1

StrategyCompetitive Advantage

• Competitive Advantage.

• Always relative not absolute – compare to benchmark

• Sustainable competitive advantage – maintain over a long period of time

• Must be based on strategic choices (cannot do everything). Example: JetBlue Airline – David Neeleman ‘Morris Air e-ticket’ bought by SW Air in 1993. Founded JetBlue 1998 – Low cost and differentiation strategy tried.

• Strategy is not: A grandiose statement such as: (we will be number 1). Managers must meet competitive challenge. Blockbuster vs. Netflix.

• Organizational performance is determined by :

• Industry effects – caused by the structure of the industry

• Firm effects – caused by the actions of management

2

StrategyCompetitive Advantage

• Stakeholders and competitive advantage.

• Identify what are the interest, opportunities and threats, social issues and concerns for:

• Internal – employees, stockholders, managers

• External – customers, suppliers, partners, community, government

• Analyze, Formulate, and Implement (AFI) framework. SWOT analysis, Level of strategy ( Business, Corporate, Global ). Implement organizational design.

• Black-Swan events. The impact of a highly improbable event (Nicholas Taleb).

3

Competitive Forces Shape Strategy

How Competitive Forces Shape Strategy: “By being aware of competitive forces, an organization can position itself to be less vulnerable to attack” (Michael E. Porter, 1979)

4

Competitive Forces Shape Strategy

Porter’s 5 Forces Model

Threat of NewEntrants

Bargaining Industry Bargaining Power of Competitive Power of Suppliers Rivalry Customers

Threat of

Substitutes

5

Strategic Planning ModelCritical Success Factor:

Strategic Innovation

Environmental ExecutionAnalysis Formulation Implementation & ControlS trengths Mission Budgets MonitorW eaknesses Objectives Programs FeedbackO pportunities STRATEGY ProceduresT hreats Organizational

Structure Policy Guidelines

Feedback

6

Life Cycle and Competitive Advantage

Introduction Growth Maturity DeclineR&D Improve product Focus on Cost ControlTech change Econ of scale Standardize Reduce capacityAttention to Process improve Efficiency Cut products

quality Distribution Costs cutsDesign change Value added Few changesProcess change Forecasting Optimal capacity

Creating a Sustainable Competitive Advantage (David A. Aaker, 1989)Stage of the Product Life Cycle, Business Strategy, and Business Performance

(Anderson & Zeithaml, 1984)

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Automobile Industry: Growth to Maturity

(1932-2006)

I. Depression to WWIIII. Post WWIIIII. 1970s – The Oil Embargo and Competitive Rules ChangeIV. Today – The Rules are Still Changing

* In Maturity, focus on standardization, efficiency and costs** Grow by capturing existing market share*

U.S. Motor Vehicle Sales (Millions of units)

Year 1986 … 2000 2001 2002 2003 2004 2005 2006Units 16.1 17.1 17.5 17.2 16.9 17.3 17.4 17.0

Source: Ward’s Automotive Reports

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Automobile Industry: 1913-1932 (Growth Phase I)

* In Introduction, focus is on R&D, technical and design changes, attention to quality, and process changes*

Source: U.S. Automobile Production Figure-Wikipedia

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

1913 1915 1917 1919 1921 1923 1925 1927 1929 1931

Un

its

So

ld

Buick

Chevrolet

Ford

Source: 2007 EDPA Automotive Database

Automotive Industry ClustersAutomotive Industry Clusters

in Alabamain Alabama

Legend

Concentration of Automotive SuppliersSuppliers by Zip Code

1

2

3

4 - 6

7 - 11

20

59

65

59

20

65

85

10

There are more than 383 Automotive There are more than 383 Automotive Companies and Suppliers in Alabama.Companies and Suppliers in Alabama.

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Strategic Planning

The Locomotive Industry

The Big Three 1825-1956

American Locomotive (ALCO) Baldwin Locomotive Lima Locomotive

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Locomotive Industry

1939 General Motors Electro-Motive Division took lead in diesel-electric locomotives

Why? Growth MarketStrength (R&D, developmental capital, aggressive marketing)

Opportunity (Railroads wanted more diesel- electric locomotives)

WWII Opportunity offered by historyDemand not determined by general market forces

1950s End of Steam

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Strategic Planning Locomotive Industry

Technology MaturesMaturity – Focus on standardization, efficiency and costs

Strength- Efficiency through standardization

Opportunity- Growth of container freight

Today – Big Two (EMD and GE)

EMD GE

13

StrategyCompetitive Advantage

Differentiation (RCA used its R&D strength and its organizational structure to market successfully Color TV)

Transformation: From ordinary to revolutionary

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RCA Strategic Advantage Differentiation

15

StrategyCompetitive Advantage

Low Cost (Southwest Airlines strives to recruit and train the best personnel available, create innovative flight schedules, stress strong customer support, and provide high pay for employees)Transformation: From in-state service to national to?

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Competitive AdvantageSouthwest – Low Cost

17

StrategyCompetitive Advantage

Innovation/Response (FedEx uses a hub-and-spoke system to rapidly respond to request for package shipments worldwide) Transformation: From national letter carrier to global cargo carrier

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Strategic AdvantageFedEx - Response

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StrategyCompetitive Advantage

Diversification (Boeing reacts to the maturing airframe market)Transformation: From an airplane builder to a high-tech product and service provider

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Strategic AdvantageBoeing

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Strategic AdvantageBoeing – Delta Rocket