9/21/2022

STGY 5903
Strategic Concepts

LY
TE ON
Module 4 – Industry Analysis (II)

IB EW
Prof. Guoliang Frank Jiang

TR VI
Sprott School of Business, Carleton University

U
IS E
D R
T T
O N
N DE

2
O U
D ST
SE R

Agenda
EA FO

• Industry analysis (Cont’d)

PL 03,

– Industry life cycle and profit pool

59
Y
G
ST

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Threat of
potential
entrants
Porter’s five forces
model

LY
A snapshot of the
Bargaining Bargaining

TE ON
Industry competitive forces.
power of power of
rivalry
suppliers buyers

IB EW
It does not provide
sufficient insights into

TR VI
the change of

U
Threat of industry over time.

IS E
substitutes

D R
T T
O N
N DE

4
O U
D ST
SE R

Industry (product) life cycle

EA FO
PL 03,
Demand

59
Y

Time
G

Embryonic Growing Shakeout Mature Decline

ST

Niche market – selected Market expands beyond Demand approaches Proliferation of Product/market
products for selected markets niche saturation products and markets contraction
served
Participants emphasize More competitors enter Industry excess Market volatility and Further
problem solving – product as capacity builds up further industry consolidation and
“solution” consolidation industry
regeneration
Technological uncertainty Customers become Customers gain Aggressive customers
better informed bargaining power

Source: Adapted from K. Rangan and G. Bowman, “Beating the Commodity Magnet,” Industrial Marketing Management 21 (1992), 215-224; P. Kotler, “Managing
Products through their Product Life Cycle,” in Marketing Management: Planning, Implementation, and Control, 7th ed (Upper Saddle River, NJ: Prentice Hall, 1991)

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Industry’s profit pool (Gadiesh and Gilbert,

1998)

LY
Profit share along the
industry’s value chain is

TE ON
often more important than
market share (Gadiesh and

IB EW
Gilbert, 1998)

TR VI
U
IS E
D R
T T
O N
N DE

6
O U
D ST

Industry’s profit pool (Gadiesh and

SE R
EA FO

Gilbert, 1998)
• A profit pool is the total profits earned in an industry at all
PL 03,

points along the industry’s value chain.

59

• Profits don’t necessarily follow revenues.

• The distribution of a profit pool reflects the competitive
Y
G

dynamics of related businesses.

ST

• Profit concentration results from the actions and

interactions of companies and customers.

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 9/21/2022

Industry’s profit pool and strategic

management
• Profit pools address one of the most basic questions in strategic management: where and
how organizational resources should be allocated?
• Reconfiguring resource allocation according to industry’s profit pool can result in major

LY
strategic changes (e.g., diversification and vertical integration).
– Truck rental vs. moving supplies and storage

TE ON
– New car vs. used car
– Car manufacturing vs. car leasing
–

IB EW
Car sales vs. car services
• An understanding of industry’s profit pool can promote innovation in business model both
within and across industry boundaries (McGrath, 2010)

TR VI
– Create and utilize real options in business model experimentation

U
IS E
 keeping initial investments small until concepts are proven
 only investing more substantially when there is greater evidence that an idea will work

D R
 scaling up with vigor.
T T
O N
N DE

8
O U
D ST
SE R
EA FO
PL 03,

Thank You
59
Y
G
ST

4
 9/21/2022

STGY 5903
Strategic Concepts

LY
TE ON
Module 5 – Competitive Advantage

IB EW
Prof. Guoliang Frank Jiang

TR VI
Sprott School of Business, Carleton University

U
IS E
D R
T T
O N
N DE

2
O U
D ST
SE R

Agenda
EA FO

• Competitive advantage
PL 03,

• Generic business strategy framework

59

• Blue ocean strategy

Y
G
ST

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Competitive advantage

TE ON
IB EW
TR VI
U
IS E
D R
T T
O N
N DE

4
O U
D ST
SE R

Porter’s view of strategy

EA FO

• “The essence of formulating competitive strategy is relating a company

PL 03,

to its environment.” (Porter, 1980)

• According to Michael Porter, a company’s economic performance is
59

largely determined by two factors

Y

• An analysis of competitive strategy must encompass industry structure

G

and firms’ relative positions in the industry.

ST

Industry Relative position

Structure within the industry

- Overall conditions of - Main source of competitive

competition advantage
Your margin = industry margin + your competitive advantage
Adapted from: Porter, M., 2008. “On competition.” Harvard Business School Publishing. MA: Boston.

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Creating competitive advantage

(Ghemawat and Rivkin, 2006)
• A competitive advantage allows
Cost leadership
strategy
the firm to drive a wider wedge

LY
than the competitors between the
(Reducing costs, not willingness to pay and the costs it

TE ON
necessarily price)
incurs.

IB EW
Product

TR VI
differentiation

U
strategy

IS E
(Increasing

D R
willingness to pay)
T T
O N
N DE

6
O U
D ST

Creating competitive advantage - Generic

SE R
EA FO

business strategy
140
PL 03,

120
59
Revenue and Cost

Industry Average Price

100

Industry Average Cost

Y

80
G

60
ST

40

20

0
Marginal Competitor Cost Leadership Differentation
Full Cost Margin
Source: Chew, B., 2000. “The geometry of competition.” Monitor Group.

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 9/21/2022

Creating competitive advantage

(Ghemawat and Rivkin, 2006)
• A competitive advantage allows
Cost leadership
strategy
the firm to drive a wider wedge

LY
than the competitors between the
(Reducing costs, not willingness to pay and the costs it

TE ON
necessarily price)
incurs.

IB EW
Product

TR VI
differentiation

U
strategy

IS E
(Increasing

D R
willingness to pay)
T T
O N
N DE

8
O U
D ST

Improving competitive position vs. the

SE R
EA FO

Five Forces: Cost leadership

• An overall low-cost position
PL 03,

– Creates substantial entry barriers through the economies of scale

59

and resulting cost advantage

– Strong cost structure protects a firm from rivalry
Y

– Provides flexibility to cope with demands from powerful buyers for

G

price decreases
ST

– Provides flexibility to cope with demands from powerful suppliers for

input cost increases
– Puts the firm in a favorable position (higher performance-cost ratio)
against substitute products

Industry Relative position

Structure within the industry

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Threats to cost leadership strategy

• A lack of parity on benefits (i.e., CVP is compromised)
– Too much focus on one or a few value-chain activities to lower cost

LY
• Low-cost activities could be imitated easily, e.g., off-shoring.

TE ON
• Cost reduction could be difficult when all rivals share critical
common inputs

IB EW
• New technologies lower industry average costs (e.g.,
automation).

TR VI
U
IS E
D R
T T
O N
N DE

10
O U
D ST

Viva Air Colombia – a young budget

SE R
EA FO

airline in Latin America

PL 03,
59
Y
G
ST

11

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Operational efficiency – Viva Air

Colombia Approximately 50% savings in operational costs
Operational Savings Achieved by Viva Air
(Percentage of operational savings compared to traditional airlines)

LY
Tighter seating 16%

TE ON
Short turn times 3%
Lower equipment costs 3%
Less expensive airports 6%

IB EW
Single aircraft type 2%
Lower parking charges 10%

TR VI
No free in-flight food or beverage 6%

U
No sales commissions 6%

IS E
Lower ticket sale and reservation costs 3%

D R
Fewer employees 2%
T T 0% 2% 4% 6% 8% 10% 12% 14% 16%
O N
Source: Rave, E. & Franco, J. (2017). “VivaColombia: The challenge of growing a low-cost airline in Latin America.” 15(4).
N DE

12
O U
D ST
SE R

However, customer complaints were numerous.

EA FO

20% of customers had said they would not fly

with Viva Air Colombia again.
PL 03,
59
Y
G
ST

13

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TE ON
IB EW
TR VI
U
IS E
D R
T T
O N
N DE

14
O U
D ST

Creating competitive advantage

SE R
EA FO

(Ghemawat and Rivkin, 2006)

PL 03,

• A competitive advantage allows

Cost leadership
strategy
the firm to drive a wider wedge
59

than the competitors between the

(Reducing costs, not willingness to pay and the costs it
necessarily price)
Y

incurs.
G
ST

Product
differentiation
strategy
(Increasing
willingness to pay)

15

7
 9/21/2022

LY
TE ON
IB EW
TR VI
U
IS E
D R
T T
O N
N DE

16
O U
D ST

Improving competitive position vs. the

SE R
EA FO

Five Forces: Product differentiation

• Product differentiation
PL 03,

– Creates higher entry barriers due to customer loyalty (higher

59

customer switching costs)

– Reduces buyers’ power because buyers lack suitable alternative or
Y

face higher switch costs

G

– Provides higher margins that enable the firm to cope with supplier
ST

power
– Uniqueness and/or customer loyalty protect firms from threat of rivals
and substitutes.

Industry Relative position

Structure within the industry

17

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Threats to product differentiation strategy

• Unable to increase buyer’s willingness to pay.
– In other words, differential offering is not perceived valuable.

LY
– Too much differentiation that exceeds buyers’ needs and desire may
result in negative perception and lower willingness to pay and, most

TE ON
likely, higher costs (Apple computers before iMac and ibook).
• Underestimating the costs of differentiation, leading to an

IB EW
unsustainable cost structure.
• Differentiation that can be easily imitated

TR VI
U
IS E
D R
T T
O N
N DE

18
O U
D ST

A common misconception of product

SE R
EA FO

differentiation strategy
• “The term “differentiated” is often
PL 03,

misused. When we say that a firm has

differentiated itself, we mean that it has
59

boosted the willingness of customers to

pay for its output – that it can
command a price premium. We do not
Y

mean simply that the company is

G

different from its competitors.”

ST

(Ghemawat and Rivkin, 2006)

• If I had a dime for every time
someone said:
– “Our differentiation strategy is to
offer the lowest price”

19

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Trade-offs and generic business strategy

• Strategy always involves trade-offs
– A company can offer all things to all people but it just can’t make any

LY
money doing it.
– It must choose what to do and what NOT to do.

TE ON
– Trade-off decisions are inevitable and necessary in creating
sustained competitive advantages.

IB EW
• Trade-offs arise from
– the firm’s underlying resources and capabilities

TR VI
U
– its organizational structure and governing mechanisms

IS E
– the tension between short-term and long-term performance

D R
objectives
T T
O N
N DE

20
O U
D ST

Generic business strategy and industry

SE R
EA FO

productivity frontier (Porter, 1996)

PL 03,

Successful
59

Differentiation Position
High Industry
productivity frontier
Y

Integrated
G

(dual advantage:
Non-price buyer win in the middle;
ST

value delivered attractive but rare)

Stuck in the middle Successful Cost

Leadership
Low Position

High Relative cost position Low

21

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LY
Blue ocean strategy

TE ON
IB EW
TR VI
U
IS E
D R
T T
O N
N DE

23
O U
D ST
SE R

Blue ocean strategy

EA FO
PL 03,

• Red oceans represent existing • Blue oceans denote industries or

industries – the known market segments not in existence – the
59

space where industry boundaries unknown and/or uncontested

are defined and accepted, and market space. In blue oceans,
Y

the competitive rules of the game demand is created rather than

G

are well understood. fought over.

ST

– There is no blood shedding as

there is little need to directly
attack each other.

24

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Red Ocean Strategy Blue Ocean Strategy

(A structuralist view) (A constructionist view)

• Create and capture new demand

External Environment (Five

LY
forces, PEST, SWOT, etc.) • Create uncontested market space
beyond existing industry boundaries

TE ON
• Create new or expand existing
segments of a profit pool
Strategic Position
• Render competition irrelevant

IB EW
(Generic business strategy)
• Break (at least temporarily) the trade-off
between differentiation & cost saving

TR VI
U
• Not necessarily built on technological

IS E
Resources & Capabilities innovation (business model innovation)

D R
(RBV, SWOT, etc.) • Difficult to imitate
T T
O N
N DE

25
O U
D ST

Innovative wines (Kim & Mauborgne,

SE R
EA FO

2005)
PL 03,
59
Y
G
ST

26

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Blue ocean strategy

• Blue ocean strategy allows cost leadership and product
differentiation to reinforce each other

LY
– New value proposition helps the firm to significantly increase market
demand and market share so that the firm will be able to reduce

TE ON
overall costs (Yellow Tail wine).
– Blue ocean strategy can enable the company to establish large scale

IB EW
in a short period of time, resulting in formidable entry barriers to
potential entrants.

TR VI
– A low cost structure allows a company to spend more on marketing,

U
IS E
service, and other attractive features to enhance willingness to pay.

D R
T T
O N
N DE

27
O U
D ST

Blue ocean strategy vs. generic business

SE R
EA FO

strategy
• However, rivals can enter blue oceans and gradually
PL 03,

improve their value creation abilities

59

• The competitive advantage of a blue ocean strategy (i.e.,

strategic innovation) is likely to be transitory
Y
G

• Blue ocean may quickly turn into red ocean.

ST

• Blue ocean strategy and traditional competitive advantage

analysis typically apply to different stages of an industry’s
life cycle.

28

13
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ST
G
Y
59
PL 03,
EA FO
SE R
D ST
O U
N DE
O N
T T
D R
IS E
TR VI
IB EW
U
TE ON
Thank You

LY
9/21/2022

14
 9/21/2022

STGY 5903
Strategic Concepts

LY
N
Module 6 – Organizational Resources

TE O
IB IEW
Prof. Guoliang Frank Jiang
Sprott School of Business, Carleton University

TR V
U
IS RE
T NT
N DE
D
2
O U
D ST
O
SE OR

Agenda
EA , F

• Resource-based view
PL 03

• Final case report

59
Y
G
ST

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LY
Resource-based view

N
TE O
IB IEW
TR V
U
IS RE
T NT
N DE
D
4
O U
D ST
O
SE OR

SWOT – Internal analysis

EA , F

• Business model
PL 03

• External environment and competitive strategy

59

• Resources and capabilities – sources of competitive

advantage
Y
G

Resource-
ST

based Strengths Weaknesses

Review

Opportunities Threats

2
 9/21/2022

Resource-based view (RBV)

• In addition to industry structure, the differences in firms’ resources help
explain the differences in their performance.

LY
• A firm’s resources and capabilities are the sources of its competitive
advantage and determine its strengths and weaknesses.

N
• Strategy is a pattern of resource allocation that enables firms to

TE O
maintain or improve their performance (Barney, 1995; Collis &

IB IEW
Montgomery, 2008).

TR V
U
IS RE
T NT
N DE
Barney, J. (1997). Gaining and Sustaining Competitive Advantage. Reading, MA: Addison-Wesley.
D
6
O U
D ST
O
SE OR

Resource-based view (RBV)

EA , F
PL 03

Greater value Competitive

More retained value
59

(net benefits) advantage

Y
G
ST

Lower costs or
greater benefits Financial
Performance

Superior critical
resources

Source: Barney, J. and Clark, D. 2009. “Resource-based theory: Creating and sustaining competitive advantage.” Oxford University Press.

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 9/21/2022

RBV and Porter’s view on strategy

• Industry structure and a firm’s relative position determine its
performance
– An outside-in approach (Porter’s view)

LY
• A firm’s resources and capabilities determine its performance

N
– An inside-out approach (RBV)

TE O
• Two competing yet complementary perspectives

IB IEW
• The key questions are
– How to identify and classify critical resources?

TR V
– How to assess the value of these resources?

U
IS RE
– How to determine whether these resources are the sources of competitive
advantage?
T NT
N DE
D
8
O U
D ST
O
SE OR

Types of resources – Tangible resources

EA , F

• Relatively easy to identify. For

PL 03

Tangible
Resources example,
59

– Financial resources
 Cash
Y

 Firm’s borrowing capacity

G

– Physical resources
ST

 Land and facilities

 Favorable operating locations
– Other assets
 Patents

4
 9/21/2022

Types of resources – Intangible

resources
Tangible • Can be difficult for competitors
Resources (sometimes the firm itself!) to

LY
account for or imitate. For

N
Intangible example,

TE O
Resources – Reputation and brand equity

IB IEW
– Technological resources
 Proprietary knowhows
– Human capital

TR V
U
IS RE
 Workers’ experience and skills

T NT
N DE
D
10
O U
D ST
O

Types of resources – Organizational

SE OR

capabilities (processes)
EA , F

• An integral combination of tangible and

PL 03

Tangible
Resources intangible resources that the firm relies
59

on in the process of producing goods

and services.
Y

Intangible • Typically embedded in routines and

G

Resources practices that have evolved over time.

ST

– Ability to hire, motivate, and retain talent

Organizational – Effective product development processes
Capabilities  Disney’s ability to create new characters
and monetize them.

11

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Tangible vs. intangible resources over

time

LY
N
TE O
IB IEW
TR V
U
IS RE
T NT
N DE
Source: McKinsey Global Institute, 2021. “Getting tangible about intangible”.
D
12
O U
D ST
O

Organizational resources and Sustained

SE OR

Competitive Advantage (SCA)

EA , F

• How do we assess organizational resources?

PL 03

– Valuable
59

– Rare
– Difficult to Imitate
Y

– Exploitable by Organization
G
ST

13

6
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Is the resource valuable?

• Organizational resources can be a source of competitive advantage
only when they are valuable

LY
• Resources are valuable when they are linked to the activities that are
responsible for creating what customers perceive as valuable or

N
lowering the costs to fulfill the needs of the customer.

TE O
– Apple’s brand is perceived valuable by users and retailers  willingness to
pay.

IB IEW
• Valuable resources enable a firm to formulate and implement strategies
that improve its efficiency or effectiveness.

TR V
U
– Southwest’ single-aircraft fleet enables it to achieve operational efficiency

IS RE
(low maintenance cost; quick turnaround)  lower costs.
T NT
N DE
D
14
O U
D ST
O
SE OR

Is the resource rare?

EA , F

• Strategies based on common resources give no one an advantage

PL 03

– However, common resources can help ensure a firm’s survival when they
are exploited to achieve competitive parity.
59

• Competitive advantage arises from uncommon resources or uncommon

bundles of resources and capabilities.
Y
G

– Southwest’ single-aircraft fleet + non-unionized workforce + access to

smaller airports (cheap, less congested)  operational efficiency (low
ST

maintenance cost; quick turnaround)  lower costs.

– Sometimes a crucial, uncommon resource is a combination of skills, none of
which is superior or rare by itself but which, when combined, make a better
package.

15

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Can the resource be easily imitated?

• Being difficult to imitate constrains competition and is the
key to competitive advantage

LY
– Profits generated from inimitable resources are more likely to be
sustained.

N
• Conditions leading to inimitability (barriers to imitation)

TE O
– Limited supply (Physical uniqueness, e.g., special location)

IB IEW
– Regulatory protection (Patents, license, etc.).
– Path dependency (Unique historical conditions, e.g., Coca-Cola’s

TR V
U
international expansion during WWII).

IS RE
– Social complexity (e.g., a firm’s innovative culture)
T NT
N DE
D
16
O U
D ST
O

Is the firm organized to exploit the

SE OR

resource?
EA , F

• The firm must put in place appropriate organizational

PL 03

structures and systems to develop and exploit its resources

59

– Reward systems
– Resource sharing between units
Y

– Complementary resources
G

– A coherent organizational system tends to mitigate the threat of

ST

imitation.
• Is the firm keep the lion’s share of profits generated by the
resource (i.e., does the firm control the resource)?
• Is the resource situated in a business model that is self-
reinforcing and robust?

17

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Accessing organizational resources and

their strategic implications
Valuable Rare Costly to Exploited by Competitive Economic
imitate organization implications performance

LY
Competitive
No - - - Below normal
disadvantage

N
TE O
Yes No - Yes Competitive parity Normal

IB IEW
Temporary
Yes Yes No Yes competitive Above normal

TR V
advantage

U
IS RE
Sustained
Yes Yes Yes Yes competitive Above normal
advantage
T NT
Exhibit 3.7 Criteria for sustained Competitive Advantage and Strategic Implications
Source; Adapted from J. Barney, “Gaining and Sustaining Competitive Advantage”, Addison-Wesley, 1997.
N DE
D
18
O U
D ST
O
SE OR

SWOT
EA , F

• SWOT analysis
PL 03

– Strengths (internal)
– Weaknesses (internal)
59

– Opportunities (external)
Y

– Threats (external)
G

• SWOT analysis is informed by other analytical frameworks

ST

– The macro-environment (PEST)

– A firm’s industry environment (5-forces)
– A firm’s internal environment (resources, capability, processes, etc.)

20

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SWOT
• Some common errors
– Opportunity ≠ Strength
– Threat ≠ Weakness

LY
– Opportunity ≠ Strategy

N
• Example A:

TE O
– Consumers become more health-conscious.

IB IEW
– Is it an opportunity or a strength from the standpoint of an organic food
producer?
• Example B:

TR V
U
IS RE
– The price of cheese has increased by 30% in 12 months.
– Is it a threat or a weakness from the standpoint of a pizza restaurant?
T NT
N DE
D
21
O U
D ST
O
SE OR
EA , F
PL 03
59

Final case report

Y
G
ST

22

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Final case report – Content

• First and foremost, you must identify the main issue(s) the firm needs to focus on.
– What is this case about?
– What question(s) do you intend to address through your analysis?

LY
• Which key concepts and analytical frameworks can be applied to the case?
– Avoid superficial application of theories by throwing in buzzwords without generating relevant

N
insights

TE O
• What are your decision-making criteria when evaluating strategic options?

IB IEW
– Explicitly state the criteria you use in evaluating the options
– Evaluate the merits and demerits of each option
• Present coherent recommendations at the end

TR V
U
• You should use the information provided in the case only.

IS RE
T NT
N DE
D
23
O U
D ST
O
SE OR

Final case report – Format

EA , F

• Executive summary (300-400 words)

PL 03

• Introduction
– You need to identify the key managerial issue(s) and decision(s) to be made, i.e., ‘what is the
59

challenge?’
• Analysis
Y

– Diagnosis: assessment of critical external and internal factors (selective use of relevant analytical
G

frameworks)
ST

– Development and evaluation of strategic alternatives.

– Explain strategic priorities and decision-making criteria, i.e., ‘what is the logic?’
• Recommendations
– Present your decisions/recommendations with regards to the key challenges in the case
– A brief yet specific action plan.
• The word limit is 1,800 excluding exhibits and tables.
• Judicious use of bullet points is acceptable if it adds clarity

24

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ST
G
Y
59
PL 03
EA , F
SE OR
D ST
O U
N DE
O
T NT
D
IS RE
TR V
IB IEW
U
TE O
N
Thank You

LY
9/21/2022

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