1 5 Strategic Management Competitive Strategies. 2 Learning Outline What is competitive advantage...
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Transcript of 1 5 Strategic Management Competitive Strategies. 2 Learning Outline What is competitive advantage...
1
5Strategic Management
Competitive Strategies
2
Learning Outline
What is competitive advantage and how do we get it? Explain the importance of competitive advantage. Describe how an organization’s competitors can be
determined. Discuss how resources, capabilities, and core
competencies lead to competitive advantage. Explain the relationship between competitive advantage
and competitive strategies.
3
Learning Outline (contd.)
What are the competitive strategies? Describe Miles and Snow’s adaptive strategies. Describe Porter’s generic competitive
strategies. Explain low-cost and differentiation Explain what is meant by “stuck in the
middle.” Describe an integrated low-cost differentiation
strategy. Explain Mintzberg’s generic competitive
strategies.
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Learning Outline (contd.)
Implementing, evaluating, and changing competitive strategy Describe how an organization’s competitive strategies are
implemented, evaluated, and changed. Explain what role functional strategies play in an
organization’s competitive strategies. Discuss the various competitive postures and actions an
organization can take.
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Competitive Advantage
Competitive advantage exists when a firm’s strategy gives it an edge in Defending against competitive forces and Securing customers
Convince customers firm’s product / service offers superior value Offer buyers a good product at a lower price Use differentiation to provide a better product buyers
think is worth a premium price
Can be eroded easily and quickly by competitors
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Understanding the Competitive Environment
What is competition? When organizations battle for some desired
object or outcome
Who are our competitors? Industry perspective Market perspective Strategic groups perspective
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Industry and Market Approaches to Defining Competitors
Industry
Same Product-Service
Number of Sellers Degree of Differentiation
One LowPure Monopoly
Few LowPure Oligopoly
Few MediumDifferentiated Oligopoly
Many HighMonopolistic Competition
Many NonePure Competition
Market
Customer Needs
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Identifying Strategic Groups Possible Strategic Dimensions for Identifying Strategic Groups
• Price• Quality• Level of vertical integration• Geographic scope• Product line breadth-depth• Level of diversification• R&D expenditures• Market share• Profits• Product characteristics• Any other relevant strategic factor
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Strategic Groups: Vehicles Industry
Dis
trib
utio
nS
trat
egy
Selective
DepartmentStore
Mass-Discount
PriceStrategy
Low Medium High
Group AHayondaiDayooKIA
Group BToyotaHondaGMRenaultVolvo
Group CMercedesBMWAudiInfinityLexus
Group DRolsRoisKontenental
Group ENissanMazdaDayhatsu
Group FPorcheFerrari
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The Role of Resources and Distinctive Capabilities in Gaining Competitive Advantage
Every organization has resources and
capabilities to do whatever it’s in business to do
Some organizations “can do,” others “can’t do” Competitive advantage implies gaining the edge on
others Organizations strive for sustainable competitive
advantage and set the stage for competition – intense, moderate, or mild.
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Competitive Strategy
Exploits competitive advantage
By finding ways to use resources and distinctive capabilities
Which sets the organization apart from its competitors
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What are the Competitive Strategies?
Contrary to expectations, the number of ways to define competitive strategy are limited
Traditional approaches
New perspectives
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Characteristics of Miles and Snow’s Adaptive (Competitive) Strategies
StrategyStrategy CharacteristicsCharacteristics Prospector •
•
•
•
Defender ••
••
•
Organization seeks innovationDemonstrated ability to survey dynamic environment and develop new products-services to fit the changing environmentFrequently and continually innovating, developing, and testing new products-servicesCompetitors are uncertain about prospector’s future strategic decisions and actions
Searches for market stabilityProduces only a limited product line for a narrow segment of total potential marketSeeks to protect (defend) its well-established businessDoes whatever is necessary to aggressively prevent competitors from entering their turfCan carve out and maintain niches within its industry that competitors find difficult to penetrate
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Characteristics of Miles and Snow’s Adaptive (Competitive) Strategies
StrategyStrategy CharacteristicsCharacteristics Analyzer •
•
•
Reactor ••••
Strategy of analysis and imitationThoroughly analyzes new business ideas (products, services, markets) before deciding to jump inWatches for and copies the promising and successful ideas of prospectors
Lacks coherent strategic planSimply reacts to environmental changesMakes strategic adjustments only when finally forced to do soUnable to respond quickly to environmental changes because resources-capabilities are lacking or are not developed or exploited properly
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Porter’s Generic Competitive Strategies
Competitive advantage comes from only 1 of 2 sources Having the lowest costs in the industry Possessing significant and desirable differences from
competitors
The second factor is the scope of product-market Mix of these factors provide the basis for:
Cost leadership strategy (or low-cost strategy) Differentiation strategy Focus strategy
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Porter’s Generic Competitive Strategies
CompetitiveMarket Scope
Broad
Narrow
CompetitiveAdvantage
Low Costs Product-ServiceDifferences
Cost Leadership Differentiation
Focus(Cost)
Focus(Differentiation)
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Contemporary Perspectives on Competitive Strategy
Newer perspectives provide an expanded, and perhaps more realistic, description of what competitive strategies organizations are using
Integrated low-cost differentiation strategy
Mintzberg’s generic competitive strategies
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Low-Cost Leadership
Make achievement of low-cost relative to rivals the theme of firm’s business strategy
Find ways to drive costs out of business year-after-year
Low-cost leadership means low Overall costs, not just low manufacturing or production costs!
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C. Value Chain Using Online Sales and Internet Delivery - Lowest Cost
Software development
activities
Online marketing and promotion
activities
Systems to accept credit card
payment and allow immediate
download
Technical support and customer
service activities
Software development
activities
production and packaging activities
Marketing and promotion of
software
Warehousing and shipping of
wholesaler-retailer orders
Technical support
activities
Activities of software retailers
Activities of wholesale
distributors of software products
A. Value Chain Using Traditional Channels - Highest Cost
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When Does it work?
It works when Price competition is vigorous Product is standardized Buyers incur low switching costs Industry newcomers use introductory low prices to
attract buyers and build customer base Pitfalls with this strategy
Being overly aggressive in cutting price Low cost methods are easily imitated by rivals Differentiation matters
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Differentiation Strategies
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Keys to success Find ways to differentiate that create value for
buyers and that are not easily matched or cheaply copied by rivals
Not spending more to achieve differentiation than the price premium that can be charged
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Types of Differentiation Unique taste -- Dr. Pepper Wide selection and one-stop shopping --
Home Depot and Amazon.com Superior service -- FedEx, Ritz-Carlton Spare parts availability -- Caterpillar More for your money -- McDonald’s, Wal-Mart Prestige -- Rolex Quality manufacture -- Honda, Toyota Top-of-the-line image -- Ralph Lauren, Chanel
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Signaling Value as Well as Delivering Value
Buyers seldom pay for value that is not perceived
Signals of value may be as important as actual value when Nature of differentiation is hard to quantify Buyers are making first-time purchases Repurchase is infrequent Buyers are unsophisticated
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When does it work?
It works when There are many ways to differentiate a product that
have value and please customers Buyer needs and uses are diverse Technological change and product innovation are fast-
paced
Pitfalls Charging too high a price or over differentiating Failing to signal value Not understanding what buyers want or prefer and
differentiating on the “wrong” things
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Competitive Strategy Principle
A low-cost producer strategy can
defeat a differentiation strategy
when buyers are satisfied with a
standard product and do not see
extra attributes as worth paying
additional money to obtain!
A low-cost provider strategy can defeat a differentiation strategy when buyers are satisfied with a standard product and do not
see extra differentiating attributes worth paying for!
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Integrated low-cost / differentiated
Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation Make an upscale product at a lower cost Give customers more value for the money
Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations
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Integrated Low Cost/Differentiation Strategy
DifferentiationLow Cost
Use a single aircraft model(Boeing 737)
Use secondary airports
15 minute turnaround time
No meals
No reserved seats
Focus on customer satisfaction
High level of employee dedication
Southwest Airlines
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Risk of an integrated Provider Strategy
Risk – An integrated provider may get squeezed between strategies of firms using low-cost and differentiation strategies
Low-cost leaders may be able to siphon customers away with a lower price
High-end differentiators may be able to steal customers away with better product attributes
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Focus / Niche Strategies
Involve concentrated attention on a narrow piece of the total market
Objective Serve niche buyers better than rivals
Keys to success Choose a market niche where buyers have
distinctive preferences, special requirements, or unique needs
Develop unique capabilities to serve needs of target buyer segment
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Examples of Focus Strategies
eBay Online auctions
Jiffy Lube International Maintenance for
motor vehicles
Bandag Specialist in truck
tire recapping
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What Makes a NicheAttractive for Focusing?
Big enough to be profitable and offers good growth potential
Not crucial to success of industry leaders Costly or difficult for multi-segment competitors to
meet specialized needs of niche members Focuser has resources and capabilities to
effectively serve an attractive niche Few other rivals are specializing in same niche Focuser can defend against challengers via
superior ability to serve niche members
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Risks of a Focus Strategy
Competitors find effective ways to match a focuser’s capabilities in serving niche
Niche buyers’ preferences shift towards product attributes desired by majority of buyers - niche becomes part of overall market
Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered
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First-Mover Advantages
When to make a strategic move is often as crucial as what move to make
First-mover advantages arise when Pioneering helps build firm’s image and reputation Early commitments to new technologies, new-style
components, and distribution channels can produce cost advantage
Loyalty of first time buyers is high Moving first can be a preemptive strike
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First-Mover Disadvantages
Moving early can be a disadvantage (or fail to produce an advantage) when
Costs of pioneering are sizable and loyalty of first time buyers is weak
Innovator’s products are primitive, not living up to buyer expectations
Rapid technological change allows followers to leapfrog pioneers
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Timing and Competitive Advantage
Being a first-mover holds potential for competitive advantage in some cases but not in others
Principle 1
Being a fast follower can sometimes yield as good a result as being a first mover
Principle 2
Being a late-mover may or may not be fatal -- it varies with the situation
Principle 3
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Mintzberg’s Generic Competitive Strategies
Differentiation
Undifferentiated
By Price
By Marketing Image
By Product Design
By Product Quality
By Product Support
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Implementing Competitive Strategy
Without implementation a strategy is nothing more than an idea
Implementing competitive strategies The role of functional strategies
What strategy is most appropriate? How is that strategy implemented?
Competitive postures and actions Offensive moves Defensive moves
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Evaluating and Changing Competitive Strategy
Responsibility of managing strategically doesn’t stop after implementation
Evaluation of competitive strategy assesses: Various functional areas Activities performed in those areas
Change when evaluation shows the strategy Doesn’t have the intended impact Hasn’t resulted in desired levels of performance