Michael Porters Competitive Advantage 6110
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Michael Porters Competitive Advantage 6110

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    Michael Porters Competitive Advantage 6110 Michael Porters Competitive Advantage 6110 Presentation Transcript

    • Competitive Advantage Author: Michael Porter Instructor: Wesley Shu
    • How a firm can actually create and sustain a competitive advantage in its industry
    • Two Basic Types
      • Cost leadership
      • Differentiation
    • Value Chain
      • Identify which activities contributing to cost leadership and differentiation
      • Analyze the source of competitive advantage
    • Value Chain
    • Primary Activities
      • Inbound Logistics
        • Receiving, storing, and disseminating inputs. E.g., warehousing, inventory control
      • Operations
        • Transforming inputs into the final product form
    • Primary Activities
      • Outbound Logistics
        • Collecting, storing and distributing the product to buyers
      • Marketing and Sales
        • Providing a means and incentive which allow buyers to purchase the product
      • Service
        • Providing service to enhance or maintain the value of the product
    • Primary Activity Focus by Industry X Marketing & Sales X Xerox Corporate Lending NA X Restaurant X X Distributor Service Outbound Logistics Operations Inbound Logistics Industry
    • Support Activities
      • Procurement
        • Function of purchasing inputs used in the value chain
      • Technology Development
    • Support Activities
      • Human Resource Management
      • Firm Infrastructure
      • planning, finance, accounting, legal, etc.
    • Competitive Scope
      • Segment Scope
        • Differences required to serve different product or buyer segment
      • Vertical Scope
        • Division of activities between a firm and its suppliers, channels, and buyers
    • Competitive Scope
      • Geographic Scope
        • Different geographic areas
      • Industry Scope
        • Interrelationships among business units
    • “ Generic” Competitive Advantage
      • Cost Leadership
      • Differentiation
      • Focus
    • Competitive Strategies Differentiation Focus Cost Focus Narrow Target Differentiation Cost Leadership Broad Target Competitive Scope Differentiation Lower Cost Competitive Advantage
    • Cost Leadership Strategy
      • Make cost assignment
      • Identify cost drivers
      • Understand cost dynamics
      • Control cost drivers
      • Reconfigure the value chain
    • Operating Cost Assignment
    • Asset Assignment
    • Cost Leadership – Cost Drivers
      • Economies or diseconomies of scale
      • Learning and spillover
      • Pattern of capacity utilization
      • Linkages
        • How other activities are performed
        • Linkages within the Value Chain
        • Vertical Linkages
    • Cost Leadership – Cost Drivers
      • Interrelationships
        • With other business units within a firm
      • Integration
        • Vertical integration in a value activity
      • Timing
    • Cost Leadership – Cost Drivers
      • Discretionary policies
        • Policies that reflect a firm’s strategy
      • Location
      • Institutional factors
        • e.g., government regulations, financial incentives, unionization, etc.
    • Identify Cost Drivers
    • Cost Dynamics
      • What cause the change of cost drivers
    • Cost Dynamics
      • Industry real growth
      • Differential scale sensitivity
      • Different learning rates
      • Differential technological change
      • Relative inflation of costs
      • Aging
      • Market adjustment
    • How to Achieve Cost Advantage
    • Analyze Cost Advantage
    • Control Cost Drivers
    • Reconfigure the Value Chain
      • Reconfiguration of the value chain presents the opportunity to fundamentally restructure a firm’s cost, compared to settling for incremental improvements.
      • By altering the basis of competition in a way that favors a firm’s strengths, it may change the important cost drivers in a way that favors a firm.
    • Steps in Strategic Cost Analysis
      • Identify the appropriate value chain and assign costs and assets to it.
      • Diagnose the cost drivers of each value activity and how they interact.
      • Identify competitor value chains, and determine the relative cost of competitors and the sources of cost differences.
      • Develop a strategy to lower relative cost position through controlling cost drivers or reconfiguring the value chain and/or downstream value.
    • Cost Focus
      • A firm dedicates its efforts to a well-chosen segment of an industry can often lower its costs significantly.
    • Differentiation
      • Emphasize on a unique source of differentiation in the Value Chain, rather than on products or markets only
      • Differentiation base on buyers’ value, not only difference that buyers do not value
      • Should consider the cost of differentiation
    •  
    • Identify Sources of Differentiation
    • Drivers of Uniqueness
      • Policy Choices
      • Linkages
        • Linkages within the value chain
        • Supplier linkages
        • Channel linkages
      • Timing
        • Be the first
      • Location
    • Drivers of Uniqueness
      • Interrelationship
        • Sharing a value activity with sister business units. E.g., sharing a sales force for both insurance and other financial products
      • Proprietary learning
      • Integration – e.g., integrating online systems to current ordering systems
      • Scale
      • Institutional factors – e.g., “Madame’s route”
    • Why buyers purchase?
      • Purchasing Criteria
      • User criteria – firms to meet them by lowering cost or raising buyer performance
      • Signaling criteria
    • Differentiation for creating Buyer Value by
      • Lowering buyer cost
      • Raising buyer performance
      • Signaling the value
      • Linking the firm’s value chain to the buyer’s value chain
      Through
    • Steps in Differentiation
      • Determine who the real buyer is
      • Identify the buyer’s value chain and the firm’s impact on it
      • Determine ranked buyer purchasing criteria
      • Assess the existing and potential sources of uniqueness in a firm’s value chain
    • Steps in Differentiation
      • Identify the cost of existing and potential sources of differentiation
      • Choose the configuration of value activities that creates the most valuable differentiation for the buyer relative to cost of differentiating
      • Test the chosen differentiation strategy for sustainability
      • Reduce cost in activities that do not affect the chosen forms of differentiation
    • Discussion: Red Ocean to Blue Ocean
    • Other Discussion
      • Creative Industries
      • Supply Chain Management
      • What is “Buyer’s Value Chain”?