Bowman's Strategy Clock

How does one company gain advantage over the others?

In many open markets, most goods and services can be purchased from any number of

companies, and customers have a tremendous amount of choice.

It's the job of companies in the market to find their competitive edge and meet customers'

needs better than the next company.

So, how, given the high degree of competitiveness among companies in a marketplace,

does one company gain competitive advantage over the others? And when there are only a

finite number of unique products and services out there, how do different organizations

sell basically the same things at different prices and with different degrees of success?

This is a classic question that has been asked for generations of business professionals. In

1980, Michael Porter published his seminal book, "Competitive Strategy: Techniques for

Analyzing Industries and Competitors", where he reduced competition down to three

classic strategies:

 Cost leadership.
 Product differentiation.

 Market segmentation.

These generic strategies represented the three ways in which an organization could

provide its customers with what they wanted at a better price, or more effectively than

others. Essentially Porter maintained that companies compete either on price (cost), on

perceived value (differentiation), or by focusing on a very specific customer (market

segmentation).
Competing through lower prices or through offering more perceived value became a very

popular way to think of competitive advantage. For many businesspeople, however, these

strategies were a bit too general, and they wanted to think about different value and price

combinations in more detail.

Looking at Porter's strategies in a different way, in 1996, Cliff Bowman and David

Faulkner developed Bowman's Strategy Clock. This model of corporate strategy extends

Porter's three strategic positions to eight, and explains the cost and perceived value

combinations many firms use, as well as identifying the likelihood of success for each

strategy.

Figure 1 below, represents Bowman's eight different strategies that are identified by

varying levels of price and value.

Figure 1 - Bowman's Strategy Clock

Position 1: Low Price/Low Value

Firms do not usually choose to compete in this category. This is the "bargain basement"

bin and not a lot of companies want to be in this position. Rather it's a position they find

themselves forced to compete in because their product lacks differentiated value. The

only way to "make it" here is through cost effectively selling volume, and by continually

attracting new customers. You won't be winning any customer loyalty contests, but you

may be able to sustain yourself as long as you stay one step ahead of the consumer (we're

not going to mention any names here!) Products are inferior but the prices are attractive
enough to convince consumers to try them once.

Position 2: Low Price

Companies competing in this category are the low cost leaders. These are the companies

that drive prices down to bare minimums, and they balance very low margins with very

high volume. If low cost leaders have large enough volume or strong strategic reasons for

their position, they can sustain this approach and become a powerful force in the market.

If they don't, they can trigger price wars that only benefit consumers, as the prices are

unsustainable over anything but the shortest of terms. Walmart is a key example of a low

price competitor that persuades suppliers to enter the low price arena with the promise of

extremely high volumes.

Position 3: Hybrid (Moderate Price/Moderate Differentiation)

Hybrids are interesting companies. They offer products at a low cost, but offer products

with a higher perceived value than those of other low-cost competitors. Volume is an

issue here but these companies build a reputation of offering fair prices for reasonable

goods. Good examples of companies that pursue this strategy are discount department

stores. The quality and value is good and the consumer is assured of reasonable prices.

This combination builds customer loyalty.

Position 4: Differentiation

Companies that differentiate offer their customers high perceived-value. To be able to

afford to do this they either increase their price and sustain themselves through higher

margins, or they keep their prices low and seek greater market share. Branding is

important with differentiation strategies as it allows a company to become synonymous

with quality as well as a price point. Nike is known for high quality and premium prices;

Reebok is also a strong brand but it provides high value with a lower premium.

Position 5: Focused Differentiation

These are your designer products: high perceived value and high prices. Consumers will

buy in this category based on perceived value alone. The product does not necessarily

have to have any more real value, but the perception of value is enough to charge very

large premiums. Think Gucci, Armani, Rolls Royce; clothes either cover you or they

don't, and a car either gets you around the block or it doesn't. If you believe pulling up in

your Rolls Royce Silver Shadow is worth 25 times more than in an economy Ford then

you will pay the premium. Highly targeted markets and high margins are the ways these

companies survive.

Position 6: Increased Price/Standard Product

Sometimes companies take a gamble and simply increase their prices without any

increase to the value side of the equation. When the price increase is accepted, they enjoy

higher profitability. When it isn't, their share of the market plummets, until they make an

adjustment to their price or value. This strategy may work in the short term, but it is not a

long-term proposition as an unjustified price premium will soon be discovered in a

competitive market.
Position 7: High Price/Low Value

This is classic monopoly pricing, in a market where only one company offers the goods

or service. As a monopolist, you don't have to be concerned about adding value because,

if customers need what you offer, they will pay the price you set, period. Fortunately for

consumers in a market economy, monopolies do not last very long, if they ever get

started, and companies are forced to compete on a more level playing field.

Position 8: Low Value/Standard Price

Any company that pursues this type of strategy will lose market share. If you have a low

value product, the only way you will sell it is on price. You can't sell day-old bread at

fresh prices. Mark it down a few cents, and suddenly you have a viable product. That is

the nature of consumer behavior, and you will not get around it, no matter how hard you

try.

Note:

Positions 6, 7, and 8 are not viable competitive strategies in truly competitive

marketplaces. Whenever price is greater than perceived value you have an uphill battle on

your hands. There will always be competitors offering better quality products at lower

prices so you have to have your value and price aligned correctly.

When considering which competitive strategy to pursue, here are some questions you

should ask yourself.

If you intend to compete on price:

 Are you a price leader?

 Can you sustain a cost leader position? Can you control your costs and sustain a

good margin?
  Are you able to exploit all of the cost advantages available to you?

 Can you balance low price against the perception of too low value?

 Is your cost advantage limited to one or a few small market segments? Are these

segments capable of sustaining your business, given the volume and margins you

project?

If you intend to compete on perceived value:

 Do you have a well-identified target market?

 Do you understand what your target market truly values?

 Are you aware of the perceived value of your competitor's products?

 Are there areas of differentiation that you can capitalize on that others cannot

easily copy?

 Do you have alternate methods of differentiation in the event you lose your

competitive advantage in that area?

As you are analyzing how you'd like to position yourself, keep in mind your

organizational competencies. While you may want to choose a focused differentiation

strategy and market your "designer" goods, you need to understand that it takes a unique

set of circumstances to establish that kind of reputation in the marketplace. You are better

to compete in an area where your competitive strategy is congruent with your corporate

strategy and competencies, the resources you have available to you, the environment in

which you operate, and any market expectations you have already established.

Key Points

Bowman's Strategy Clock is a very useful model to help you understand how companies

compete in the marketplace.

By looking at the different combinations of price and perceived value, you can begin to

choose a position of competitive advantage that makes sense for you and your

organization's competencies.

This is a powerful way of looking at how to establish and sustain a competitive position

in a market driven economy.

By understanding these eight basic strategic positions, you can analyze and evaluate your

current strategy and determine if adjustments might improve your overall competitive

position.

The Baldrige performance excellence model

How might it be examined in Strategic Business Leader?

1. Introduction

In the Strategic Business Leader (SBL) syllabus, the Baldridge model for world class
organisations is used as a tool with which business leaders can analyse organisations
from a holistic perspective. The model involves looking at seven critical aspects of
managing organisational performance, to create and add value to the organisation and
increase competitiveness.

2. Why the Baldrige model is so relevant to SBL as a syllabus

SBL is an exam about strategic leadership and the Baldrige model is an ideal way to
present and think about performance management, organisational competitiveness and
the creation of value. The SBL syllabus contains several main sections and outcomes
within the syllabus which relate closely to the factors for success and excellence
included within the Baldrige model.
The Baldrige model is shown below in Figure 1:

Baldrige model of Performance Excellence (Malcom Baldrige) by courtesy of

Slidesalad ©:

Click diagram to view a larger version

As can be seen in Figure 1 above, there are essentially seven critical aspects which
may be considered in managing performance excellence and competitiveness. At the
top of the model is the context in which the organisation finds itself (Organisational
Profile) which may be determined by applying various strategic models such as SWOT
or PESTEL, which involve an understanding of the organisation itself, its environment
and current strategic position.

The Baldrige model suggests that strategic business leaders should focus on the above
aspects in combination, to ensure effective management of business performance to
create excellence and improve competitiveness across the organisation.
3. How to manage performance excellence using the Baldrige
model

Looking at the model in Figure 1 above more closely, as far as its main elements are
concerned, the model starts with leadership because effective leadership is the
cornerstone of excellent performance and competitiveness. Although not specifically
mentioned in the model, strong and effective leadership should be supported by robust
governance. Looking at the Organisation Profile section of the model (across the top)
leaders must first be able to understand the business environment and the strengths
and weaknesses of their organisations and their current strategic position, to identify
and select alternative strategic options. For a proper evaluation of the strategic options,
business leaders must take into account risk factors, but must clearly understand and
focus on building strong and productive relationships with customers, as the immediate
source and creators of value.

For any strategy to be implemented successfully, which may involve change (some of it
potentially disruptive), business leaders must primarily focus on its customers, but also
on the workforce and on the effective management of operations (and processes)
carried out by that workforce, to ensure that strategy is implemented successfully and to
deliver the desired results.

As shown at the right-hand side of the model, the results obtained from implementing
corporate strategy must be monitored and measured through the use of analysis and
data and knowledge management (box 4), to ensure that performance excellence and
increased competitiveness has been achieved. If results indicate underperformance or
lack of competitiveness, then the next step is to address why this is and examine the
key elements of the model to try and create improvements to performance and
competitiveness.

4. How the Baldridge model could be examined in SBL

As already explained, the Baldrige model is a comprehensive and holistic approach to

measuring performance and increasing competitiveness. An SBL question could either
focus on how the model could be used to monitor and measure performance but could
also involve using the model to identify problems and improve the situation in which an
organisation finds itself.

The following is an example of how an SBL requirement could cover the Baldrige
model:

a) Exhibit

Exhibit 1: Scenario/background ABC Company

ABC – Product and geographical structure

ABC Company is a drug and vaccine manufacturer with two manufacturing plants based in two different
countries, Country Y and Country Z. It has designed a vaccine to immunise people against a new virus. It
sells its vaccine at a price which gives it a very small gross margin and has had pre-orders from two
governments with which it has signed formal contracts for the delivery of specified quantities of vaccine
at different times and at fixed prices. The government of Country Y placed its order first for an earlier
consignment, but Country Z had subsequently placed a larger order for a later consignment, which they
were promised would be fulfilled when due. The government of country Y received most of its vaccine
supply from the plant situated in Country Y but was also getting additional supplies from the bigger plant
in country Z.

Contractual, Production and Operational problems

After mass production had begun, ABC Company began having problems at its major production facility
in Country Z with the supply of glass vials (small bottles) into which the vaccine is dispensed during
production, as well as experiencing technical problems with the production process. There was also
significant workforce absenteeism due to sickness from the virus which the vaccine is intended to prevent.
As a result, ABC Company was unable to fulfil its larger order to the government of Country Z from that
plant alone.

Potential legal action by customers

The company is now been threatened with legal action by the government of country Z for the non-
fulfilment of its order. ABC Company argued it was unable to deliver the vaccine because of its problems
at its plant in Country Z, and because the factory in Country Y was still fulfilling the remaining amount
 of the prior orders placed by the government of that country.

Financial implications
ABC Company now faces a contingent liability to pay considerable damages to the government of
Country Z and is also losing money because the planned volumes being produced across both its plants
are not being achieved to fully cover development and other fixed costs.

b) Requirement

You are a management consultant with business expertise, commissioned by the board of ABC
Company to advise them on their current situation.

Write a report to the board of directors of ABC Company to analyse ABC Company’s current position
and recommend approaches the company could adopt to help improve its competitiveness and deliver
performance excellence.

Note SBL does not specify the model to use but It is clear from the wording of the
requirement that the candidate should apply the Baldridge model. However, in a live
SBL exam it would also be acceptable to use alternative models, or even to use no
specific model at all, to answer this requirement, as long as the requirement was being
addressed.

b) Suggested approach to answering the question:

The approach to take in this technical requirement would be to use the elements in the
Baldrige model as headings in the report, starting with the organisational profile.

Title: Report to ABC Company on the current situation and recommendations for
action
 To: Board of Directors
From: A. Consultant

(i) Introduction
The current situation ABC Company faces is critical in a number of ways:

 Potential legal liability

 Dissatisfied and important customers
 Low margins and profitability issues
 Supply issues
 Operational/process problems with production
 Staff shortages

In section 2 of my report I will analyse the current situation and the key areas of
performance which need to be addressed and I will include my recommendations under
each heading.

Issues to address:

(ii) Organisational profile

ABC Company is facing several strategic and operational problems. It has set pre-
contracted prices which are too low, meaning that the shortfall in production capability
has led to lower volumes being produced than were required to cover fixed costs.
Furthermore, ABC Company relies on two main customers for the sale of its entire
output of the product and one of these is extremely dissatisfied and is threatening to sue
the company. Finally, there are immediate in-bound product supply problems, workforce
and operational issues to address.

iii) Leadership
The leadership of ABC Company needs to address these issues urgently and act
proactively to understand its current position and how to improve it. It must do that by
prioritising which issues it must deal with based on importance and urgency. Clearly the
leadership should focus first and foremost on both its customers and their needs and
also address their supply, workforce and operational issues, to deliver better results.

iv) Strategy
To resolve the issues facing ABC Company, alternative strategies will need to be
considered such as how to manage the customers as the immediate issue and how to
improve production capacity by addressing the supply, workforce and
operational/process problems. For the medium term the company needs to review its
business model such as their reliance on only two main customers and on its overall
vaccine pricing policy.

v) Customers
The company must engage positively and actively with its two main customers to
ensure that it can eventually deliver on its contractual arrangements to both
governments, but first it must establish exactly what its contractual obligations are and
any flexibility there may be for any variations in the contract. Depending on any flexibility
within the contracts, ABC Company must reassure both customers that it can deliver on
its contractual arrangements within an acceptable timeframe.

In the short-term there may be a need to import some of the output from the plant sited
in Country Y or to reduce exports from its factory in Country Z to Country Y. These
proposals must be subject to meeting acceptable delivery times for the completion of
the prior orders with Country Y and also fulfil their overall contractual obligations to
Country Z.

vi) Workforce
There seems to be a workforce shortage problem at the plant in Country Z and this
needs to be resolved. The absenteeism is due to sickness caused by the virus which
the vaccine produced is intended to prevent. An immediate concern would be to re-
deploy additional staff, possibly from the other plant in Country Y, or to increase
domestic recruitment for the plant in Country Z. Another possible solution would be to
vaccinate all staff working at both plants to help prevent further spreading of the virus
within the working environment. There may be scope to re-organise processes and
retrain staff to improve output and/or reduce the number of staff required to operate the
plant.

vii) Operations
There appears to be a specific operational issue with the supply of glass vials into which
the vaccine is dispensed before packing. This needs to be investigated and a solution
found. It may be an option to seek alternative suppliers or use a different material such
as a suitable type of plastic, which might also save costs.
It is not clear from my discussions with you, but there also seem to be other technical
operational and process problems which need investigating, which may not only be
causing the production problems but may increase the cost base. If properly
investigated and resolved, this may mean that production output can be increased, and
unit cost savings achieved, to help increase profit margins.

viii) Measurement, analysis and knowledge management

In addressing all of the above critical areas of performance, ABC Company needs to
use effective knowledge management to measure and analyse its performance
(results), particularly in the operational areas. It must measure and analyse its costs and
carry out a break-even and cost-volume-profit analysis to establish minimum volumes it
needs to sell to cover its costs and to meet its output targets, both from a workforce and
operational perspective.

ix) Conclusions
ABC Company is facing a critical situation which it must address urgently. The most
urgent is to effectively negotiate and manage the expectations of its major customers,
particularly of Country Z, which is threatening legal action; identifying any flexibility
offered within the contract terms. Secondly it needs to address its vaccine supply
problems by re-scheduling its deliveries of vaccine from both plants, working to increase
its workforce availability and deal with the supply issues affecting the bottling of the
product. There are other immediate operational/process issues to resolve, but in the
longer term, ABC Company must look at its overall pricing model, its cost structure and
how to reduce its dependence on only two major customers, by seeking other contracts,
possibly on better terms.

Written by a member of the Strategic Business Leader examining team