Deck 8: Strategy Formulation: Functional Strategy and Strategic Choice

Question 1

Pierre Omidyar founded a sole proprietorship in September 1995 called Auction Web to allow people to buy and sell goods over the Internet. The new venture was based on the idea of developing a community-driven process, where an organic, evolving, self-organizing web of individual relationships, formed around shared interests, would handle tasks that other companies handle with customer service operations. The first item sold was a broken laser pointer owned by Omidyar for US$14.83.
By May 1996, Omidyar had added Jeff Skoll as a partner and the venture was incorporated as eBay. Two years later, Omidyar asked Meg Whitman to direct corporate strategy to continue the accelerated growth rate of the company. Whitman brought to the company global management and marketing experience and soon became President and CEO. In almost no time, the company became one of the Web's most successful sites, with 233 million registered users. By 2007, the average eBay user spent nearly two hours a month on the site-more than five times the time spent on Amazon.com. 111
Whitman expanded the company's operations and spent more than US$6 billion to acquire companies, such as the Internet-phone operation Skype, the online payments service PayPal, ticket reseller StubHub, property rental and roommate search firm Rent.com, comparison shopping site Shopping. com, Web site recommender Stumbleupon, and 25% interest in Craigslist. Expansion and diversification provided revenue and profit growth plus stock price appreciation. Although financial analysts wondered how all these businesses would fit together, Whitman argued that she wanted eBay to be everywhere users wanted to be. At developer conferences, company representatives unveiled new services that let buyers shop for and purchase eBay items outside of the core eBay.com site.
By 2008, eBay was in trouble. Its stock price had lost half its value over the past three years. The core auction and retail businesses, which accounted for the majority of revenue, were showing signs of weakness. The number of active users had been flat for three quarters, at 83 million. The number of new products listed on the site had increased only 4% from the previous year. The number of stores selling goods at fixed prices on eBay declined from a year earlier to 532,000. The company had not done a good job of integrating Skype with its main business. Since its acquisition, Skype's service had actually deteriorated. 112 Competition had increased as rival Web sites, particularly Amazon, now provided similar Web services and eroded eBay's competitive advantage.
On January 23, 2008, CEO Whitman announced that John Donahoe would take over as the company's CEO. Donahoe stated that his first priority would be to revitalize eBay's core business, even at the expense of investors. In the next four years, the company's stock appreciated an anemic 1.4%. Without the PayPal unit (which brings in more than 40% of eBay's total revenue), the company would be suffering much more. 113
What decision-making process should CEO Donahoe utilize to make the decisions necessary to change the company's product, customer approach, and business model

Answer 1

CEO Danhoe must utilize the facilitative type of decision making process to make necessary changes in company's product, customer approach and business model. In facilitative type, both the leader and his subordinates work together to arrive at a decision.
Danhoe wants to change the approach towards the consumer, product and business model. Danhoe must assign his subordinates individually or in group the task to investigate the potential pitfalls in the proposed strategy in order to know the feasibility of its implementation.
Even he can use dialectical enquiry to select the best alternative among two proposals or a modified proposal by creating a constructive conflict within the organization. The constructive conflict will help in improving the quality of the decision by means of better assumptions, recommendations and high level of critical thinking.
Regardless of the technique used, each alternative should be weighed against parameters like mutual exclusivity, success, completeness and internal consistency before taking a final strategic decision.

Question 2

Do you believe that penetration pricing or skim pricing will be better at raising a company's or a business unit's operating profit in the long run

Answer 2

Skim pricing offers the opportunity to "skim" the market and generate maximum profits while the product is a novelty and there are no competitors. However this high price is likely to attract others to the market and they will enter the market since there is a large gap between the selling price and the cost of the product. This will make it possible for competitors to sell at a lower price. The first firm now has a problem of credibility, if it lowers its price, since the market will wonder if they had been cheated by the high price earlier.
Another strategy for market entry is penetration pricing. This means that one enters the market at a price which is just above cost and adopts this low cost strategy. Since this price is low the small profit margin serves as a barrier against the entry of competitors. Later the pioneering firm can always incrase prices once it has established a foothold.
It the long term a penetration pricing policy is likely to generate a larger operating profit than a skim pricing policy.

Question 3

How does mass customization support a business unit's competitive strategy

Answer 3

Mass customization is the process of delivering goods and services to the consumers in accordance with their need. This is the hybrid of an effective 'custom based' marketing technique and low cost mass production technique. This is a modern day technique adopted by the marketers to satisfy consumers by providing them what exactly they want and at an affordable price.
Mass customization supports a business unit's competitive strategy by providing consumer satisfaction and elongating the product life cycle of a business.
Mass customization helps in achieving economies of scale by giving the capability to manufacture high volume of product for a relatively large market.
Mass customization requires quick responsiveness to consumer demand and high flexibility. Managers need to co-ordinate with independent and capable individuals in order to build up an efficient linkage with the consumer. This effective linkage will help the organization to understand the particular demand of thze consumers and thereby design and deliver their goods or service accordingly. The result is low cost, high quality, customized goods and services appropriate for a large market niche. The more efficiently the organization establish this link and be in touch with the consumer, the more efficiently they will deliver to the consumers which will ultimately result in gaining competitive advantage over competitors.

Question 4

When should a corporation or business unit consider outsourcing a function or an activity

Question 5

What is the relationship of policies to strategies

Question 6

How can an Operations Strategy be used to understand and exploit a particular product offering

Question 7

Pierre Omidyar founded a sole proprietorship in September 1995 called Auction Web to allow people to buy and sell goods over the Internet. The new venture was based on the idea of developing a community-driven process, where an organic, evolving, self-organizing web of individual relationships, formed around shared interests, would handle tasks that other companies handle with customer service operations. The first item sold was a broken laser pointer owned by Omidyar for US$14.83.
By May 1996, Omidyar had added Jeff Skoll as a partner and the venture was incorporated as eBay. Two years later, Omidyar asked Meg Whitman to direct corporate strategy to continue the accelerated growth rate of the company. Whitman brought to the company global management and marketing experience and soon became President and CEO. In almost no time, the company became one of the Web's most successful sites, with 233 million registered users. By 2007, the average eBay user spent nearly two hours a month on the site-more than five times the time spent on Amazon.com. 111
Whitman expanded the company's operations and spent more than US$6 billion to acquire companies, such as the Internet-phone operation Skype, the online payments service PayPal, ticket reseller StubHub, property rental and roommate search firm Rent.com, comparison shopping site Shopping. com, Web site recommender Stumbleupon, and 25% interest in Craigslist. Expansion and diversification provided revenue and profit growth plus stock price appreciation. Although financial analysts wondered how all these businesses would fit together, Whitman argued that she wanted eBay to be everywhere users wanted to be. At developer conferences, company representatives unveiled new services that let buyers shop for and purchase eBay items outside of the core eBay.com site.
By 2008, eBay was in trouble. Its stock price had lost half its value over the past three years. The core auction and retail businesses, which accounted for the majority of revenue, were showing signs of weakness. The number of active users had been flat for three quarters, at 83 million. The number of new products listed on the site had increased only 4% from the previous year. The number of stores selling goods at fixed prices on eBay declined from a year earlier to 532,000. The company had not done a good job of integrating Skype with its main business. Since its acquisition, Skype's service had actually deteriorated. 112 Competition had increased as rival Web sites, particularly Amazon, now provided similar Web services and eroded eBay's competitive advantage.
On January 23, 2008, CEO Whitman announced that John Donahoe would take over as the company's CEO. Donahoe stated that his first priority would be to revitalize eBay's core business, even at the expense of investors. In the next four years, the company's stock appreciated an anemic 1.4%. Without the PayPal unit (which brings in more than 40% of eBay's total revenue), the company would be suffering much more. 113
What is eBay's problem

Question 8

How are corporate scenarios used in the development of an effective strategy

Question 9

Pierre Omidyar founded a sole proprietorship in September 1995 called Auction Web to allow people to buy and sell goods over the Internet. The new venture was based on the idea of developing a community-driven process, where an organic, evolving, self-organizing web of individual relationships, formed around shared interests, would handle tasks that other companies handle with customer service operations. The first item sold was a broken laser pointer owned by Omidyar for US$14.83.
By May 1996, Omidyar had added Jeff Skoll as a partner and the venture was incorporated as eBay. Two years later, Omidyar asked Meg Whitman to direct corporate strategy to continue the accelerated growth rate of the company. Whitman brought to the company global management and marketing experience and soon became President and CEO. In almost no time, the company became one of the Web's most successful sites, with 233 million registered users. By 2007, the average eBay user spent nearly two hours a month on the site-more than five times the time spent on Amazon.com. 111
Whitman expanded the company's operations and spent more than US$6 billion to acquire companies, such as the Internet-phone operation Skype, the online payments service PayPal, ticket reseller StubHub, property rental and roommate search firm Rent.com, comparison shopping site Shopping. com, Web site recommender Stumbleupon, and 25% interest in Craigslist. Expansion and diversification provided revenue and profit growth plus stock price appreciation. Although financial analysts wondered how all these businesses would fit together, Whitman argued that she wanted eBay to be everywhere users wanted to be. At developer conferences, company representatives unveiled new services that let buyers shop for and purchase eBay items outside of the core eBay.com site.
By 2008, eBay was in trouble. Its stock price had lost half its value over the past three years. The core auction and retail businesses, which accounted for the majority of revenue, were showing signs of weakness. The number of active users had been flat for three quarters, at 83 million. The number of new products listed on the site had increased only 4% from the previous year. The number of stores selling goods at fixed prices on eBay declined from a year earlier to 532,000. The company had not done a good job of integrating Skype with its main business. Since its acquisition, Skype's service had actually deteriorated. 112 Competition had increased as rival Web sites, particularly Amazon, now provided similar Web services and eroded eBay's competitive advantage.
On January 23, 2008, CEO Whitman announced that John Donahoe would take over as the company's CEO. Donahoe stated that his first priority would be to revitalize eBay's core business, even at the expense of investors. In the next four years, the company's stock appreciated an anemic 1.4%. Without the PayPal unit (which brings in more than 40% of eBay's total revenue), the company would be suffering much more. 113
Which marketing strategy was eBay following: market development or product developmentDo you agree with it

Question 10

Are functional strategies interdependent, or can they be formulated independently of other functions