Strategies for competitive advantage

Strategies for Competitive Advantage – Rajiv B Deo 1/135

Strategies in Action

“Even if you’re on the right track, you’ll get run over if you just sit there.”

- Will Rogers

Strategies for Competitive Advantage – Rajiv B Deo

Fundamentals of Competitive Strategy Superior Long-Run Performance

Attractive Industry Structure Competitive Advantage

Superior Competitive Position

Operational Effectiveness

Do different things than rivals Do the same things as rivals but better

The central goal

High returns for the average participant

Outperform the average industry participant


Hierarchies of Strategy

Corporate Strategy: is concerned primarily with answering the question: What set of

businesses should we be in? Scope and resource deployments among businesses

are the primary components of corporate level strategy. The major policy decisions are

financial structure and organizational structure.

Business Strategy: is concerned primarily with answering the question: How to compete

in a particular industry or product/market segment. Distinctive competences

and competitive advantage are the most important components of business level strategy. The

major policy decisions are product/market segmentation and evolution.

Functional Area Strategy: At the functional area level, the principal focus of strategy is on the

maximization of resource productivity

Ref.: Hofer and Schendel, 1978


Common pitfalls

Strategists should avoid –

Managing by Extrapolation Managing by Crisis Managing by Subjectivism Managing by Hope


Strength of Competition -Five Forces Model


Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive

Threat of New

Entrants

Bargaining Power of Suppliers

Threat of Substitute Products

Can frighten off New Entrants due to the need to:

Enter at Large Scale to be Cost Competitive

*

Take time to move down the “Learning Curve”

*

Well positioned relative to Substitutes in order to:

Make investments to create substitutes * Can buy patents developed by potential substitutes

*

Lower prices to maintain value position *

Rivalry Among Competing Firms in

Industry

Can mitigate Buyer Power by:

Bargaining Power of Buyers

Driving prices far below competitors which may cause exit and shift power back to firm

Can mitigate Supplier Power by:

Low cost position makes them better able to absorb cost increases

*

More likely to make very large purchases which reduces chance of supplier power

*

Ref.: Porter, 1985


Applying 5 forces model to Coke & Pepsi


Michael Porter’s Generic Strategies


Risks of Generic Competitive Strategies Risks of Cost Leadership Cost leadership is not sustained: • Competitors imitate. • Technology changes. • Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments.

Risks of Differentiation Differentiation is not sustained: • Competitors imitate. • Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments.

Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: • Structure erodes. • Demand disappears. Broadly targeted competitors overwhelm the segment: • The segment’s differences from other segments narrow. • The advantages of a broad line increase. New focusers sub-segment the industry.


Strategy An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.

Business Level Strategy

Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets.

Core Competency

The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.

Business Level Strategy


Value Chain Analysis

Support Activities

Primary Activities

Technological Development

Human Resource Management

Firm Infrastructure

Procurement

Inbo

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L

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tics

Ope

ratio

ns

Out

boun

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Mar

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& S

ales

Serv

ice

Ref.: Porter, 1985


Value Creating Activities common to a Cost Leadership Business

Primary Activities

Supp

ort

Act

iviti

es

Cost Effective MIS Systems

Relatively Few Management Layers to Reduce Overhead

Simplified Planning Practices to Reduce Planning Costs

Consistent Policies to Reduce Turnover Costs

Effective Training Programs to Improve Worker Efficiency and Effectiveness

Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes

Timing of Asset Purchases

Efficient Plant Scale to Minimize Manufacturing Costs

Selection of Low Cost Transport Carriers

Delivery Schedule that Reduces Costs

National Scale Advertising

Products Priced to Generate Sales Volume

Small, Highly Trained Sales Force

Effective Product Installations to Reduce Frequency and Severity of Recalls

Easy-to-Use Manufacturing Technologies

Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes

Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials

Frequent Evaluation Processes to Monitor Suppliers’ Performances

Located in Close Proximity with Suppliers

Policy Choice of Plant Technology

Organizational Learning

Efficient Order Sizes

Interrelationships with Sister Units

Ref.: Porter, 1985


Three Key Questions

2 How can a group of linked value activities be regrouped or reordered?

3 How might coalitions with other firms lower or eliminate costs?

1 How can an activity be performed differently or even eliminated?


TOWS Matrix


Business Strategies

Business Strategy: Focuses on improving the competitive position of a

company’s or business unit’s products or services within the specific industry or market segment that the firm serves.


Porter’s Competitive Strategies

Competitive Strategy: Low cost?

Differentiation?

Compete head to head in large market?

Focus on niche?


Michael Porter’s Generic Competitive Strategies



Generic Competitive Strategies: Lower cost strategy

Design, produce, market more efficiently than competitors

Differentiation strategy

Unique and superior value in terms of product quality, features,

service



Competitive Advantage: Determined by Competitive Scope

Breadth of the company’s target market



Cost Leadership: Low-cost competitive strategy

Aimed at broad mass market

Aggressive construction of efficient-scale facilities

Cost reductions

Cost minimization



Differentiation: Broad mass market

Unique product or service

Charge premiums

Lower customer sensitivity to price



Cost focus: Low cost competitive strategy

Focus on particular buyer group or market

Niche focused

Seek cost advantage in target market



Differentiation focus: Focus on particular group or geographic market

Seek differentiation in targeted market segment

Serve special needs of narrow target market



Stuck in the middle: No competitive advantage

Below-average performance


Competitive Strategy

Industry Structure: Fragmented Industry

Many small and medium-sized local companies compete for small

shares of total market

Focus strategies predominate



Industry Structure: Consolidated industry

Mature industry dominated by a few large companies

Cost Leadership or Differentiation predominate


Dimensions of Quality

Quality

• Performance • Features • Reliability • Conformance • Durability • Serviceability • Aesthetics • Perceived Quality

Dimensions



Strategic rollup: Quickly consolidate fragmented industry

Money from venture capital

Entrepreneur acquires hundreds of owner-operated firms

Creates large firm with economies of scale



Strategic rollup: Differ from Conventional M&A’s

Large number of firms

Owner-operated firms

Goal to reinvent entire industry


Competitive Tactics

Tactic: Specific operating plan detailing how a strategy is to be implemented in

terms of when and where it is to be put into action.

Timing tactics

Market location tactics


Competitive Tactics

Timing Tactics: First mover (pioneer)

Reputation as industry leader High profits Sets standards for subsequent products in the industry

Late mover Able to imitate technological advances of others

Keeps R&D costs down Keeps risks down


Competitive Tactics

Market Location Tactics: Offensive Tactics

Frontal assault

Flanking maneuver

Bypass attack

Encirclement

Guerrilla warfare


Competitive Tactics

Market Location Tactics: Defensive Tactics

Raise structural barriers

Increase expected retaliation

Lower the inducement for attack


Cooperative Strategies

Cooperative Strategies: Collusion

Active cooperation of firms to reduce output and raise prices

Explicit

Tacit



Cooperative Strategies: Strategic Alliance:

Partnership of two or more corporations or business units

to achieve strategically significant objectives that are

mutually beneficial.



Strategic Alliance

Access to markets

Achieve competitive advantage

Obtain technology

Reduce financial risk

Reduce political risk


Continuum of Strategic Alliances

Mutual Service Consortia

Joint Venture Licensing Arrangement

Weak and Distant

Value-Chain Partnership

Strong and Close

Source: Suggested by R. M. Kanter, “Collaborative Advantage: The Art of Alliances,” Harvard Business Review (July-August 1994), pp. 96–108.


• Competitive advantage – a company provides a product or service

in a way that customers value more than what the competition is able

to do.

• Application architect - information technology professional who can

design creative technology-based business solutions.

Introduction


Developing A Strategy For The Internet Age The Value Chain • Business process - a standardized set of activities that

accomplishes a specific task, such as processing a customer’s order.

• Value chain - views the organization as a chain – or series – of processes, each of which adds value to the product or service for the customer.


The Value Chain model


Using Value Chain model to develop a Strategy •Plan for a better way of meeting customer demands. •Identifying processes that add value. •Identifying processes that reduce value.


Developing A Strategy For The Internet Age The Value Chain


Developing A Strategy For The Internet Age Looking Beyond The Four Walls Of The Company • Just-in-time - an approach that produces or delivers a product or service just at

the time the customer wants it.

• Supply chain - consists of the paths reaching out to all of a company’s suppliers

of parts and services.

• Collaborative planning, forecasting, and replenishment (CPFR) - a concept

that encourages and facilitates collaborative processes between members of a

supply chain.


Summing It Up

Important considerations you should keep in mind as you work to bring an IT competitive advantage to your organization include: Be efficient and effective. Competition is all around you. Push the state-of-the-art. IT competitive advantages are only temporary.

Strategies for competitive advantage

Business

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