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 wont 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 companys single most dependable contributer to above-average profitability. (Thompson & Strickland)

The essence of strategy lies in creating tomorrows 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

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

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 buyers 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 Sellers 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 doesnt 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