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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.

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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

slide2

“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 advantage3

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

Many routes to Competitive Advantage

NPD

Quality

Superior customer service

Achieving lower costs

Better geographic location

Technical expertise

Supply chain management

Brand image / reputation

5 generic competitive strategies

5 Generic Competitive Strategies

TYPE OF COMPETITIVE ADVANTAGE

BEING PURSUED

Lower Cost

Differentiation

OVERALL COST

LEADERSHIP

STRATEGY

BROAD

DIFFERENTIATION

STRATEGY

Broad buyer

segment

BEST

COST

PROVIDER

STRATEGY

MARKET

TARGET

FOCUSED

DIFF.

STRATEGY

FOCUSED

LOW-COST

STRATEGY

Narrow buyer

segment

PORTER, 1980.

low cost leadership

Low Cost Leadership

Price sensitive commodity goods

Relative not absolute

Sustainability issue

Include key features

Ease of imitation

low cost leadership7

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

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

Low Cost Leadership Strategy - Re-vamping the Value Chain

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

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

Cost Leadership - Caution!

Profitability

Sustainability

Over fixation

broad differentiation strategy

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 strategy13

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

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

Differentiation & Value

Real value v. perceived value

Value Signals:

Price

Packaging

Advertising

Brochures

Seller’s facilities, appearance etc

differentiation caution

Differentiation - Caution!

Costs & pricing

Over differentiating

Perceived value

Importance of building loyalty

Ease of imitation

Satisfaction

best cost provider

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 provider18

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

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 strategies20

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

Vertical Integration & Competitive Advantage

The only good reason to invest in vertical integration is to strengthen competitive position through either cost savings or a differentiation-based advantage.

vertical integration competitive advantage22

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 advantage23

Vertical Integration & Competitive Advantage

Forward

eg. co. owned distribution, franchised dealer networks

Undependable distribution

High retailer margins

vertical integration competitive advantage24

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

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 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

Offensive Strategies

Moves calculated to yield a competitive advantage

Size of

C. Ad.

Build

Up

Benefit

Period

Erosion

Time

types of strategic offensive

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

Choosing who to attack?

Market leaders?

Runner-up firms?

Weakest firms?

defensive strategies

Defensive Strategies

Purpose?

Lower risk of attack

Weaken impact of attacks that occur

timing of strategic moves

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