Supply Chain Management

04
Modul ke:

• Competitive Service Strategy

Fakultas
Teknik (S1) Teguh Sri Ngadono, ST., MT.

Program Studi
Teknik Industri
Competitive Service Strategy
• According to Porter (1980) generic strategies should enable firms
to compete competitively in any given industry
• Company has to decide how to position itself in a competitive
market
• The three generic strategies are determined by two factors,
identified as competitive advantage and competitive scope
The Strategic Service Vision

1. Target market segment

2. Service concept
3. Operating strategy
4. Service delivery system
Strategic Service Vision Target Market Segments

 What are common characteristics of important

market segments?
 What dimensions can be used to segment the
market (e.g. demographic, psychographic)?
 How important are various segments?
 What needs does each have?
 How well are these needs being served, in what
manner, by whom?
Strategic Service Vision Service Concept
 What are important elements of the service to be provided,
stated in terms of results produced for customers (i.e., how
is value created for the customer)?
 How are these elements supposed to be perceived by the
target market segment, by the market in general, by
employees, by others?
 How do customers perceive the service concept?
 What efforts does this suggest in terms of the manner in
which the service is designed, delivered, marketed?
Strategic Service Vision Operating Strategy
 What are important elements of the strategy:
structural and managerial decisions and interfaces
with other functional areas?
 On which will the most effort be concentrated?
 Where will investments be made?
 How will quality and cost be controlled: measures,
incentives, rewards?
 What results will be expected versus competition in
terms of, quality of service, cost profile,
productivity, etc.?
Strategic Service Vision Service Delivery System
 How is the service delivery system implemented,
including: role of people, technology, equipment,
layout, procedures?
 What capacity does it provide, normally, at peak
levels?
 To what extent does the service delivery system
help insure quality standards, differentiate the
service from competition, provide barriers to entry
by competitors?
The Wheel of Competitive Strategy
Context in Which Competitive Strategy Is Formulated
Process for Formulating a Competitive Strategy
A. What is the Business Doing Now?
1. Identification.
2. Implied Assumptions
B. What is Happening in the Environment?
1. Industry Analysis.
2. Competitor Analysis
3. Societal Analysis
4. Strengths and Weaknesses
C. What Should the Business be Doing?
1. Tests of Assumptions and Strategy
2. Strategic Alternatives
3. Strategic Choice
Force Driving Industry Competition
The Strategic Service Concept

 Structural:
Delivery system (front & back office)
Facility design (aesthetics, layout)
Location (competition, site characteristics)
Capacity planning (number of servers)
 Managerial
Service encounter (culture, empowerment)
Quality (measurement, guarantee)
Managing capacity and demand (queues)
Information (data collection, resource)
Competitive Environment of Services
How do each of these factors affect the
competitiveness of service firms?
• Entry Barriers
• Economies of Scale
• Sales Fluctuations
• Power Dealing with Buyers or Suppliers
• Product Substitutions for Service
• Customer Loyalty
• Exit Barriers
Examples of Competitive Priorities
 Availability (24 hour ATM)
 Convenience (Site location)
 Dependability (On-time performance)
 Customization (Personalization)
 Price (Quality surrogate)
 Quality (Perceptions important)
 Reputation (Word-of-mouth)
 Safety (Customer well-being)
 Speed (Avoid excessive waiting)
Customer Value Equation

Results produced for the customer  Process quality

Value 
Price to the customer  Costs of acquiring the service

Results produced for the customer

Process quality
Price to the customer
Cost of acquiring the service
 Barriers to Entry
1. Economics Scale. Economies of scale refer to declines in unit costs of a
product (or operation or function that goes into producing a product) as the
absolute volume per period increases.

2. Product Differentiation. Product differentiation means that

established firms have brand identification and customer loyalties, which stem
from past advertising, customer service, product differences, or simply being first
into the industry.

3. Capital Requirements. The need to invest large financial resources in

order to compete creates a barrier to entry, particularly if the capital is required
for risky or unrecoverable up-front advertise or research and development (R&D)

4. Access to Distribution Channels. A barrier to entry can be

created by the new entrant's need to secure distribution for its product.
5. Cost Disadvantages Independent of Scale.
Established firms may have cost advantages not replicable by potential
entrants no matter what their size and attained economies of scale

6. Government Policy. The last major source of entry barriers is

government policy. Government can limit or even foreclose entry into
industries with such controls as licensing requirements and limits on access
to raw materials (like coal lands)
INTENSITY of RIVALRY AMONG EXISTING COMPETITORS

1. Numerous or Equally Balanced Competitors. When

firms are numerous, the likelihood of mavericks is great and some firms may
habitually believe they can make moves without being noticed.

2. Slow Industry Growth. Slow industry growth turns competition into

a market share game for firms seeking expansion.

3. High Fixed or Storage Costs. High fixed costs create strong

pressures for all firms to fill capacity which often lead to rapidly escalating price
cutting when excess capacity is present.

4. Lack of Differentiation or Switching Costs. Where the

product or service is perceived as a commodity or near commodity, choice by the
buyer is largely based on price and service, and pressures for intense price and
service competition result.
 INTENSITY of RIVALRY AMONG EXISTING COMPETITORS

5. Capacity Augmented in Large Increments. Where

economies of scale dictate that capacity must be added in large increments,
capacity additions can be chronically disruptive to the industry supply/ demand
balance, particularly where there is a risk of bunching capacity additions.

6. Diverse Competitors. Competitors diverse in strategies, origins,

personalities, and relationships to their parent companies have differing goals
and differing strategies for how to compete and may continually run head on into
each other in the process.

7. High Strategic Stakes. Rivalry in an industry becomes even more

volatile if a number of firms have high stakes in achieving success there.

8. High Exit Barriers. Exit barriers are economic, strategic, and emotional
factors that keep companies competing in businesses even though they may be
earning low or even negative returns on investment.
Barriers and Profitability
Generic Competitive Strategies
(Michael Porter)

Overall Cost Leadership

 Requires efficient-scale facilities, tight cost, overhead control, and
innovative technology.
Differentiation
 Creating service that is perceived as being unique such as brand
image, technology, features, customer service, and dealer network.
Focus
 Servicing a particular target market very well by addressing
customer’ specific needs. Application of differentiation and/or overall
cost leadership to a particular market segment rather than the entire
segment.
Three Generic Strategies
Common Implications of the Generic Strategies
Generic Approaches to Service Design
• Production Line
– Limit Discretion of Personnel
– Division of Labor
– Substitute Technology for People
– Standardize the Service (low divergence)
• Customer as Co-Producer
– Self-Service (matching capacity with demand)
– Smoothing Service Demand (appointments, reservations, waiting)
– Customer-Generated Content
• Customer Contact
– Degree of Customer Contact
– Separation of High and Low Contact Operations
– Sales Opportunity and Service Delivery Options (channels)
• Information Empowerment
– Employee empowerment
– Customer empowerment
The Components of a Competitor Analysis
Technology Convergence Enabling E-Business

• Internet
• Global telephone system
• Communications standard TCP/IP
• Addressing system of URLs
• Personal computers and cable TV
• Customer databases
• Sound and graphics
• User-friendly free browser
Challenges of Adopting New Technologies in Services

• Loss of personal attention

• Customer acceptance
• Customer skills
• Tradeoffs (e.g. convenience vs. cost or time)
• Standardization (e.g. RFID)
• Lack of patent protection impedes innovation
Terima Kasih
Teguh Sri Ngadono, ST., MT.