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Foundations of Strategy Chapter 4.The nature and sources of competitive advantage. Yetunde Oyinwola, Eric Carstens, Alex Kollaritsch, Laura Padilla, Taylor Mullings. Objectives. Understand the term “Competitive Advantage” Predict potential for competition to wear away competitive advantage
Yetunde Oyinwola, Eric Carstens, Alex Kollaritsch, Laura Padilla, Taylor Mullings
Maintaining both is difficult!!
How does competitive advantage emerge?
External sources of change
Internal sources of change
Resource heterogeneity among firms means differential impact
Some firms faster and more effective in exploiting change
Some firms have greater creative and innovative capability
Involves one of two key capabilities:
Markets have become turbulent and unpredictable, so speed of response through greater flexibility has become increasingly important
Two requirements for quick response:
Innovation generates changes that create competitive advantage.
Strategic innovation: a new approach to doing business including new business models
Imitation is the most direct form of competition; for long term sustainability barriers to imitation must exist.
Sources of isolating mechanisms
According to George Stalk of BCG, “one way to throw competitors off balance is to mask high performance so rivals fail to see your success until its too late”.
If a firm can persuade rivals that imitation will be unprofitable, it may be able to avoid competitive challenges.
• Proliferation of product varieties by a market leader
• Large investments in production capacity ahead of growth of demand
• Patent proliferation
If a firm is to imitate the competitive advantage of another, it must understand the basis of its rival’s success.
• Causal Ambiguity: The more multidimensional a firm’s competitive advantage, the more difficult it is to diagnose the determinants for success
• Uncertain Imitability: Where there is ambiguity, imitation leads to uncertain success
•The imitator can mount a competitive challenge only if they can assemble the required resources
•Imitation is fast when the competitive advantage does not require complex, firm-specific resources
•First-mover advantage: Where the initial occupant of a strategic position gains access to resources and capabilities that a follower cannot match
•Self description: “Targeting well-educated, urban-minded, young adults aged 18-30 through its unique merchandise mix and compelling store environment.”
•Each store has a unique design
•Store layouts are changed every two weeks to provide a new shopping experience for returning customers
•Emphasizes community with its customers through blogs and word-of-mouth transmissions for advertising
•Attempts to imitate would likely fail because of the difficulty of replicating every aspect of the strategy then integrating them in the right manner.
• Other airlines could invest in new aircraft, staff training, and ticketing and check-in technologies
• Culture of cost-effective services is ingrained in the company
• They want to be the most profitable rather than the largest airline
• Cabin crew members work together for significant periods of time
• All of these things put together with the new fleet makes it tough to imitate
Differentiation- capturing a price premium in the market that exceeds the cost of providing the differentiation.
3. Selecting the most promising differentiation variables for the firm
a. Greatest potential for differentiation
b. Identify linkages between activities
4. Locate linkages between the value chain of the firm and that of the buyer
a. Create value for the consumer
b. Reorganize product distribution
i. Proctor and Gamble