CH 06

Bourgeois,
Duhaime,
& Stimpert

Business Definition
Copyright © 1999 by Harcourt Brace & Company
All rights reserved. Requests for permission to make copies of any part of the work should be mailed to the following address:
Permissions Department, Harcourt Brace & Company, 6277 Sea Harbor Drive, Orlando, Florida 32887-6777.
ter Objectives
ë Define the concept of business definition and
emphasize both the importance and the creative
nature of business definition.
ë Describe the ways in which business definition can
be a source or contribute to the development of
sustained competitive advantage.
ë 0llustrate some effective business definitions.
ë Emphasize the importance of redefinition, while also
illustrating the challenges associated with
redefinition.
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0ntroduction
ë Business definition as strategy content:

u Itdescribes which customers the firm will serve, what
products/services will be offered, and what
technologies the firm will employ.
ë Business definition is also a strategy process:
u ºhe process by which the firm selects its position in
its industry environment.

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G
ôdel of Strtegic
^ngement

Ú^ ^ ^

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ÿ ^

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rei forces or
s ggests c a ges
i ma agers'
me tal mo els Copyright © 1999 by Harcourt Brace & Company
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0ntroduction (cont.)
ë âjor challenge associated with business definition:

u equires an on-going process of redefinition.
[ xver time, industry changes occur -- shifts in
customer demographics and preferences.
ë Diversified businesses need to define each of their
different businesses.

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G
rocesses of
Business Definition nd
Redefinition
uture ompetitive Space
urrent
ompetitive Space
º Copyright © 1999 by Harcourt Brace & Company

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Business Definition s
retive rocess
ë Five characteristics of the business definition
process:
~. It is fundamentally a creative process.
[ ew business schools offer courses in creativity.
Business world seeks to quantify everything.
Creative process is not well-understood.
[ ollo May: ³eed for creativity is in direct proportion
to degree of change the profession is undergoing.´

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retive rocess (cont.)
3. Effective business definitions rarely emerge
without an extensive knowledge of the competitive
landscape.
[ arely the result of luck or whims -- instead, are
outcome of expertise and hard work.
[ Examples: Head skis, Goodyear¶s vulcanized
rubber, and PC products from Wozniak and Jobs.

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¦. Effective business definition will not only answer
the Who, What, and How questions, but it will also
be much more creative and unique than any
corporate mission statement.
[ ºruly distinctive definitions unlikely to emerge from
committees.
sually the inspiration of a key entrepreneurial thinker.

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. ºhe business definition process implies that firms
will engage in some activities and not engage in
others.
[ usiness definitions can sometimes result from not
deciding or maintaining the status quo.
[ However, most business definitions are redefined
over time in order to maintain alignment with the
larger competitive environment.
Example of Ziebart evolving from rustproofing to
supplying window tinting, sunroof installations, auto
detailing, and security systems.
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. inal characteristic of business definition process
is its fleeting nature.
[ Many business definitions quickly become dated or
irrelevant due to changes in competitive
environment or actions by managers.
Examples: transistor technology vs. vacuum tubes and
Coors¶ national marketing strategy vs. their previous
Rocky ôuntain area focus.

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ometitive Advntge
ë Business definition ³positions a firm or business in
its competitive space or industry environment.
u lmost all industries have various strategic groups
-- groups of firms pursuing similar strategies.
[ In brewing industry, nheuser-usch, Miller, and
Coors all pursue national strategies.
îcrobreweries serve only small, local markets.
u Examples of effective definition and positioning:
Smucker jams and jellies, and Gerber baby food.
[ oth aggressively defend against imitators.
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ometitive Advntge (cont.)
ë Business definition helps to focus management
attention on the firm¶s key objectives, the firm¶s most
significant strategic issues, and the firm¶s most
important rivals.
u Where are we now? Where are we taking the
business?
u How are we going to position our business vis-à-vis
the competition and the marketplace?

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ë Business definition influences other strategic
decisions.
u üsually precedes other strategic decisions.
[ Example of Williams Companies and their decision
to enter fiber optic cable business.

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ë Business definition provides meaning and can be
very motivational.
u irms that have strong business definitions (vision
statement or organizational identity) provide
employees with sense of meaning, purpose, and
excitement.
[ Can be more tangible and motivational than
financial objectives.
ôtorola¶s quality improvements, HP¶s technical
contributions, and Nordstrom¶s exemplary customer
service.
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0llustrtions of Effective
Business Definitions
ë -eneral ôtors in 1921
u Had 7 different car lines that lacked clear identities
and vigorously competed against each other.
[ CEx Sloan decided that each GM car line should
serve different, but overlapping price points (see
illustration on following slide).

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Business Definitions (cont.)
Chevrolet
$450 - $600
Oakland
$600 - $900
Buick, 4 cyl
$900 - $1200
Buick, 6 cyl
$1200 - $1700
Oldsmobile
$1700 - $2500
Cadillac
$2500 - $3500

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u GM¶s strategy counted on drawing customers away
from ord¶s Model º (priced at $¦ and with a
60% market share).
u Each higher echelon of GM car prices offered
slightly higher quality than the preceding level.
u ºhis concept of differentiated products selling at
different price points was so successful that GM
quickly overtook ord as market share leader.

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ë Example 2: Cooper Tire and Rubber Company
u Has always performed well in an unattractive
industry.
[ Most success results from their positioning«selling
only replacement tires, while most competitors try
to serve the xEM tire market as well.
a Does not have to offer technological advances for OE^

market, thus saving R&D outlays.
[ Sells only though independent dealers, avoiding
distribution overhead costs.

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rcteristics of Effective
Business Definitions
ë Distinctiveness
u Can be competitive advantage if firm¶s business
definitions are not only unique, but also difficult for
competitors to imitate.
ë Timely and appropriate given the industry
environment.
u Must continually redefine your business.
ë Clear and readily understandable.
u Smucker¶s labels let customers know that they are
purchasing a high-quality product.
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º e Need for
ontinuous Redefinition
ë An outstanding business definition at one point in
time is not sufficient.
u irms must quickly respond to industry changes if
they hope to remain viable.
ë 0mportant to examine several firms that have
struggled or are currently struggling with the
redefinition process.

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ontinuous
Redefinition (cont.)
ë Eastman Kodak and changing photography market.
u Ëodak and uji are battling for global superiority
in silver halide film market.
u Ëodak must cope with emerging digital
technologies that might make silver halide film
technology irrelevant.
[ ?igital cameras are becoming more affordable and
capable of producing high resolution pictures.
[ In order to remain competitive, Ëodak has sold off
non-core businesses.
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ontinuous
[ Ëodak's managers have begun pursuing ways of
integrating digital technologies into their products.
[ Hired Motorola¶s ex-CEx, George isher, to run
company.
u Ëodak has not yet made its digital products
profitable.
[ ew technologies are very different from old
photography technologies.
[ Company also must refrain from fighting against
adopting new technologies.

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ontinuous
ë Seagram and Sons
u 'ong known for its scotch, whiskey,and bourbon,
Seagram encountered dramatic decline in
consumption of these beverages in ~ 0s and ~ 0s.
[ In response, it sought to diversify into unrelated
businesses: Conoco, üniversal Studios, PolyGram.
[ lso acquired makers of natural soda and orange
juice beverages.

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G
Declining ^rket
for Distilled Sirits, 1970-
1970-1995

-

X
X
~ ~ ~ ~ ~ ~

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G
Segrm·s
ororte History since 1980
~ ~: Company attempted to acquire Conoco, but acquired nearly
25% of DuPont in bidding war.
~ ¦: Paid Coca-Cola $238-million for Wine Spectrum.
~ : Launches line of wine coolers.
~ 7: Sold Paul âsson, California Cellars, and Taylor.
~ : Bought Tropicana for $1.2-billion.
~ ¦: Acquired 5.7% of Time-Warner.
~ : Acquired marketing rights for Absolut vodka.
~ : Sold interest in DuPont to finance acquisition of ^CA, 0nc.
from âtsushita.
~ : Acquired Poly-ram, the world¶s largest sound recording
company, from Philips Electronics.
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ontinuous
u xn the negative side, Seagram¶s business
definitions appear to be unclear.
u xn the positive side, the firm has been proactive in
dealing with the major market decline.

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ontinuous
ë Redefinition at Steinway and Sons
u 'ong known for its excellent pianos, troubles began
when company was sold to CS.
[ irm became lost inside giant conglomerate.
[ Management changes were frequent.
[ Quality declined.
u irm was then sold to irmingham rothers, non-
musicians who sought to automate the production
process.
[ Pianos lost their individual distinctiveness.
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ontinuous
ë Redefinition at Brooks Brothers
u Ënown for its conservative (and expensive)
business attire, the firm tried to shift towards more
casual clothes in order to attract more customers.
[ Market research showed, however, that while
customers liked the casual clothes, the
salespeople were not selling them aggressively.
One response: ³0t isn¶t what we do.
u Entire organization must ³buy into´ the
redefinition of the firm's business.
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ontinuous
ë -allo Wine
u Had traditionally defined itself as producer of low-
cost table wine.
u ºhey now sought to enter the higher-priced varietal
market.
[ In spite of major advertising outlays, the firm had
little success.
[ Secret for success: attack new market using new
name.
Nissan/0nfiniti, Toyota/Lexus, etc. had success doing this.
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ontinuous
ë ônsanto
u Has always been proactive in changing its business
definition.
u ?ecided to aggressively invest in use of
biotechnology for agricultural applications.
[ Company split into two separate businesses:
ônsanto: for the new biotech applications.
Solutia: for its traditional commodity chemical
businesses.

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G
ônsnto·s
0nvestments in Biotec nology
June, ~ Acquires 49.9% of Calgene, a biotechnology
company.
ovember, ~ Pays $25-million for rights to Ecogen¶s plant
gene technology.
ebruary, ~ 6 Acquires large stake in Dekalb -enetics, a corn
seed producer.
pril, ~ 6 Pays $150-million for Agracetus, a company that
pioneered use of ³gene gun technology.
September, ~ 6 Acquires Asgrow Seed, a major producer of
soybean seeds.
?ecember, ~ 6 Announces that it will spin-off chemicals
business.
May, ~ Agrees to acquire Dekalb -enetics and Delta Pine
& Land, a cotton seed producer.
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ontinuous
ë Challenges associated with redefinition.
u usiness definition and redefinition must be
creative and on-going processes.
u ?ecisions about business definition and
redefinition must be made only after managers
know a good deal about their firm¶s future
direction.
u Sooner is better than later -- once you make the
decision, move quickly.

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ontinuous
u irm must be prepared to make sizeable
investment in redefined business.
u edefinition is rarely easy.
[ ºhe degree of difficulty associated with business
redefinition will be directly related to level of
recognition and distinctiveness which a firm¶s
definition has enjoyed in the past.

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onclusions: ^ngers nd
º eir Role in Business Definition
ë Top managers should place much emphasis on business
definition and redefinition.
ë Business definition is not strategic planning -- it
provides firms with visions.
ë Business definitions allow managers to focus on smaller
portion of competitive environment.
u Shouldshorten time required to formulate and
implement strategy.
ë Continuous redefinition necessary to avoid market
decline.
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Ëey oints 0ntroduced
in ter 6
ë Business definition is a fundamental, perhaps the most
fundamental, business decision that managers can
make.
ë -ood business definitions reflect creative exploitation
of developments in firms¶ competitive environments.
ë Effective business definitions share the following
characteristics:
u ºhey are distinctive and set companies apart from
their competitors.

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in ter 6 (cont.)
u n effective business definition can help to focus
management attention on a firm¶s key objectives, its
most strategic issues, and its most important rivals.
u n effective business definition does not answer
other strategic questions, but it does make those
questions more obvious and should improve strategic
decision making and the implementation of
strategies.
u n effective business definition provides managers
and employees with a sense of meaning and purpose
which can be very motivational.
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in ter 6 (cont.)
ë Firms that are defined and then continuously
redefined are much more likely to keep pace with
changes in their competitive environments and they
are also much more likely to have clearer
understandings of how resources should be allocated.
ë Yet redefinition poses many challenges.
u irms must frequently make significant
investments in new markets and technologies
without clear evidence that those investments will
³pay-off.´
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in ter 6 (cont.)
u ºhey are timely and appropriate given the industry
environments in which companies are competing.
u ºhey are clear and really understandable by
customers, as well as employees, suppliers, and other
constituencies.
ë Business definition can contribute to the development of
competitive advantage in at least 4 ways:
u n effective business definition can uniquely position a
firm in its industry.

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in ter 6 (cont.)
u urthermore, redefinition often requires
companies to radically alter the perceptions and
beliefs of customers and employees.

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Bourgeois,

ë Business definition as strategy content:

Copyright © 1999 by Harcourt Brace & Company

ë ^ajor challenge associated with business definition:

Copyright © 1999 by Harcourt Brace & Company

º Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

Copyright © 1999 by Harcourt Brace & Company

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