Topic 6

Strategic Positioning for

Competitive Advantage

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 Strategic Decisions at Multiple Levels

Corporate Strategy
• managing directors and executive boards

• General, overall strategy and direction

• Which markets the organization will operate in
• How the markets will be entered and the general
activities of the organization 
• Corporate strategy is crucial as it will define all other
decisions that are made within the organization.

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 Strategic Decisions at Multiple Levels

Business Strategy
• Usually far more specific than corporate strategy and
will likely be unique to different departments or
subdivisions within the broader organization.
• Define specific tactics and strategies for each market
the organization is involved in
• Define how each business unit will deliver the planned
tactics

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 Strategic Decisions at Multiple Levels

Functional Strategy
• the day-to-day operation of the company, which
will keep it functioning and moving in the correct
direction.
• Day-to-day actions which are required to deliver
corporate and business strategies
• Relationships needed between units, departments
and teams
• How operational goals will be met, and how they
will be monitored 

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 Core Competencies

'In the 1990s managers will be judged on their ability to

identify, cultivate, and exploit the core competencies that make
growth possible - indeed, they'll have to rethink the concept of
the corporation itself.' C K Prahalad and G Hamel (1990)

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 Core Competencies
• Core competencies are those capabilities that are critical to a
business achieving competitive advantage.
• The starting point for analysing core competencies is
recognising that competition between businesses is as much a
race for competence mastery as it is for market position and
market power.
• Senior management cannot focus on all activities of a business
and the competencies required to undertake them. 
• So, the goal is for management to identify and focus
attention on competencies that really affect competitive
advantage.

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 Core Competencies
• These areas of expertise may be in any area but are most likely
to develop in the critical, central areas of the company where the
most value is added to its products.
• Core Competencies are not seen as being fixed.
• They are flexible and evolve over time. ​​

• Core Competencies should change in response to changes in

the company's environment. ​

• As a business evolves and adapts to 

new circumstances and opportunities, so its Core Competencies
will have to adapt and change.​​

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 Identifying Core Competencies
Prahalad and Hamel suggest three factors to help identify core
competencies in any business:
(1) Provides potential access to a wide variety of markets to th
The key core competencies here are those that enable the creation of
new products and services.
Example: Why has Saga established such a strong leadership in supplying
financial services (e.g. insurance) and holidays to the older generation?

https://www.saga.co.uk/
Core Competencies enabling Saga to enter apparently different markets:
• Clear distinctive brand proposition that focuses solely on a closely-
defined customer group [the UK’s over 50s]
• Leading direct marketing skills - database management; direct-mailing
campaigns; call centre sales conversion
• Skills in customer relationship management
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 Identifying Core Competencies
(2) Makes a significant contribution to the perceived customer
benefits of the end product
Core competencies are the skills that enable a business to deliver
a fundamental customer benefit - in other words: what is it that causes
customers to choose one product over another? 
Example: Why have Tesco been so successful in capturing leadership
of the market for online grocery shopping?
Core competencies that mean customers value the Tesco.com experience
so highly:
• Designing and implementing supply systems that effectively link existing
shops with the Tesco.com web site
• Ability to design and deliver a "customer interface" that personalises online
shopping and makes it more efficient
• Reliable and efficient delivery infrastructure (product picking, distribution,
customer satisfaction handling)
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 Identifying Core Competencies
(3) Difficult for competitors to imitate
A core competence should be "competitively unique":  To qualify as
"core", a competence should be something that competitors wish they had
within their own business.
Example:Why does Dell have such a strong position in the personal
computer market?
Core competencies that are difficult for the competition to imitate:
• Online customer "bespoking" of each computer built

• Minimisation of working capital in the production process

• High manufacturing and distribution quality - reliable products at competitive

prices

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 Identifying Core Competencies
A competence which is central to the business's operations but
which is not exceptional in some way should not be considered as a
core competence, as it will not differentiate the business from any
other similar businesses. 
• For example, a process which uses common computer
components and is staffed by people with only basic training
cannot be regarded as a core competence. 
• Such a process is highly unlikely to generate a
differentiated advantage over rival businesses. ​
• However, it is possible to develop such a process into
a core competence with suitable investment in
equipment and training.​​
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Porter's Model of Generic Strategies for Competitive Advantage

Porter suggested four "generic" business strategies that could be

adopted in order to gain competitive advantage.

The strategies relate to the extent to which the scope of a business'

activities are narrow versus broad and the extent to which a business
seeks to differentiate its products.. 

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Porter's Model of Generic Strategies for Competitive Advantage

A strategy of cost leadership requires close cooperation between

all the functional areas of a business. To be the lowest-cost
producer, a firm is likely to achieve or use several of the
following:
• High levels of productivity
This typically involves production on a large scale which enables the business to
exploit economies of scale.

• High capacity utilization​
• Use of bargaining power to negotiate the lowest prices for
production inputs
• Lean production methods (e.g. JIT)
• Effective use of technology in the production process
• Access to the most effective distribution channels
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Porter's Model of Generic Strategies for Competitive Advantage

Cost Focus

• Here a business seeks a lower-cost advantage in just

one or a small number of market segments.​
• The product will be basic - perhaps a similar product
to the higher-priced and featured market leader,
but acceptable to sufficient consumers.​​
• Such products are often called "me-too’s”
• Low cost airlines​​
• Xiaomi

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Porter's Model of Generic Strategies for Competitive Advantage

Cost Focus

• Papa Murphy’s targets its inexpensive take-and-bake pizzas

at value-conscious families.
• Because the pizzas are baked at home rather than in the store,
Papa Murphy’s is permitted to accept food stamps.
• This allows the firm to attract customers that might not
otherwise be able to afford a restaurant-quality pizza.

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Porter's Model of Generic Strategies for Competitive Advantage

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.

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Porter's Model of Generic Strategies for Competitive Advantage
With differentiation leadership, the business targets much larger markets
and aims to achieve competitive advantage through differentiation across
the whole of an industry.
• Differentiation is about charging a premium price that more than covers
the additional production costs, and about giving customers clear
reasons to prefer the product over other, less differentiated products.
• There are several ways in which this can be achieved, though it is not
easy and it requires substantial and sustained marketing investment. 
• Superior product quality (features, benefits, durability, reliability)
• Branding (strong customer recognition & desire; brand loyalty)
• Industry-wide distribution across all major channels (i.e. the
product or brand is an essential item to be stocked by retailers)
• Consistent promotional support – often dominated by advertising,
sponsorship etc
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Porter's Model of Generic Strategies for Competitive Advantage
Differentiation focus strategy
When it comes to uniqueness, few offerings can top Kopi Luwak coffee beans.
High-quality coffee beans often sell for $10 to $15 a pound. In contrast, Kopi
Luwak coffee beans sell for hundreds of dollars per pound (Cat’s Ass Coffee).

This price is driven by the rarity of the beans and their rather bizarre nature. As
noted in a 2010 article in the New York Times, these beans are found in the
droppings of the civet, a nocturnal, furry, long-tailed catlike animal that prowls
Southeast Asia’s coffee-growing lands for the tastiest, ripest coffee cherries. The
civet eventually excretes the hard, indigestible innards of the fruit—essentially,
incipient coffee beans—though only after they have been fermented in the
animal’s stomach acids and enzymes to produce a brew described as smooth,
chocolaty and devoid of any bitter aftertaste (Onishi, 2010).

Although many consumers consider Kopi Luwak to be disgusting, a relatively

small group of coffee enthusiasts has embraced the coffee and made it a
profitable product. This illustrates the essence of a focused differentiation
strategy—effectively serving the specialized needs of a niche market can create
great riches. 21
Porter's Model of Generic Strategies for Competitive Advantage
Stuck in the Middle
A firm is said to be stuck in the middle if it does not offer features that are
unique enough to convince customers to buy its offerings and its prices are
too high to effectively compete on based on price. Firms that are stuck in
the middle generally perform poorly because they lack a clear market or
competitive pricing.

Example: IBM’s personal computer business offers another example. IBM

tried to position its personal computers via a differentiation strategy.
• IBM’s personal computers were offered at high prices, and the firm
promised to offer excellent service to customers in return.
• Unfortunately for IBM, rivals such as Dell were able to provide equal
levels of service while selling computers at lower prices. 
• Nothing made IBM’s computers stand out from the crowd, and the firm
eventually exited the business.

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 Discussion question

1. How can the value chain help a firm identify its strategic
position?

2. Analysts sometimes suggest that firms should outsource low value-

added activities. Do you agree or disagree?

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