in reality pursue hybrid

strategies, or no clear strategy at all.

2.3 Hybrid Decisions

A strategy that equally and simultaneously focuses on n aspects of a decision model,

even when some authority recommends a choice out of n strategies to achieve a

competitive advantage, can be named a hybrid competition-oriented strategy.

Hybrid Strategies

As a hybrid corporate strategy is pursued, no focus on either cost or differentiation is

set, but both aspects are taken into consideration simultaneously. Hybrid strategies in

Roughly based on [CeDiS, 2003]: definition of a hybrid corporate strategy (in German).

2 Strategy 20

general question the basic assumption that n-dimensional strategic options of decision

models like the one depicted in figure 6 are exclusive. Mass customization is often

named as a hybrid strategy [e.g. Piller, 2003, pp. 211-222; CeDiS, 2003].

Especially for digital information products, the simultaneous pursuit of cost

saving and differentiation is possible, as information and communication technology

allows for operational automation while possibly increasing the useful complexity of

the product, i.e. product effectiveness can be increased while process efficiency is

increased simultaneously. However, there is certainly no simple straightforward

relationship like `ICT always saves costs and raises possible differentiation'.

Berthon, Hulbert and Pitt [1999], discussing the classical choice between

business units' orientation towards innovation or adaption, presented an approach that

may be able to clarify the conflict between choice and hybrid strategy using simple

trade-offs. This, together with simultaneous and sequential hybrid strategies is further

discussed in chapter 5.1.

Decision Models

Like every model, the model depicted in figure 6 is an abstraction of reality. The

primary purpose of this model is to provide guidelines for developing a specific

strategy, built on past experience and best practices. Simple models can never explain

the real world in its total complexity, which is inherent to the whole process of model

building. Decision models rather provide guidelines for a purposeful reduction of

complexity, in order to make a decision which otherwise would hardly be possible.

They are not complete, and they will never be, as a complete model would comprise

the complexity of the real word and therefore would be useless for the purpose of

decision-making. There is no such thing like a perfect model, and there will never be

one. However, decision models can be purposeful and useful, especially if they are

built on theoretical or empirical foundations.

The purpose of Porter's, Ansoff's as well as Steinmann and Schreyögg's

models is to enable a business unit to find a clear strategy. For this purpose, they are

useful. However, these models are not intended to explain reality. For example,

companies that don't pursue a clear strategy at all cannot be mapped easily into

Porter's rational model, which in fact they never applied. Decision models are

prescriptive or normative models; therefore they can be used for descriptive purposes

only with caution.

3 The Product Lifecycle 21

3 The Product Lifecycle

The product lifecycle is a well-known concept that arose from both natural sciences

and marketing theory. Stark pictorially compares it with the lifecycle of man: "There

is nothing new in a lifecycle. Shakespeare described a lifecycle hundreds of years ago

when he wrote of the seven ages of man (the infant, schoolboy, the lover, a soldier,

the justice, the lean and slippered pantaloon, second childhood)" [2005, p. 17].

The product lifecycle concept was the subject of considerable research in the

1960s. One of the leading researchers in this field, Robert D. Buzzell, defined the

product lifecycle as "a generalized model of the sales trend for a product class or

category over a period of time, and of related changes in competitive behavior" [1966,

p. 50]. The lifecycle visualizes the need for strategy change, especially product

strategy change on the operational level, at different stages in the life of a product.

Unlike biological life forms, products can be revitalized at the peak of their maturity

by the application of imagination and logic, preventing the decline caused by more

adapted, more innovative competitive products and leading to either an equilibrium

(extended maturity) or even a new growth phase [Baker and Hart, 1999, pp. 19-22].

Much effort has been undertaken to use the lifecycle for predictive purposes,

but the main hindrance is that the length of each stage can only be established a

posteriori [Baker and Hart, 1999, pp. 20-21]. For individual members of a species, the

length of each phase can be estimated, e.g. human beings complete the cycle in

approximately 70-80 years. For new products however, the length of the lifecycle and

each stage may vary between a few months and decades [Ansoff and Stewart, 1968].

The true value of the model hence lies in the clear visualization of the need for

continuous product innovation and marketing activities throughout the lifecycle,

describing the evolution of successful products, product lines or platforms over time.

3 The Product Lifecycle 22

3.1 The Seven Stages of the Product Lifecycle

The classical product lifecycle is a four-stage model of the sales trend, starting with

market launch and ending with the decline and retirement of the then mature products,

showing the typical skewed normal distribution depicted in figure 7. Here, an

extended model is introduced that additionally takes the development of new products

(the pre-launch stages) into account. Before any sales revenues can be generated with

fresh products, high fixed development costs accumulate at these early stages, and

new product success rates are often low

quantity

time

Imagination

Definition

Realization

Market Launch

Growth

Maturity

Decline

develop

manage

revitalize/retire

Figure 7. The Seven Stages of the Product Lifecycle

[based on Baker and Hart, 1999, p. 22; Cooper, 2001, p. 130; Stark, 2005, p. 17]

However, if a new or improved product makes it to the market launch and is

successful at this stage, it is likely to experience a period of rapid growth, until it

finally reaches maturity with decelerating growth and soon thereafter starts to decline

[Baker and Hart, 1999, p. 19], if no further investments are made. Due to the high

failure rates of new products, these fairly few successful products need to be managed

carefully and revitalized at later stages, if appropriate in the individual case.

The rates of successful market launch vary from 100 down to 0 percent for individual companies.

Various studies show different results for new product failure and come to average failure rates

between 35 and 90 percent, depending among others on the industry, on the definition of `failure' and

`new product' and if the large numbers of projects that are aborted in the pre-launch stages are

considered or not [Cooper, 2001, pp.10-12]. For the music industry, Brack states that not more than 25

percent of all projects are successful [2003, p. 23].

Details

Seiten
Erscheinungsform: Originalausgabe
Jahr: 2006
ISBN (eBook): 9783832498481
ISBN (Paperback): 9783838698489
DOI: 10.3239/9783832498481
Dateigröße: 1.2 MB
Sprache: Englisch
Institution / Hochschule: Universität Koblenz-Landau – 4 Informatik, Insitute for Management
Erscheinungsdatum: 2006 (September)
Note: 1,8
Schlagworte: kundenorientierung strategie mass customization lebenszyklus taktik

Autor

Andreas Hart (Autor:in)