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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
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 Differentiation
Broad buyer OVERALL COST BROAD
segment LEADERSHIP DIFFERENTIATION
STRATEGY BEST STRATEGY
MARKET
COST
TARGET
PROVIDER FOCUSED
FOCUSED
Narrow buyer LOW-COST STRATEGY DIFF.
segment 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 differentiation-
based 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
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 Benefit
Up Period Erosion

Time
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