STRATEGIC BUSINESS ANALYSIS

Lesson 6: STRATEGIES FOR COMPETITIVE ADVANTAGE

LEARNING OBJECTIVES
After completing this lesson, the students should be able to:
 Explain the generic strategy options of: cost leadership, differentiation, focus.
 Define 'hyper competition' and describe the strategies of: repositioning, overcoming competitors' barriers,
competing successfully, overcoming competitors' market based moves and explaining how these can be helpful in
dealing with hyper competition;
 Explain strategies (such as lockin) for sustaining competitive advantage;
 Describe the three different types of benchmarking; and
 Analyze business by the help of SWOT Analysis and BGC Matrix.

EXCITE (Motivation)
Video presentation entitled “Starbucks SWOT Analysis” via youtube.

EXPLORE (Lesson Proper)

Study and create SWOT Analysis of Jollibee Restaurant.

Explain (Teacher’s Insights)

Porter’s Generic Strategies

1. Differentiation Strategy
This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business
uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product -
often to reflect the higher production costs and extra value-added features provided for the consumer. Firms that
succeed in a differentiation strategy often have the following internal strengths:
 Access to leading scientific research.
 Highly skilled and creative product development team.
 Strong sales team with the ability to successfully communicate the perceived strengths of the product.
 Corporate reputation for quality and innovation.

2. Cost Leadership Strategy

With this strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps all) market
segments in the industry are supplied with the emphasis placed minimizing costs. Firms that succeed in cost leadership
often have the following internal strengths:
 Access to the capital required making a significant investment in production assets; this investment represents
a barrier to entry that many firms may not overcome.
 Skill in designing products for efficient manufacturing, for example, having a small component count to
shorten the assembly process.
 High level of expertise in manufacturing process engineering.
 Efficient distribution channels.

3. Differentiation Focus Strategy

In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market
segments. The special customer needs of the segment mean that there are opportunities to provide products that are
 clearly different from competitors who may be targeting a broader group of customers. Companies following focused
differentiation strategies produce customized products for small market segments.

Differentiation through knowledge management

Knowledge Management is the process of creating, sharing, using and managing the knowledge and information of an
organization. It refers to a multidisciplinary approach to achieve organizational objectives by making the best use of
knowledge. Many large companies, public institutions and non-profit organizations have resources dedicated to internal
KM efforts, often as part of business strategy.

The growing importance of knowledge management

Knowledge management has become an important part of gaining and maintaining competitive advantage. Reasons for
this are as follows.
 Knowledge Management is important because it boosts the efficiency of an organization’s decision making
ability;
 In making sure that all employees have access to the overall expertise held within the organization; and
 Innovation is easier to foster within the organization.

Hyper-Competition
Hypercompetition means that sustaining competitive advantage through adopting a stable price based strategy or
differentiation based strategy becomes more difficult as products and markets change quickly and radically.

Strategies for hypercompetitive environments

 Competing successfully
 Fight and overcome competitors’ strategies
 Barriers to entry may be easier to overcome in hyper-competition.

Organizations can also take strategic steps to protect their competitive position through:
1. Price based Strategy
It refers to tactic that company use to increase sales and maximize profits by selling their goods and
services for appropriate prices. This competitive advantage can be achieved by further cost efficiencies,
winning price wars and accepting lower margins.
2. Differentiation based Strategy
It is an approach that a business takes to develop a unique product or service that customers will find better
than or in another way distinctive from products or services offered by competitors. Differentiation strategy
is a way for a business to distinguish itself from the competition. If successful, it allows the business the
opportunity to charge a premium for the good or services.
3.Lock in strategy
This is a strategy in which the customer is so dependent on a vendor for products and services that the
customer cannot move to another vendor without substantial switching costs.

Benchmarking
Benchmarking is the process of systematic comparison of a service, practice or process. Its use is to provide a target for
action in order to improve competitive position

The strategic role of benchmarking

  In strategic analysis in can be used in value chain analysis to compare one company's values to another. Company's
strengths can be garnered by comparing strategic capabilities to those of rivals, and the same can be said of rivals.
 In making strategic choices we have seen in this chapter that a competitive advantage can be gained if a company
has rarer strategic capabilities in areas such innovation, cost-efficiency, knowledge management.
 In putting strategy into action.

Types of Benchmarking
1. External benchmarking
It is a process of comparing the organizational methods and performance with the other peers of the same industry.
2. Internal benchmarking
It is a process of comparing the various methods and performance internally within the organization. In this internal
benchmarking, the internal performances of various departments across the varied locations in the organization are
compared.
3. Competitive benchmarking
In competitive benchmarking, your performance is compared with direct competitors. Data collection is considered tough
here but one can gain more inner ideas about the competitor’s performance and its reasons.
4. Industry benchmarking
In this type of benchmarking, the comparison is made with the leaders in the field. In this category, data collection can be
considered tough and tedious but you should know that you’re comparing with the leaders and pioneers in the business.

SWOT Analysis
SWOT (strengths, weaknesses, opportunities, threats) analysis is often used to pull together the results of an analysis of
the external and internal environments. If we use the techniques they help identify the major factors both internal and
external to the organization that the business strategy needs to take account of.

Figure 6 SWOT Analysis

Strengths Weaknesses
Internal

Opportunities Threats
External

Positive Negative

Some examples – not for the same organization – could be:

 Strengths: strong product branding – market research shows a high awareness of our brands compared with the
competition. We secure ‘best space’ in all branches of the top five supermarkets.
 Weaknesses: we have poor cash flow. Against industry benchmarks we are in the bottom quartile. We exceed our
overdraft limits on 19 days every quarter.
 Opportunities: demographic change in Europe will provide a greater market for our products.
 Threats: low market growth will see increased concentration of business through acquisition. The poorest-
performing businesses will fail.

Boston Consulting Group Matrix

The original portfolio matrix – the Boston Box – was developed by the Boston Consulting Group. This analysis
concentrates on immediate financial gain and does not connect with any long-term strategic direction or core competences.
A company’s strategic business units (SBUs) – parts of an organization for which there is a distinct and separate external
market – are identified, and the relationship between each SBU’s current or future revenue potential is modelled against
the appropriate management of it. Put simply, as in Figure 7, the cows are milked, the dogs are buried, the stars get the
gold and the wild cats are carefully examined until they behave themselves or join the dogs and die.

Figure 7: Boston Consulting Group Matrix (BOSTON BOX)

HIGH
Wild cat (problem child) Star

MARKET GROWTH
Dog Cash cow

LOW
LOW MARKET SHARE HIGH