Strategy & Competitive Advantage

colorfuleggnogSoftware and s/w Development

Feb 17, 2014 (3 years and 3 months ago)

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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 won’t 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 company’s single most
dependable contributer to above
-
average
profitability
.”

(Thompson & Strickland)


“The essence of strategy lies in creating tomorrow’s
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

MARKET

TARGET

Broad buyer

segment

Narrow buyer

segment

OVERALL COST

LEADERSHIP

STRATEGY

BROAD

DIFFERENTIATION

STRATEGY

FOCUSED

DIFF.

STRATEGY

FOCUSED

LOW
-
COST

STRATEGY

BEST

COST

PROVIDER

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

Many ways to differentiate eg:


Lower buyer’s costs of using pdt


Raise performance / service buyer gets


Intangible / noneconomic benefits

Premium price

Brand loyalty

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


Seller’s 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 doesn’t 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

? can these activities be safely delegated to suppliers




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

Time

Size of

C. Ad.

Build

Up

Benefit

Period

Erosion

Moves calculated to yield a competitive advantage

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