Transcript Strategy & Competitive Advantage

Strategy & Competitive Advantage
•The importance and sources of c.ad
•Types of competitive strategy
•Vertical Integration strategies
•Cooperative Strategies
•Offensive & Defensive moves to build /
defend c.ad
•Competitive nb of timing strategic moves
“Strategies for taking the hill won’t necessarily hold
it.” (Amar Bhide)
“Successful business strategy is about actively
shaping the game you play, not just playing the
game you find.” (Brandenburger & Nalebuff)
“Investing aggressively in creating sustainable
competitive advantage is a company’s single most
dependable contributer to above-average
profitability.” (Thompson & Strickland)
“The essence of strategy lies in creating tomorrow’s
competitive advantages faster than competitors
mimic the ones you possess today.” (Hamel &
Prahalad)
Strategy & Competitive Advantage
Competitive advantage is what allows a firm
to gain an edge over its rivals in attracting
customers and defending against
competitive forces.
Key challenges of competitive advantage:
1. build advantage
2. extend advantage
3. organise for advantage
4. sustain and renew advantage
Many routes to Competitive Advantage
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NPD
Quality
Superior customer service
Achieving lower costs
Better geographic location
Technical expertise
Supply chain management
Brand image / reputation
5 Generic Competitive Strategies
TYPE OF COMPETITIVE ADVANTAGE
BEING PURSUED
Lower Cost
Broad buyer
segment
MARKET
TARGET
Narrow buyer
segment
Differentiation
OVERALL COST
BROAD
LEADERSHIP
DIFFERENTIATION
STRATEGY
STRATEGY
BEST
COST
PROVIDER FOCUSED
FOCUSED
STRATEGY
LOW-COST
DIFF.
STRATEGY
STRATEGY
PORTER, 1980.
Low Cost Leadership
• Price sensitive commodity goods
• Relative not absolute
• Sustainability issue
• Include key features
• Ease of imitation
Low Cost Leadership
Profitability through volume
Profitability through margin
Cumulative costs across value chain must be lower
2 overall ways:
• Control cost drivers of internal value chain activities
• Re-vamp value chain to bypass some cost-producing
activities
Controlling the Cost Drivers
• Economies of scale eg Category Mgt,
Salesforce mgt, Simplifying pdt design
• Learning / experience curve effects
• Costs of key resources
• Manage linked costs
• Vertical integration
• Cross-functional coordination
• Timing of strategic moves
• % Capacity utilisation
Low Cost Leadership Strategy
- Re-vamping the Value Chain
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Simplify product design (reduce no. of parts)
Cut out extra benefits / services
Sell direct to end-user
Relocate closer to supplier / customer
Reengineer core business processes
Use electronic communication eg. e-mail,
video conferencing
• Engender a cost-conscious culture
Low Cost Leadership Strategy - In
what situations?
• Consumers are price sensitive
• Standard product
• Few ways to achieve differentiation
• Common use
• Buyers incur low switching costs
• Buyers are large and powerful
Cost Leadership - Caution!
• Profitability
• Sustainability
• Over fixation
Broad Differentiation Strategy
Buyer preferences too diverse for standard product.
Understanding consumer needs very nb.
Differentiation yields a longer-lasting and more
profitable edge when based on technological
superiority,quality, reliability and customer service
- highly valued.
Broad Differentiation Strategy
Premium price
Brand loyalty
Many ways to differentiate eg:
• Lower buyer’s costs of using pdt
• Raise performance / service buyer gets
• Intangible / noneconomic benefits
Differentiation & the Value Chain
Opportunities all along value chain.
Purchasing
Product R&D
Production R&D
Outbound distribution / logistics
Marketing, sales, customer service
Differentiation & Value
Real value v. perceived value
Value Signals:
• Price
• Packaging
• Advertising
• Brochures
• Seller’s facilities, appearance etc
Differentiation - Caution!
• Costs & pricing
• Over differentiating
• Perceived value
• Importance of building loyalty
• Ease of imitation
• Satisfaction
Best Cost Provider
Creating superior value by meeting or exceeding
expectations on key service/quality features
and beating expectations on price.
Emphasis on low cost and more than minimally
acceptable quality, service, features,
performance.
Best Cost Provider
• Mkts with pdt diversity & price/value
sensitivity
eg car industry, electrical appliances
• Importance of having capabilities for upscale
pdt/service attributes at low cost
• Attracts price conscious quality buyers &
quality conscious value buyers
Focus / Niche Strategies
Concentrate attention on narrow segment of total
market.
Target may be defined by: geographic location;
specialised use requirements; special product attributes
Meeting specialised needs costly or difficult
Firm doesn’t have resources/capabilities for wider mkt
Many niches / segments untapped
Focus / Niche Strategies
Attractive?
• Niche big enough to be profitable
• Good growth potential
• Not crucial to success of competitors
• Capable of serving niche well
Caution!
• Easily imitated
• Change in buyer preferences
• Segment becomes too attractive
Vertical Integration & Competitive
Advantage
The only good reason to invest in vertical
integration is to strengthen competitive position
through either cost savings or a differentiationbased advantage.
Vertical Integration & Competitive
Advantage
Backward
• Same economies as suppliers
• Suppliers are too powerful
• Supply/quality/quantity/price is uncertain
• Co. is low priority for supplier
• Where item is a major cost component
• When technology is easily mastered
Vertical Integration & Competitive
Advantage
Forward
eg. co. owned distribution, franchised dealer
networks
Undependable distribution
High retailer margins
Vertical Integration & Competitive
Advantage
Caution!
• Capital investment
• Risk
• Decreased flexibility
• Balancing capacity at each stage - under/over
supply
• Getting the right skills right
• Lead times
Vertical De-integration
Outsourcing as many activities in the value chain as
possible.
+ specialised skills outside
+ decreased risk of changing technology
+ concentrate on core business
? does it create c. advantage - lower costs or aid
differentiation
? impact on flexibility, response times, admin
? can these activities be safely delegated to suppliers
Cooperative Strategies
Cooperative agreements between companies
eg. Joint research, Production facility sharing
Strategic Benefits?
Improved / Faster NPD
More efficient SCM
Economies of scale in production / mkg
Gain expertise
Gain / improve mkt access
Offensive Strategies
Moves calculated to yield a competitive advantage
Size of
C. Ad.
Build
Up
Benefit
Period
Time
Erosion
Types of Strategic Offensive
1. Match / exceed competitive strengths
2. Capitalise on Weaknesses
3. Simultaneous initiatives on many fronts
4. End-run offensives
5. Guerilla offensives
6. Preemptive strikes
Choosing who to attack?
Market leaders?
Runner-up firms?
Weakest firms?
Defensive Strategies
Purpose?
Lower risk of attack
Weaken impact of attacks that occur
Timing of Strategic Moves
Advantages / disadvantages of First Mover
+ if pioneering helps build brand image
+ if early contracts with suppliers etc advantageous
+ first time customer loyalty
+ makes imitation harder
- expense
- rapid change may lead to obsoletion
- weak customer loyalty
- easily imitated