Professional Documents
Culture Documents
Business-Level Strategy
Business-Level Strategy
Creating and
Strategic Sustaining
Management
(BA 491) Competitive
Advantages
STRATEGIC MANAGEMENT
McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Porter’s “What Is Strategy?”
• Operational effectiveness is not strategy:
• Operational effectiveness means performing similar
activities better than rivals. It is necessary, but not
sufficient, for competitive advantage.
• Strategic positioning means performing different
activities from rivals’ or performing similar activities in
different ways:
Variety-based positioning (producing a subset of
products/services)
Needs-based positioning (serving needs of particular group
of customers)
Access-based positioning (using different ways to reach
customers)
• Strategy involves trade-offs, choosing what not to do.
Industrywide
Strategic Target
Particular
Segment Only
Source: Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter.
Copyright © 1980, 1998 by The Free Press.
Competitive Advantage
Differentiation Differentiation Cost Stuck in
and Cost Differentiation Cost Focus Focus the Middle
Performance
Return on
investment (%) 35.5 32.9 30.2 17.0 23.7 17.8
Sales Growth (%) 15.1 13.5 13.5 16.4 17.5 12.2
Gain in Market
Share (%) 5.3 5.3 5.5 6.1 6.3 4.4
Source: Adapted from G. G. Dess and J. C. Picken, Beyond Productivity (New York:
AMACON, 1999), pp. 63-64.
• Integrated tactics
• Aggressive construction of efficient-scale facilities
• Vigorous pursuit of cost reductions from experience
• Tight cost and overhead control
• Avoidance of marginal customer accounts
• Cost minimization in all activities in the firm’s value
chain, such as R&D, service, sales force, and
advertising
Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter.
Copyright © 1985 by Michael E. Porter.
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 7
Overall Cost Leadership (Cont.)
Differentiation
management customer service orientation
Superior material handling Excellent applications
Technology and sorting technology engineering support
development
Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter.
Copyright © 1985 by Michael E. Porter.
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 13
Differentiation
• Differentiation
• Creates higher entry barriers due to customer loyalty
• Provides higher margins that enable the firm to deal
with supplier power
• Reduces buyer power because buyers lack suitable
alternative
• Reduces supplier power due to prestige associated
with supplying to highly differentiated products
• Establishes customer loyalty and hence less threat
from substitutes
• Focus
• Creates barriers of either cost leadership or
differentiation, or both
• Also focus is used to select niches that are
least vulnerable to substitutes or where
competitors are weakest
Source: Adapted from “A Fresh Look at Strategy” by O. Gadiesh and J. L. Gilbert, Harvard Business Review 76, no. 3
(1998), pp. 139-48. Copyright © 1998 by the Harvard Business School Publishing Corporation, all rights reserved.
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 22
Combination Strategies: Improving
Competitive Position vis-à-vis the Five Forces
• Maintaining • Harvesting
• Exiting the market • Consolidation