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Strategies for competitive advantage

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Collaboration is not an option. Everything is available to everyone. Your business needs strategies for competitive advantage. This presentation helps you to start thinking in the direction.

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Strategies for competitive advantage

  1. 1. Strategies in Action “Even if you’re on the right track, you’ll get run over if you just sit there.” - Will RogersStrategies for Competitive Advantage –Rajiv B Deo 1/135
  2. 2. Fundamentals of Competitive Strategy Superior Long-Run Performance The central goalAttractive Industry Structure Competitive Advantage High returns for the average Outperform the average industry participant participant Superior Competitive Operational Position Effectiveness Do different things than rivals Do the same things as rivals but better Strategies for Competitive Advantage – Rajiv B Deo
  3. 3. Hierarchies of StrategyCorporate 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 productivityStrategies for Competitive Advantage –Rajiv B Deo Ref.: Hofer and Schendel, 1978
  4. 4. Common pitfallsStrategists should avoid – Managing by Extrapolation Managing by Crisis Managing by Subjectivism Managing by HopeStrategies for Competitive Advantage –Rajiv B Deo 4/135
  5. 5. Strength of Competition -Five Forces ModelStrategies for Competitive Advantage –Rajiv B Deo
  6. 6. Effective Cost Leaders can remain profitable even whenthe Five Forces appear unattractiveCan mitigate Supplier Power by: Can frighten off New Entrants due to the Low cost position makes them better Threat of need to:* able to absorb cost increases New * Enter at Large Scale to be Cost Competitive* More likely to make very large Entrants * Take time to move down the purchases which reduces chance of “Learning Curve” supplier power Bargaining Rivalry Among Bargaining Power of Competing Firms in Power of Suppliers Industry BuyersWell positioned relative toSubstitutes in order to: Can mitigate Buyer Power by:* Make investments to create substitutes Driving prices far below Can buy patents developed by potential Threat of competitors which may cause* exit and shift power back to substitutes Substitute firm* Lower prices to maintain value position Products Ref.: Porter, 1985 Strategies for Competitive Advantage – Rajiv B Deo
  7. 7. Applying 5 forces model to Coke & PepsiStrategies for Competitive Advantage –Rajiv B Deo
  8. 8. Michael Porter’s Generic Strategies Strategies for Competitive Advantage – Rajiv B Deo 8/135
  9. 9. Risks of Generic Competitive StrategiesRisks of Cost Leadership Risks of Differentiation Risks of FocusCost leadership is not Differentiation is not sustained: The focus strategy is imitated:sustained: • Competitors imitate. The target segment becomes• Competitors imitate. • Bases for differentiation structurally unattractive:• Technology changes. become less important to • Structure erodes.• Other bases for cost buyers. • Demand disappears. leadership erode. Cost proximity is lost. Broadly targeted competitorsProximity in differentiation is Differentiation focusers achieve overwhelm the segment:lost. even greater differentiation in • The segment’sCost focusers achieve even segments. differences from otherlower cost in segments. segments narrow. • The advantages of a broad line increase. New focusers sub-segment the industry. Strategies for Competitive Advantage – Rajiv B Deo 9/135
  10. 10. Business Level Strategy The resources and capabilities that have been determined toCore be a source of competitive advantage for a firm over its rivals.Competency An integrated and coordinated set of actions taken to exploitStrategy core competencies and gain a competitive advantage. Actions taken to provide value to customersBusiness Level and gain a competitive advantage by exploitingStrategy core competencies in specific, individual product markets. Strategies for Competitive Advantage – Rajiv B Deo
  11. 11. Value Chain Analysis Firm InfrastructureSupport Human Resource ManagementActivities Technological Development Procurement Service Outbound Operations Marketing Logistics Logistics & Sales Inbound Primary Activities Ref.: Porter, 1985Strategies for Competitive Advantage –Rajiv B Deo
  12. 12. Value Creating Activities common to aCost Leadership Business Simplified Planning Relatively Few Cost Effective Practices to Reduce Management Layers to MIS Systems Planning Costs Reduce OverheadActivitiesSupport Consistent Policies to Effective Training Programs to Reduce Turnover Costs Improve Worker Efficiency and Effectiveness Easy-to-Use Manufacturing Investments in Technology in order to Technologies Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Frequent Evaluation Processes to Lowest Cost Products to Purchase Raw Monitor Suppliers’ Performances Materials Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product Systems to Link Scale to Minimize that Reduces Trained Sales Force Installations to Suppliers’ Products Manufacturing Costs Reduce Frequency with the Firm’s Costs and Severity Production Selection of Low Products Priced to of Recalls Processes Cost Transport Generate Sales Timing of Asset Carriers Volume Purchases Located in Close Policy Choice of Efficient Order Sizes National Scale Proximity with Plant Technology Advertising Suppliers Organizational Interrelationships Learning with Sister Units Ref.: Porter, 1985 Primary Activities Strategies for Competitive Advantage – Rajiv B Deo
  13. 13. Three Key Questions 1 How can an activity be performed differently or even eliminated? 2 How can a group of linked value activities be regrouped or reordered? 3 How might coalitions with other firms lower or eliminate costs?Strategies for Competitive Advantage –Rajiv B Deo
  14. 14. TOWS MatrixStrategies for Competitive Advantage –Rajiv B Deo 14/135
  15. 15. 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.Strategies for Competitive Advantage –Rajiv B Deo 15/135
  16. 16. Porter’s Competitive Strategies Competitive Strategy: Low cost? Differentiation? Compete head to head in large market? Focus on niche?Strategies for Competitive Advantage –Rajiv B Deo 16/135
  17. 17. Michael Porter’s Generic Competitive StrategiesStrategies for Competitive Advantage –Rajiv B Deo
  18. 18. Porter’s 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, serviceStrategies for Competitive Advantage –Rajiv B Deo 18/135
  19. 19. Porter’s Competitive Strategies Competitive Advantage: Determined by Competitive Scope Breadth of the company’s target marketStrategies for Competitive Advantage –Rajiv B Deo 19/135
  20. 20. Porter’s Competitive Strategies Cost Leadership: Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficient-scale facilities Cost reductions Cost minimizationStrategies for Competitive Advantage –Rajiv B Deo 20/135
  21. 21. Porter’s Competitive Strategies Differentiation: Broad mass market Unique product or service Charge premiums Lower customer sensitivity to priceStrategies for Competitive Advantage –Rajiv B Deo 21/135
  22. 22. Porter’s Competitive Strategies Cost focus: Low cost competitive strategy Focus on particular buyer group or market Niche focused Seek cost advantage in target marketStrategies for Competitive Advantage –Rajiv B Deo 22/135
  23. 23. Porter’s Competitive Strategies Differentiation focus: Focus on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target marketStrategies for Competitive Advantage –Rajiv B Deo 23/135
  24. 24. Porter’s Competitive Strategies Stuck in the middle: No competitive advantage Below-average performanceStrategies for Competitive Advantage –Rajiv B Deo 24/135
  25. 25. Competitive Strategy Industry Structure: Fragmented Industry Many small and medium-sized local companies compete for small shares of total market Focus strategies predominateStrategies for Competitive Advantage –Rajiv B Deo 25/135
  26. 26. Competitive Strategy Industry Structure: Consolidated industry Mature industry dominated by a few large companies Cost Leadership or Differentiation predominateStrategies for Competitive Advantage –Rajiv B Deo 26/135
  27. 27. Dimensions of Quality Dimensions • Performance • Features • Reliability Quality • Conformance • Durability • Serviceability • Aesthetics • Perceived QualityStrategies for Competitive Advantage –Rajiv B Deo 27/135
  28. 28. Competitive Strategy Strategic rollup: Quickly consolidate fragmented industry Money from venture capital Entrepreneur acquires hundreds of owner-operated firms Creates large firm with economies of scaleStrategies for Competitive Advantage –Rajiv B Deo 28/135
  29. 29. Competitive Strategy Strategic rollup: Differ from Conventional M&A’s Large number of firms Owner-operated firms Goal to reinvent entire industryStrategies for Competitive Advantage –Rajiv B Deo 29/135
  30. 30. 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 tacticsStrategies for Competitive Advantage –Rajiv B Deo 30/135
  31. 31. 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 downStrategies for Competitive Advantage –Rajiv B Deo 31/135
  32. 32. Competitive Tactics Market Location Tactics: Offensive Tactics Frontal assault Flanking maneuver Bypass attack Encirclement Guerrilla warfareStrategies for Competitive Advantage –Rajiv B Deo 32/135
  33. 33. Competitive Tactics Market Location Tactics: Defensive Tactics Raise structural barriers Increase expected retaliation Lower the inducement for attackStrategies for Competitive Advantage –Rajiv B Deo 33/135
  34. 34. Cooperative Strategies Cooperative Strategies: Collusion Active cooperation of firms to reduce output and raise prices Explicit TacitStrategies for Competitive Advantage –Rajiv B Deo 34/135
  35. 35. Cooperative Strategies Cooperative Strategies: Strategic Alliance: Partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial.Strategies for Competitive Advantage –Rajiv B Deo 35/135
  36. 36. Cooperative Strategies Obtain technology Access to markets Strategic Alliance Reduce financial risk Reduce political risk Achieve competitive advantageStrategies for Competitive Advantage –Rajiv B Deo 36/135
  37. 37. Continuum of Strategic Alliances Mutual Service Joint Venture Value-Chain Consortia Licensing Arrangement PartnershipWeak and Distant Strong and CloseSource: Suggested by R. M. Kanter, “Collaborative Advantage: The Art of Alliances,” Harvard Business Review (July-August 1994), pp.96–108. Strategies for Competitive Advantage – Rajiv B Deo 37/135
  38. 38. Introduction • 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.Strategies for Competitive Advantage –Rajiv B Deo
  39. 39. Developing A Strategy For The InternetAge• Business process - a standardized set of activities thatThe Value Chain 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.Strategies for Competitive Advantage –Rajiv B Deo
  40. 40. The Value Chain modelStrategies for Competitive Advantage –Rajiv B Deo
  41. 41. 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. Strategies for Competitive Advantage – Rajiv B Deo
  42. 42. Developing A Strategy For The InternetAgeThe Value ChainStrategies for Competitive Advantage –Rajiv B Deo
  43. 43. Developing A Strategy For The InternetAgeThe Value ChainStrategies for Competitive Advantage –Rajiv B Deo
  44. 44. Developing A Strategy For The InternetAge• Just-in-time - an approach that produces or delivers a product or service just atLooking Beyond The Four Walls Of The Company 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.Strategies for Competitive Advantage –Rajiv B Deo
  45. 45. Summing It UpImportant 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 –Rajiv B Deo

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