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
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 buyer’s 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
• 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
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